BBI Contributing Editor
The laser vision correction (LVC) market is losing steam, according to various year-end 2000 reports. Compared to the previous year when the growth rate of procedures was estimated as high as 50%, 2001 may only see a 25% expansion in terms of LVC volume in the U.S.
Last year was stellar for this market, with procedures increasing to about 1.4 million vs. 900 million in 1999. But fourth-quarter volume slowed and industry watchers are predicting that the U.S. economic slowdown will have a serious impact on elective procedures such as LASIK due to tightened consumer spending. As a result, 2001 procedures may fall far short of the 2 million goal set by some optimistic analysts.
Laser center companies, which are reluctant to acknowledge the effect of an economic slowdown, have blamed the decrease in procedure growth on other more ambiguous factors, such as "consumer confusion over the variety of refractive surgery methods," or "potential patients waiting for prices to stabilize."
One market influence that they definitely ignore is the widespread press coverage of serious LASIK complications. More and more consumers are now aware that there are many dissatisfied patients with vision loss or impairment due to LASIK surgery mistakes. In fact, we are now witnessing a rise is class action lawsuits as opportunistic lawyers see the profit in finding disgruntled patients and filing actions against laser centers. The biggest targets are the LASIK discounters, due to the sheer number of problems stemming from cost cutting. But no laser vision correction provider will be immune from this legal backlash, and the negative press surrounding this topic will certainly put the chill on wary consumers. A few savvy surgeons have turned the situation around to their advantage by alerting the media to the problems of inexperienced surgeons at LASIK discounters.
The entrance of LASIK discounters over the past two years rapidly eroded price structure in the U.S., taking the profitability out of laser vision correction for nearly all companies. Private practices fared somewhat better without the management and fixed-cost overhead that burdens the corporate laser center business models. However, all providers have suffered in a market that saw average LASIK prices drop from $2,500 in 1998 to less than $1,500 per eye in 2000. And heavy advertising of $500 per eye by discounters has ensured that prices will drop even further due to consumer conditioning to these lower rates.
Increased competition is another factor. The number of refractive surgeons performing LASIK in the U.S. doubled from an estimated 2,000 in 1998 to more than 4,000. This pool of surgeons is expected to grow to more than 5,000 within a few years. About 40% of these surgeons perform fewer than 20 procedures per month. Collectively, they operate from an installed base of more than 1,000 excimer lasers, about half of them defined as private practice, 400 as corporate centers and the remainder at hospitals or universities.
The corporate laser center segment accounted for nearly half of the procedure volume, or close to 700,000 surgeries last year. That translates into an estimated $1 billion in revenues, shared by almost 20 companies. Laser Vision Centers (St. Louis, Missouri) is the largest corporate laser center chain, operating a total of 100 fixed and mobile excimers. TLC Laser Centers (Toronto, Ontario) is second with 53 fixed centers, followed by LCA Vision (Cincinnati, Ohio) which has 33 fixed locations. NovaMed (Chicago, Illinois) has 25 sites, ICON Laser Centers (Toronto) operates 24 and privately-held ClearVision (Lakewood, Colorado) has a total of 10 fixed and 14 mobile units. These companies may have more than one laser at each fixed location.
Financial results and stock prices reflect the difficult laser vision correction market conditions for corporate laser centers. Share prices and market values of these firms are at historical low points as losses continue and investors lose faith. For example, TLC said 27,100 paid laser procedures were performed at its centers in the quarter ended Nov. 30, a 12% decline from the same year-earlier period. Net revenues for the quarter were $38.4 million, and the net loss before restructuring charges was $13.4 million, compared to a net profit of $1 million in 2Q00. Elias Vamvakas, TLC chairman and CEO, noted that "recent statements from other industry participants, both service providers and laser manufacturers, have echoed what we've been saying for some time. The market is hyper-competitive and characterized by a great deal of consumer uncertainty over pricing." TLC is the only company that has attempted to maintain a premium pricing structure. It is unclear if that business model is sustainable.
LCA-Vision, which significantly adjusted its prices downward during 2000, reported record fourth-quarter procedures of 16,411, up 92% from 8,541 procedures for the same period a year earlier. For all of 2000, LCA reported 59,144 procedures, up from 33,266 in 1999, a 78% gain. Although the company is not profitable, management puts a positive spin on the situation. "Fourth quarter 2000 procedure volume reflects continued growing consumer demand for our value-priced services during what is our seasonally slowest quarter of the year," said CEO Tom Wilson. Commenting on plans for the 2001, Wilson said, "While we intend to open approximately the same number of new centers as we did last year, the first rollout won't occur until some time in the second quarter."