BLOG: TearScience steps up, changes business model, pricing

ByDarrell E. White, MD

Last spring OSN Chief Medical Editor Richard L. Lindstrom, MD, had words of praise for TearScience’s meibomian gland disease treatment, LipiFlow, while at the same time bemoaning the fact that the cost of obtaining this treatment was beyond the reach of most of his patients. Many of us have been critical of some aspects of the business model and pricing then in place at TearScience. This included the purchase of equipment costing more than $100,000, a diagnostic per-use click fee and a very expensive single-use disposable for each treatment. At right about the same time, TearScience was completing a significant change in its upper management. It responded to our concerns by improving its hardware, while at the same time reducing the price to roughly $65,000, and did away with the click fee (you can also now bill for a part of the diagnostic exam). Unfortunately for TearScience, the eye care world pretty much uniformly missed the memo; the majority of eye doctors still think the old business model and pricing existed.

I had an opportunity to speak with Joe Boorady, the new president and CEO of TearScience, about this. In response to our concerns, Mr. Boorady accepted the challenge of creating a new business model designed to make LipiFlow more accessible to both eye doctors and patients, which he just announced at OSN’s Disruptive Innovation symposium at OSN New York last weekend.

On Nov. 2, TearScience will reiterate the changes in its business model for the diagnostic and treatment equipment, and at the same time announce a very aggressive decrease in the cost of the LipiFlow treatment “Activators.” Let’s do the numbers.

The list price of the DMI 2 meibomian gland/tear film analyzer and LipiFlow base unit combination is now approximately $65,000 (note: there is a convention discount price of approximately $60,000 in Vegas). However, you can now buy the LipiFlow treatment unit without purchasing the diagnostic unit. The price is $25,000 (the DMI 2 is $45,000 as a standalone). However, the bombshell news is the price cut on the Activators. Previously $350 each, they are now $175. That’s not a typo. A 50% price cut. That’s a big deal.

How did this happen? Mr. Boorady was very candid in saying that TearScience was not going to succeed if it did not address both the cost of using its technology and the perception of the cost in both the doctor and patient populations. One of his major tasks on taking the CEO role was to dramatically decrease the production cost of the disposable in order to make the treatment itself more affordable. To do this TearScience developed new manufacturing processes and equipment to streamline production. It has also made significant strides in getting its manufacturers to lower costs. Any way you slice it, 50% is a big number.

What does the rest of this news mean? We should not take lightly the ability of practices to purchase the LipiFlow unit without the diagnostic DMI 2. Not every dry eye practice functions like SkyVision. It may be possible in certain settings to make an empiric diagnosis of MGD that is severe enough to treat without the assistance of the DMI 2. One quickly thinks of the surgical practice that offers advanced presbyopia-correcting IOLs or does lots of LASIK using LipiFlow as both a value-added service, or simply as a way to optimize the ocular surface and improve outcomes. By the same token, imagine if pilot studies show an improvement in contact lens comfort or an increase in contact lens wearing time after LipiFlow. You can easily see boutique contact lens fitting practices including LipiFlow as part of their offering.

The executive team at TearScience heard the concerns voiced by Dr. Lindstrom, yours truly and others, and it has offered a bold response, changing both its business model as well as its core pricing. We now have an opportunity as an eye care community to take this and create new and better opportunities to treat MGD and dry eye in our own specific practices. My own personal view is that the best model is likely to be the dental hygiene model. For this to occur, we will need to see more downward pressure on the Activator price. For now, let’s acknowledge this bold move by TearScience.

And let’s have more pharma and medical device executives listening to their customer base, OK?

Disclosure: White reports he is a consultant for Bausch + Lomb, Allergan, Shire and Eyemaginations and on the speakers board for Bausch + Lomb, Allergan and Shire.