Topsy-turvy, lawsuit-riddled, stock market-shaken year for eye care industry

The Ocular Surgery News Ophthalmic Stock Index charted the course of companies big and small in 2000. Our conclusion? At least the lawyers made money.

The past 18 months have seen many ophthalmic companies rise high, merge or fall into oblivion. Today the industry as a whole may be financially stronger than in recent years, but firms that rely primarily on refractive surgery revenues may be headed toward a shakeup.

Big stories of the last year include Bausch & Lomb’s lesson about disappointing Wall Street, Premier Laser Systems’ disintegration into nothing more than a shell and a host of lawsuits over who breached whose patent.

Index of change

The Ophthalmic Stock News (OSN) Index has risen and fallen with these industry changes. We start this look back in April 1999, when the OSN Index was at 377.63. The index showed strong gains up to August 1999, when it reached a high of 471.44, but then worked its way down to bottom out at 220.41 in May 2000.

The OSN Index now includes Akorn, Allergan, Bausch & Lomb, InSite Vision, Iridex, LCA-Vision, Paradigm Medical, Pharmacia, Sight Resource Corp., Sola International, STAAR Surgical, Sunrise Technologies, TLC The Laser Center and Visx. During the last 18 months, however, this composite has had other constituents.

In September 1999, Mentor was dropped from the index when the company’s ophthalmics division was sold off. Premier Laser seemed like a good replacement with its constellation of recent acquisitions, but by the following spring those lights had blinked out one by one and Premier was replaced by Paradigm Medical.

As of December 1999 Omega Health Systems changed its name to VisionAmerica. In June 2000, both VisionAmerica and Vision Twenty-One were replaced on the index by Pharmacia. Summit Autonomous was removed from the list last July following its purchase by Alcon, and Wesley Jessen was removed just last month after its purchase by CIBA Vision.

The changing line-up of the OSN Index over the past year and a half hints at the volatility of the eye care industry during this time. A look back at our top stories of the year fills in the details.

OSN Index tracks the rise and fall of selected opthalmic stocks

February’s excimer turmoil

The third week of February 2000 marked was one of the most riotous periods of the past 18 months for the ophthalmic industry.

Over the span of three days, from Feb. 22 to 24, Visx (Santa Clara, Calif.), Summit (Waltham, Mass.), and Bausch & Lomb (Claremont, Calif.) all announced that their excimer fees would decrease or remain at $100 per procedure. LaserSight (Winter Park, Fla.) announced it was scrapping its planned per-procedure fee of $260 and dropping it to $130.

It all started on Feb. 22, when Visx announced that its per-procedure fee — a fee most analysts considered a staple of the company’s revenue base — would drop 60%, from $250 to $100. On Feb. 23, Summit Technologies then announced a new, lower per-procedure charge of $100 for its Apex Plus/Infinity system (with an additional $25 charge for the Emphasis disk used to perform astigmatism and hyperopia correction). Summit announced that the fee for the Autonomous LadarVision laser would be $150 for each use. Both Visx and Summit also started charging $100 for retreatments, which were previously reimbursed to the surgeon.

On Thursday, Feb. 24, the excimer marketplace got a little more crowded as Bausch & Lomb Surgical announced it had received clearance from the Food and Drug Administration (FDA) to sell the Technolas 217 in the United States. Marketing would commence immediately, the company declared, as there appeared to be no need to obtain “further rights under third-party patents.” The company would cover legal costs for any of its customers who might be sued for patent infringement, but it also planned to charge them for each Technolas 217 procedure performed.

LaserSight’s turn next

Also on Feb. 24, LaserSight (Winter Park, Fla.) announced its new fee structure. Based on “recent industry developments,” the company would abandon its previous plan to collect a $260 fee per procedure, of which $130 would have been returned to the customer had LaserSight won its patent battle with Visx. Instead, users would pay only the $130 for each use of the LaserScan LSX, which LaserSight planned to keep for itself as revenue.

In the end Nidek (Fremont, Calif.) remained the sole excimer manufacturer that would not tap American surgeons for an additional payment after the instrument was purchased. (In no other country has there ever been a per-procedure fee.) According to senior executives of Nidek’s U.S. division, the refusal to charge users of the EC-5000 a per-procedure fee is a rock-hard policy written by company president and founder Hideo Ozawa. Nidek also promises to pay legal costs for customers who have already been sued or may be sued in the future on charges of patent infringement.

In response to the reduction in per-procedure fees the stock market sent the excimer laser companies reeling. Positive balance sheets and profitability histories notwithstanding, Wall Street sent the value of Visx shares down 24% from its Feb. 18 closing price of 23 ¼ to 17 5/8 by the end of the following week. Where 1 to 5 million Visx shares had been trading daily throughout the first part of February, 40 million were traded in the 2 days following the announcement of the fee cut. All the publicly traded excimer laser manufacturers shared the pain to a greater or lesser degree.

Enter shareholder suits

Starting the following Monday, Ocular Surgery News received announcements from seven different law firms that they were initiating class action shareholder lawsuits against Visx. The allegations were similar if not identical. Visx officers had made “false and misleading statements” about the expected revenue from the installed laser base as well as the company’s ability to maintain its $250 per-procedure fee and its share of the vision correction market. Most invitations to join the suits mentioned that Visx “insiders” had sold 1.4 million shares of company stock prior to the announcement of the per-procedure fee reduction.

Visx defended its reduction in per-procedure fee by explaining that its reduction in the fee was not meant to cure a market-share issue. It was fundamentally meant to spark growth in this market.

Visx chief operating officer Liz Dávila explained in February that the company still needed its per-procedure revenue to fund research and development, litigation, marketing and all the costs associated with a healthy company. Ms. Dávila explained that the analysts’ forecasts had not taken into account how Visx was planning to deal with the ever-changing excimer laser market. It was her contention that the analysts had simply latched onto the fact that Visx was dropping its fee as a sign that the company was in trouble and would not be able to continue its revenue growth.

As of November 21, Visx stock was trading at 20 ¾ after maintaining a price between $20 and $30 per share since June.

Premier implodes

Premier Laser Systems Inc. was the only company to be added and removed from our list in less than a year. Added to the OSN Index in September 1999, Premier looked like one of the rising stars in the eye care industry; however, by April of 2000 it was taken off the NASDAQ and never returned.

In June 1999, Premier looked like it was ready to hit the big time. For years the company had spent most of its efforts developing a host of sophisticated ophthalmic and dental equipment, but it did not have a great track record getting those products to market. However, that month Premier announced the launch of the Foresight System for Visx, followed in August 1999 by the proposal to acquire 100% ownership of Ophthalmic Imaging Systems (OIS) (Sacramento, Calif.), of which it had already owned 51%. OIS turned down the offer. In December 1999, Premier released software version 4.2 for its EyeSys System 2000 corneal topographer.

Also in December 1999, Premier and OIS had finally come to an agreement by entering into a merger accord where Premier agreed to acquire the remaining 49% of the outstanding shares of OIS not already owned by Premier.

With the turn of the new millennium, however, Premier started going downhill fast. Michael Quinn was elected president and CEO of the company on Jan. 18 after the resignation of founder Collette Cozean, PhD, and two other board members. In February, Premier announced that it had furloughed 54 of its 80 employees.

By March 10, LaserSight had bought the rights to all the intellectual and material property of Premier’s integrated refractive diagnostic workstation. Additionally, Premier announced the company was filing for Chapter 11 bankruptcy. On March 13 the NASDAQ announced that Premier stock was frozen and could no longer be traded. At that time the stock was worth $1 per share.

In July 2000 OIS announced that MediVision Medical Imaging Ltd., an Israeli corporation, had agreed to buy Premier’s shares of the ophthalmic company.

On Oct. 18 SurgiLight announced that it had purchased the ophthalmic laser division of Premier in an all-cash deal of $3.7 million payable over four months. SurgiLight received from Premier all its intellectual property and inventory including 14 patents, 12 pending patents and a stock of 100 ophthalmic systems.

On Oct. 19 the final nail was driven into the Premier coffin when ProLaser Ltd. (Düsseldorf, Germany) announced they had signed a letter of intent under which ProLaser will acquire Premier’s Eyesys Corneal Topography division.

Lawsuits, legal wrangling

In April 1999, CIBA Vision filed suit against Bausch & Lomb to defend its extended-wear contact lens patents. Both Bausch & Lomb and CIBA Vision claimed patent rights for extended-wear technology and materials. Vistakon also entered the fray, filing suit challenging Bausch & Lomb’s marketing claim. CIBA Vision alleged that Bausch & Lomb’s PureVision infringed on U.S. patents 5,760,100, 5,849,811, 5,776,999 and 5,789,461, which relate to the development of an extended-wear contact lens and are held by CIBA Vision. The company also claimed that Bausch & Lomb’s PureVision trademark infringes on the trademarks of CIBA Vision. In addition, Bausch & Lomb’s marketing materials were called “false and misleading” by Vistakon.

In May 1999, Laser Vision Centers Inc. sued Nidek for patent infringement of LVCI’s Mobile Laser Surgical Center and Portable Suspension system.

In June 1999, the CIBA and Bausch & Lomb saga continued when the Patent and Trademark Office affirmed the validity of CIBA Vision’s patents surrounding its extended wear technology and denied Bausch & Lomb’s request for a reexamination of three CIBA Vision pioneer patents. Bausch & Lomb considered appealing the decision. The companies said they would negotiate to possibly settle the case, filed in Georgia, but further details were not given.

In August 2000, Allergan sued Japan’s largest ophthalmic company, Santen. The complaint included allegations that Santen Inc., a wholly owned U.S. subsidiary of Santen, was planning to market ophthalmic preparations containing levofloxacin and that this would infringe Allergan’s rights pursuant to its license under the ofloxacin patent. Since then, Santen Inc. has introduced its Quixin brand of levofloxacin, and the legal proceedings continue.

Refractive business suits

In October 1999, Bausch & Lomb Surgical filed a federal lawsuit against Moria and Microtech. Bausch & Lomb stated that Moria and Microtech infringed the Hansatome patent by marketing and selling the Carriazo-Barraquer microkeratome in the United States. In June 2000, Bausch & Lomb again defended its Hansatome microkeratome patents by filing a lawsuit against Visionar and MedLogics, two makers of microkeratome blades.

In November 1999, Summit and Icon Laser Eye Centers entered the courtroom as Summit sued Icon for alleged infringement of two patents that covered surgical apparatus for modifying the curvature of the cornea and for surface erosion using lasers. The lawsuit sought unspecified damages.

Icon Laser eye centers responded to Summit’s suit by alleging that the company filed the suit to generate excimer laser sales. The suit asks the court to enjoin Icon from further infringements and to award triple damages and attorney’s fees.

In October, Lasik Vision Corp. announced that the suit by Lasik Vision against TLC Laser Eye Centers Inc. is not proceeding because the litigation between Lasik Vision and TLC has now been resolved. Terms were not disclosed, but TLC issued a press release stating that the litigation between TLC and LasikVision was settled on a nuisance value basis for an amount substantially less than the cost of TLC's anticipated legal fees had the matter proceeded to trial.

Doctors getting sued

Ophthalmic companies were not just picking on each other in the past year. They turned their attention toward several doctors as well.

In April 1999, Visx sued ophthalmologists over their use of the Nidek EC-5000 laser. Visx filed a complaint against Farmington Laser Eye Center PLLC and Donald C. Fiander, MD, alleging that the defendants’ use of, and their offers to use, the Nidek EC-5000 excimer laser system infringe Visx’s U.S. patent number 4,665,913.

A February 2000 Illinois Supreme Court decision stemming from a lawsuit by TLC Laser Eye Centers against two of its former doctors may have broadened the right of non-medical entities to control physicians’ practices. The court decided that a business entity has the right to enforce a non-competition clause against physicians. It is believed to be the first case of its kind.

Mergers, acquisitions

Perhaps the most common link for the past 18 months was the rash of mergers among major and minor ophthalmic companies. The ophthalmic industry has historically been cannibalistic, but 1999-2000 was a period of unprecedented feasting.

In April 1999, Autonomous Technologies Corp. and Summit Technologies Inc. closed their merger.

The next month, Physicians Resource Group (PRG) sold some of its ambulatory surgical centers and some of its physician practices as part of its restructuring. PRG said it wanted to divest some practices to raise cash, reduce expenses and begin repayment on 6% convertible subordinated debentures. It was actually announcing the last phase of a strange financial “bubble” that left many ophthalmologists disgruntled and some practices severely disrupted.

In June 1999, CIBA Vision acquired Mentor’s MemoryLens IOL line in a cash-for-assets purchase for approximately $38 million.

In July 1999, KeraVision completed the acquisition of Transcend Therapeutics Inc., and its net cash balance of about $8.4 million. KeraVision used the cash for market development activities in North America, to pursue regulatory approvals for products under development and for general-purpose working capital.

In September 1999, Acadia and Allergan entered into a licensing and research agreement to develop and market compounds for glaucoma, based on Acadia’s proprietary and highly receptor-subtype-selective muscarinic lead compounds.

Just before the 20th century ended, Akorn and CIBA entered an agreement to market and distribute a generic form of Ocupress. CIBA will manufacture and Akorn will sell the product. Also in December, Paradigm Medical acquired the assets of Mentor Ophthalmics’ cataract removal division in a $1.5 million stock swap.

To start the new year, Pharmacia & Upjohn announced a plan to merge with Monsanto. The $26 billion deal created a new company with a market capitalization of more than $50 billion and an advantageous collection of blockbuster drugs. Under the merger, each share of Pharmacia & Upjohn was exchanged for 1.19 shares of the combined company, and Monsanto shares were worth 1 share. In May, Monsanto and Pharmacia & Upjohn completed the merger, with the new company being named Pharmacia Corp.

Six months later, Alcon agreed to buy Summit for $19 per share in a cash deal made after months of negotiations. At $19 per share, the almost 47 million Autonomous shares cost Alcon approximately $893 million. Alcon began the offer on June 5.

Also in June, Allergan and Visx formed a marketing alliance and undertook a joint promotional campaign for the Amadeus microkeratome. The Amadeus itself was a product of an Allergan licensing deal with Swiss instrument maker SIS.

August was a cruel month for Bausch & Lomb, as the company lost more than $1 billion in market value after it announced that revenues would not meet previously announced targets. Bausch & Lomb president and chief operating officer Carl Sassano left the company.

But none of that stopped Bausch & Lomb’s expansion. In September 2000, Bausch & Lomb completed the purchase of French ophthalmic company Chauvin for $228 million cash. In November 2000, Bausch & Lomb announced it had signed a definitive agreement with Carl Zeiss to purchase the German company’s contact lens manufacturing business, Woehlk Contact Lens GmbH, for $26.2 million in cash.

Also in November, after months of Bausch & Lomb attempting to force its purchase of Wesley Jessen, CIBA Vision completed a merger with Wesley Jessen to form the world’s second largest contact lens company — at least for now.