BBI Contributing Editor

A continuing downward trend in the global economy is resulting in further reductions in the number of major players in the laser vision correction industry. These mergers are an expected occurrence in an industry that has been characterized by hypergrowth and over-capacity.

Randy Mansfield, director of refractive marketing for the Americas, Bausch & Lomb Surgical (Claremont, California), said, "The changes in the laser vision correction market seem to be a natural phenomenon, as the market continues to sort itself out. We've already seen the lower end of the market drop out, and refractive surgery providers will continue to merge to gain strength and focus on a broader spectrum of patients."

Craig Lavelle, executive senior vice president and chief operating officer of Aris Laser Vision Institute (Los Angeles, California), also said he expects that consolidations will continue based on corporate strengths and weaknesses. "The number of refractive medical management companies is shrinking," he said, "and some have failed because of poor management and business structure or plans." It is not likely, Lavelle added, "that large providers will buy private practices as in the past, but will look for companies such as Aris that are well managed and appealing financially. The more a company can do with less, the more successful it will be."

The latest impending marriage between two industry leaders is the merger agreement between TLC Laser Eye Centers (Bethesda, Maryland/Toronto, Ontario) and Laser Vision Centers (St. Louis, Missouri). This mega-merger was announced in late August, and the consolidation is expected to be completed by year-end. This union will result in the formation of the largest laser vision correction provider in North America, to be called TLC Vision Corp., with U.S. and international headquarters in St. Louis and Mississauga, Ontario, respectively.

Among the recent laser provider consolidations, the trend is not only to bring together successful laser vision providers but also to merge companies whose services complement each other. The TLC/Laser Vision merger, for example, will capitalize on geographic locations that do not overlap, as well as TLC's use of the latest refractive technologies, patient education and marketing programs and Laser Vision's leadership in the mobile refractive market. Steve Kilmer, TLC's director of corporate communications, said that while the business models of the two companies developed separately, the merger establishes a national presence for the new company that will have an expected market share of about 22%. In addition, the marketing capabilities will be spread over a larger patient base than was available before the merger.

James Wachtman, president and COO of Laser Vision, added, "We expect to find three primary areas of synergies: a wider array of service for both patients and eyecare professionals, administrative and buying efficiencies and sales growth." Wachtman would not speculate on the merger's effect on business growth.

Dan Wagster, senior vice president of sales and marketing at NovaMed Eyecare (Chicago, Illinois), predicted that as the activity of the emerging laser marketplace settles down via natural consolidation, and the market matures, the availability of suppliers and locations will be more in line with the current demand profile. "As the result of the cycles and volatility of the market, providers will be divided up between those that are providing strictly laser vision correction and others that are providing laser vision correction as a product line among a range of ophthalmic services." He said the former "will go through the feast-and-famine phases, with more company volatility because of their inability to balance laser vision correction demand cycles with revenues from other products." Wagster added that he believes the companies that will move forward and succeed "will be those that use laser vision correction as a product line, as opposed to a core business."

While it may be too early to determine if the impending merger of TLC/Laser Vision will impact the market, the bankruptcy of the deep-discount providers already has had an effect, with most companies increasing the prices of procedures. "With this shake-out period and the dropping out of the lower-end competitors, the average procedure price is increasing," Wagster said. "The previous average decline was more about greater numbers of low-end providers entering the market than about more premium providers reducing prices," he said. "There will now probably be stabilization in the prices, but I anticipate that to be at the premium level, because there is a clear understanding by consumers about why there is a premium price charged by companies that provide premium service."

Tom Wilson, CEO of LCA-Vision (Cincinnati, Ohio), noted that prices bottomed out in December 2000. "[They] have been increasing steadily throughout the year," he said, adding that "all indications are that this will continue. The two levels of technology and care that we offer have helped move the price up."

Price increases at Aris have been regionally based, with increases implemented in the Santa Monica, California, area and in Canada when the company acquired 64% of the Gimbel Centers in March.

While prices are generally increasing, the volume of refractive procedures has been decreasing along with the economic turndown. "Economic conditions are causing consumers to think twice about spending their disposable income on elective procedures," Mansfield said. Wilson noted that the industry, which in many cases is providing a luxury service to patients, is experiencing a slowdown of as much as 20% to 25%, beginning in the second half of 2Q01.

Lavelle cited the cyclic nature of the industry for the recent decrease in volume, adding, "The volume has started to come back. I think every company experienced a slowdown in the summer, which is typically when volumes have decreased over the last five years." This, coupled with the economy, contributed more than anything to a decline in procedure volume in Aris's centers in Canada, the U.S. and Mexico, he said. "As we enter the last quarter, our bookings are becoming stronger and we look forward to having a strong autumn."

Wagster, however, believes that the industry is on the brink of a technologic explosion, and many potential patients may be waiting for these improvements before undergoing laser surgery. Bad publicity about poor outcomes and safety issues may also be other factors in the equation.

When considering the impact on laser manufacturers, Mansfield said he does not expect much change in sales. He noted that consolidations of procedure providers "might put more pressure on the pricing of laser systems, but a large percentage of the refractive laser business is driven by the individual surgeons, and in these cases the consolidations will not have a great effect."