Home About Us In the news Newspapers and Magazines Dr. Dello Russo featured as a celebrity resident of Alpine, N.J.

Dr. Dello Russo featured as a celebrity resident of Alpine, N.J.

Discount Centers Upset Laser Eye Surgery Sector

NEW YORK, Jan 1 (Reuters) – Dr. Joseph Dello Russo, one of the pioneers of laser eye correction surgery, still charges about $2,800 per eye, even though some doctors are offering it for as little as $499.
With the vast proliferation of laser eye centers and the procedure’s increasing popularity among those hoping to shed their glasses, discount centers have popped up around the country, throwing the relatively young industry into tumult.

”The industry has been beaten up fairly well this year,” said stock analyst Joanne Wuensch of ING Barings. “There’s been a proliferation of low-end centers, which probably won’t be able to make it.”

But even if the lower-priced centers survive, Dello Russo is not worried, saying patients will still tend to seek quality. “It’s not going to affect me,” he said. “We’re offering something totally different.”

As companies and physicians react to the discount presence and a general economic slowdown threatens to curtail discretionary consumer spending on services like elective surgery, the six-year-old laser eye surgery sector is ready for a shake-out in 2001, analysis said.

Prices should reach an equilibrium of about $1,000 per eye, and lower-priced centers that perform the procedure, as well as companies that distribute lasers to ophthalmologist offices, may not survive.

“They haven’t shown they can make money. They seem to be financially unstable,” said analyst Hans von der Luft of McDonald Investments about the discount centers. “In the first half of 2001, there’s going to be some consolidation.”

Analyst David Gruber of Lehman Brothers said leading distributors of the lasers, such as LCA-Vision Inc. (LCAV.O), LaserVision Centers Inc. (LVCL.O), and Canada’s TLC Laser Eye Centers Inc. (TLCV.O) (TLC.TO), have felt the squeeze from lower prices and ophthalmologists who are beginning to purchase directly from laser makers.

“Pricing is going south and will have a disproportionate impact on the corporate centers,” Lehman Brothers analyst David Gruber said of the distributors. “As physicians become more comfortable with the procedure, they’ll buy their own machines.”

MARKET STILL GROWING

Despite the tumult, Wuensch estimated that the market was only four percent penetrated.

The number of procedures grew 50 percent in 2000 and should grow by about 20 percent in 2001, Gruber said, so the sector is by no means dying.

In fact, Dello Russo said he raised prices in 2000 and still has not experienced any slowing of business.

“The most important factor for people is that they want to go to the best most experienced doctor,” said Dello Russo, who performed about 25 percent of the surgeries in U.S. Food and Drug Administration clinical tests for the procedure’s approval in 1995.

Although the maverick discount locations may not succeed, distributors and manufacturers of lasers have taken a huge hit in 2000 from the pricing war.

The sector’s largest equipment manufacturer, VISX Inc. (EYE.N) warned last Tuesday of lower-than-expected fourth-quarter profits, saying some of its corporate customers would be unable to pay and raising its reserves against accounts receivable by about $18 million.

“VTSX is old technology,” said Stephanie Waterman, marketing director for Dello Russo, who uses the newer LADAR Vision laser produced by Summit Autonomous Inc., a unit of Alcon Laboratories Inc. “Those are more customized to the patients. VISX is cookie cutter. In Europe, they don’t even use VTSX anymore.”

Investment bank and brokerage analysts who follow the company were split over the quality of products made by the Santa Clara, Calif-based VISX, which has steadily been losing market share as other manufacturers enter the field.

“VISX has been fairly aggressive in updating its technology,” Wuench said.

Even so, she downgraded the company’s stock this week to hold from buy, even after the earnings warning sent the stock plummeting near its new-low.

“The impetus for that is we just think it’s going to be dead money for a couple of quarters,” she said. The stock closed at $10-7/16 on Friday, up from the 52-week low of $8-3/4 and down from the year-high of $30-3/8.

Financier Carl Icahn, who owns 9.9 percent of the company, believes the company is not taking advantage of its market leader position. Icahn said he would nominate his own directors to the company’s board to explore a sale.

Waterman said the Summit Autonomous laser that Dello Russo uses is more friendly to the cornea than VISX lasers, following the contours of the eye and readjusting to the eye’s movements. Dello Russo, who has offices in New York and New Jersey, has performed more than 20,000 procedures with the original VISX lasers and with later technology that can cost up to $1 million per laser, according to Waterman.

WARNING ON DISCOUNT CENTERS

John Klobnak, founder, chairman, and chief executive of LaserVision Centers, a distributor of lasers that has worked with about 9,000 ophthalmologists in the UnitLaser Eye Surgeryed States, is not pleased with the discount centers and their effect on the sector.

“These too-good-to-be-true prices are often too good to be true,” he said. “Some of the offers contain fine print that eventually boosts the price,” he noted.

Klobnak objected to the way in which some discount centers have commoditized a health care procedure.

“This is not a cell phone, palm pilot, or computer. This is surgery,” Klobnak said. “‘People just really need to be careful right now.”

Dello Russo agreed about the danger of discount centers.

“It’s not a product, it’s a service,” Dello Russo said. “It’s a procedure, and you can ruin someone’s eyes.”

Klobnak said consolidation in the industry would take place, but as one of the market leaders, his St. Louis-based LaserVision Centers is finding it difficult to find a profitable company to acquire.

The company’s stock has slumped to $1-3/8 on Friday from a year-high of $2-15/16 in January 2000. Net income for the fiscal second quarter ending Oct. 31, 2000, fell to $449,000, or two cents per diluted share, compared with $3.94 million, or 14 cents per diluted share in the year-ago period.

Klobnak said that combining cataract surgery and the laser surgery to correct near-sightedness or far-sightedness is an opportunity to boost laser eye surgery companies in 2001.

“We have a great potential to work with doctors to do both — it’s a great opportunity for us and for them,” he said.