Medical Device Link.

Originally Published June 2000

MARKET ANALYSIS

Laser Tag

In the laser eye surgery market, intense competition, new technologies, and huge market potential are rapidly bringing down prices—and profits?

Don't be fooled by Tiger Woods and other celebrities sporting their remade eyesight in aggressive advertising campaigns. Laser eye surgery isn't just for the well known and well-to-do anymore. These ads are meant for the masses—the many who may think that such corrective laser surgery is an unaffordable luxury. But beneath the surface of the glitzy ad campaigns lies an intense tag-team competition among the manufacturers of laser eye surgery systems and the healthcare providers who use them. The winners conceivably stand to make billions of dollars.

Nor is the war going to be over anytime soon. According to some data available, procedure prices for laser eye surgery have fallen by two-thirds over the past six months, and some believe they could drop significantly further. In the United States, the charge for a LASIK procedure currently runs somewhere between $1800 and $2800 per eye, but can run higher in some regions of the country or when higher-risk patients are involved (a late-1999 study by FDA's Center for Devices and Radiological Health found that patients with more severe nearsightedness or astigmatism tend to have poorer visual outcomes after LASIK surgery). Each laser surgery system costs in the neighborhood of $500,000.

"We've seen pricing of this procedure trending down in the last six months," says Jack Klobnak, chairman of Laser Vision Centers Inc. (St. Louis), a company that offers the use of laser eye surgery equipment to doctors in 44 states. Even so, the emergence of new technologies is leading to price restructuring that promises to keep the market lucrative for years to come, says Eliot S. Lazar, MD, president of elCON Medical Consulting (Buffalo, NY). Three factors are contributing to the dynamism of the market in laser eye surgery: intensifying competition, fast market growth, and the pace of technological innovation.

Competition Heats Up

A major reason why procedure prices have come down is that there are more manufacturers and technologies from which doctors and patients can choose. In the United States, there are roughly 3400 refractive surgeons (ophthalmologists specializing in laser surgery), and companies are keen to train thousands more.

A variety of laser-based surgical procedures are now available for correcting vision. Chief among these is laser in situ keratomileusis (LASIK), in which lasers are used to reshape the cornea. The other popular procedure is photorefractive keratectomy (PRK).

FDA has approved several laser systems for performing LASIK eye surgery procedures. A machine made by Summit Technology Inc. (Waltham, MA) was approved in October 1999. And Bausch & Lomb Inc. (Rochester, NY) recently won FDA approval to sell its Technolas 217 excimer laser, which it calls the world's most sophisticated vision-correction machine. Outside the United States, the company is already one of the market leaders in the vision-correction market.

The LaserScan LSX excimer laser system from LaserSight Technologies Inc. has been approved for treatment of myopia by PRK. Suite shown at right. Photos courtesy Lasersight Technologies.

Two other major players in markets both within and outside the United States are Nidek Technologies (Gamagori, Japan, and Fremont, CA) and LaserSight Technologies Inc. (Winter Park, FL). In April, FDA approved a PMA supplement for Nidek's EC-5000 excimer laser for LASIK treatment of myopia (nearsightedness) with and without astigmatism (uneven curvature of the cornea). LaserSight has also been busy since the turn of the century. The company's LaserScan LSX excimer laser system has been approved for treatment of low-to-moderate myopia by PRK. In March, LaserSight purchased all patents and exclusive licenses related to a refractive diagnostic workstation being developed by Premier Laser Systems Inc. (Irvine, CA). Designed to provide front-to-back analysis and total refractive measurement of the eye, this new product is called the Advanced Shape Technology Refractive Algorithms (ASTRA) system. According to the company, it is intended for laser surgery to correct both regular and irregular corneal surfaces that are unable to be treated by existing laser systems. LaserSight expects to complete its international trials and launch the product in the international market during the third quarter of this year. U.S. clinical trials for the ASTRA technique are anticipated to be completed by year-end, with a U.S. commercial launch expected some time next year.

But none of those companies is the market leader in laser eye surgery today. That distinction belongs to VISX Inc. (Santa Clara, CA), which is considered to be the worldwide leader in the development of refractive laser technology. VISX controls approximately 70% of the market.

Laser technologies aren't the only ones in the vision-correction market. A new procedure was recently approved which obviates the need for either LASIK or PRK surgery in patients with mild myopia. Offered by KeraVision (Palo Alto, CA), the procedure makes use of removable implanted corneal attachments (rings) marketed under the brand name Intacs. KeraVision says that it is also developing products for the mild hyperopia (farsightedness) and astigmatism market segments.

Another type of procedure for the treatment of hyperopia, called laser thermal keratoplasty (LTK), has been developed by Sunrise Technologies (Fremont, CA). It involves applying two concentric rings of laser energy to the midperiphery of the cornea, gently heating the collagen. This shrinks the collagen, causing the corneal angle to steepen. No corneal tissue is cut or removed during the noncontact procedure. FDA approval is widely expected by the fall. The company announced in May that it has received conditional FDA approval to exchange the older Sun 1000 Holmium laser system for the new Hyperion LTK system at all of its clinical investigational sites.

The Hyperion LTK system from Sunrise Technologies. Photo courtesy Sunrise Technologies.

All of this competitive activity has contributed to the recent price drop for corrective eye surgeries. And because all of these players appear to be in the market for the long haul, as evidenced by the product development activity discussed below, it seems likely that such intense competition will continue to put pressure on prices.

Explosive Market Growth

Perhaps an even bigger reason for the improved affordability of corrective eye surgery is the rapid growth of the marketplace. Such growth in demand might ordinarily be considered a reason for manufacturers to keep their prices high. But in this fast-moving, high-tech market, with its intense competition, companies are seizing on the opportunity to recoup some of their development and manufacturing costs, establish a broader customer base, and fund R&D to keep up with competition.

According to data compiled by the Vision Council of America (Arlington, VA), an industry group, nearly 1 million Americans underwent refractive eye surgery procedures in 1999—almost twice as many as in 1998. Estimates for 2000 are in the range of 1.5 million to 2 million procedures. Vision Council surveys of doctors suggest that the typical LASIK patient refers an average of five friends during the course of a year, and 75% of doctors' new patients are coming through referrals.

Industry analysts commonly credit the rapidly increasing popularity of the LASIK technique for much of the explosive growth in the laser vision correction market. The entire LASIK procedure takes about 15 to 20 minutes for two eyes, and is associated with much less postoperative pain than previous procedures.

Even so, LASIK's growing popularity is not the only factor that explains current market growth. Part of the hypergrowth comes from the simple fact that the market is so new. It was only five years ago, in 1995, that Autonomous Technologies (Waltham, MA; now owned by Summit) became the first company to receive FDA approval for an excimer laser system intended for the correction of mild-to-moderate myopia. And it was only last year that the company became the first lower-cost commercial excimer laser manufacturer to receive FDA approval for the popular LASIK procedure.

Publicly held chains perform almost half of the laser eye surgeries in the United States. The Laser Center (Bethesda, MD), with 58 lasers in 25 states and Canadian provinces, is North America's largest. Laser Vision Centers is the second-largest laser eye surgery chain.

Despite the dominance of such chains, however, the potential market remains a vast area for further expansion. Some 30 million Americans between the ages of 25 and 54 have some form of nearsightedness. Roughly 60 million people aged 40 and over are farsighted. Another target population includes those suffering from presbyopia, or loss of focus due to natural aging. And because the U.S. population over age 65 is expected to double in the next several decades, the refractive surgery market can be expected to increase even further.

Not everyone is a candidate for these procedures. Pregnancy, for instance, is just one example of a common (though temporary) contraindication. However, technologies and procedures are being developed to address some of these groups. An example is patients with cataracts, who were once not preferred candidates. According to elCON's Lazar, technology is now being developed to enable surgeons to remove lenses and treat refractive errors simultaneously.

KeraVision, maker of the Intacs nonlaser alternative, hopes to capture some of the population that currently is ineligible for laser surgery, says company CEO Tom Loarie. However, his company is also interested in widening the market, by eventually attracting people who not only wish to correct their vision but actually to improve it.

One oft-repeated industry mantra is "20/10 by 2010," says Lazar. The goal of those who chant it is to commercialize technologies that would enable patients to achieve 20/10 vision by the year 2010. Several companies appear to be well on their way to that end, he adds.

Pace of Innovation

The pace of innovation—including both improvements to existing technologies and the launch of new ones—is another force working to drive prices down. In May, during the annual meeting of the American Society of Cataract and Refractive Surgery (ASCRS), Summit introduced two new products. The first is the LadarVision 4000 laser system, the first small spot-scanning laser with an FDA-approved laser eye tracker, which improves the accuracy of corneal shaping. FDA approved the LadarVision system for use in LASIK treatment of myopia (less than –9.0 D) with or without astigmatism (less than –3.0 D). The LadarVision system also incorporates proprietary software for LASIK procedures, and includes a new feature that protects the corneal flap created during a LASIK procedure from laser ablation.

The FDA-approved LadarVision 4000 laser system from Summit Technology Inc. Photo courtesy Summit Technology.

Summit also announced during the ASCRS conference that it had received premarket notification (510(k)) clearance to market its freestanding CustomCornea Wavefront System (WS) in the United States. According to the company, its new product is the only device designed to measure the unique optical aberrations in each patient's eyes using an objective technology (that is, without the usual series of corrective lenses and patient feedback). The CustomCornea device measures, records, analyzes, and displays refractive errors (nearsightedness, farsightedness, and astigmatism) as well as such higher-order aberrations as spherical aberrations and coma.

Summit is now conducting clinical trials that combine the Ladar-Vision and CustomCornea devices. In the trials, measurement data from the CustomCornea device are used to derive a customized ablation pattern, which is then uploaded to the spot-scanning laser and used to reshape the patient's corneas. "I am delighted with the company's progress," says Robert J. Palmisano, CEO of Summit. "Our customers believe we are good business partners and are helping them build their practices."

Meanwhile, VISX announced that FDA's ophthalmic devices advisory panel had recommended market approval for the company's STAR excimer laser systems for the treatment of hyperopic astigmatism. VISX expects that this product will further expand the company's product line and potential customer base. At the ASCRS meeting, the company introduced the FDA-approved STAR S3 system, which incorporates an infrared-based whole-pupil tracking technology.

The pace of innovation is expected to accelerate now that several key patent issues have been resolved. In May, market leader VISX announced that it had settled several lawsuits against the company. Among them were antitrust and other claims filed against VISX by several ophthalmic surgical centers and researchers in federal district court in Denver. That settlement also resolved counterclaims filed in 1996 against those same centers and researchers by Pillar Point Partners, Summit Partner Inc., and VISX Partner Inc.

Also settled was an action filed against VISX in the federal district court in Texas alleging that John Taboada is the inventor of a key VISX patent (the "388 patent"). In connection with that settlement, the parties agreed to a judgment stating that VISX consultant and PRK pioneer Stephen Trokel is the sole inventor of the 388 patent. Finally, VISX announced that it had also settled an action filed against it by a group of former clinical investigators for a system made by Taunton Technologies Corp. (the predecessor company of VISX), in which the investigators had accused VISX of federal antitrust law violations, breach of contract, and unjust enrichment.

In connection with these settlements, VISX has paid a total of approximately $12 million in one-time payments and related costs and fees. The company plans to take a one-time litigation charge of approximately $0.12 per share after taxes in the third quarter of this year.

Even with all these cases settled, however, VISX still faces a plethora of legal challenges. In February, LaserSight withdrew from license negotiations with VISX and refiled a patent suit against the company. In March, Nidek filed an antitrust lawsuit alleging that VISX has violated federal and state antitrust laws and federal false advertising laws. In addition to seeking monetary damages, Nidek is also requesting that VISX's patents be declared unenforceable.

The Nidek suit claims that VISX has engaged in an integrated series of exclusionary and anticompetitive acts and strategies designed to increase the costs of its rivals and raise barriers to market entry and expansion—ultimately harming consumers. Nidek alleges that VISX is acquiring competitors and forming a joint venture with its principal U.S. competitor in order to eliminate marketplace challenges; that it is attempting to enforce patents obtained by fraud or otherwise known by VISX to be unenforceable; that it is entering into anticompetitive and exclusionary agreements with laser surgery providers; and that it is making false statements about Nidek to potential U.S. customers.

Nidek has already bested VISX once this year, when it received a favorable ruling in a patent dispute being heard before the International Trade Commission (ITC). In December 1999, an ITC administrative law judge held that Nidek had not infringed two key VISX patents and that VISX had not established a domestic industry for either patent. Although VISX appealed these determinations to the full ITC, the commission eventually upheld the earlier rulings. The time for VISX to appeal in court has now expired.

Conclusion

Despite the recent resolution of some legal issues, the persistence of such conflicts among the makers and users of laser eye surgery systems suggests a hotly competitive marketplace. When coupled with the fast pace of innovative product launches, such heated competition could readily lead to continued price wars in the laser eye surgery marketplace.

Given the potential for continued explosive market expansion, however, it seems highly unlikely that industry competition will result in lower profits or industry consolidation anytime in the near future. The laser eye surgery market is still in the early stages of hypergrowth, with plenty of money left to be made.

In short, you'd better get used to seeing Tiger Woods and other celebrities pitching their surgically improved eyesight. So long as the general public continues to imitate them by heading in droves to the nearest laser eye surgery suite, you can bet you'll be seeing a lot more of such celebrity ads.

Cliff Henke is a freelance writer based in Southern California.

Top illustration by Steve Rawlings

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