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Biotech / Medical : VISX -- Ignore unavailable to you. Want to Upgrade?

To: MGV who wrote (1297)	8/29/1999 4:57:00 PM
From: MGV	Respond to of 1754

Barrons continued with specifics on VISX, LVCI, and TLCV Q: Okay, please flesh out some of your themes. A: I'll start with laser eye surgery. As I mentioned, we own VISX, with whose lasers 80% of all U.S. procedures are done, and two of the three operators of outpatient facilities where operations are performed. The Laser Center (ticker TLCV) has fixed sites. Laser Vision Centers (LVCI) generates two-thirds of its business in mobile centers, trucks in which surgery is done in rural areas. We don't own LCA-Vision (LCAV), a smaller owner of fixed-site centers, not because we think it's inferior but because we haven't done enough research on it. This business is growing like a weed. Procedure volumes have been extraordinarily strong and continue to be so. The success ratio is extremely high and the follow-on data are quite good. And until very recently, there was no degradation in the $2,200-$2,500 per-eye price. Q: Right. You mentioned a price scare. What happened where? A: In mid-August, TLCV hired a doctor in Baltimore who previously worked for LCAV. Whatever the reason for this job hop, LCAV retaliated by slashing its price in Baltimore and Annapolis to $3,000 for both eyes. It didn't say for how long the "sale" price would remain in effect. When this news got out, some investors leapt to the conclusion that a nationwide price war had started, and all the stocks in this sector sold off sharply. We carefully checked out this story. First, TLCV didn't match the price cut, in Baltimore or anywhere else. Second, LCAV says it has no intention of cutting prices nationally. LCAV's president was quoted as saying his company's action was a specific reaction to a specific move by a competitor. He added: "We had to do something to suggest that we don't welcome this kind of activity." We believe him. That's why we took off our hedges. I don't for a minute doubt that prices eventually will come down. However, I doubt the magnitude of the drop will be as great over time as we saw occur suddenly. In Canada, there already is some stratified pricing. Another longer-term worry is the possibility of new competitors in the out-patient sector. This won't be an issue for quite some time. Currently, there's a waiting list for VISX lasers. Counterbalancing these issues, medical cost management companies are starting to provide some reimbursements for laser eye surgery. They see it as a way to add patients. In fact, TLCV has signed agreements with Kaiser Permanente, a big HMO in California, and with General Motors in Canada. Q: Give us some earnings estimates. A: TLCV recently was 28. Our target is 40-45. Earnings for the year ended May 31, 1999, will come in at about 27 cents a share. We see 85-90 cents this fiscal year and $1.40-$1.50 in fiscal 2001. LVCI recently was 23 1/2 . Our target is 35-40. It earned 23 cents in the year ended April 30. We see 50-60 cents this year and 80 cents-$1 in fiscal 2001. Q: And VISX? A: From 90 recently, our target is 130-140. It earned 85 cents in calendar 1998. We see $1.30 this year and $1.75 next year. Q: Isn't that a stiff multiple? A: Not for a company that has a lock on lasers that enable corrective eye surgery. VISX has four sources of income. It sells lasers for about $500,000 and gets $40,000-$50,000 a year to maintain them. It also gets a handsome fee, now about $250, for each procedure performed. In addition, it gets royalties from companies that use its patents to make lasers. At the same time, VISX protects its patents. Currently it's suing Nidek, a Japanese company, for patent infringement.