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As Innotech departs, other companies look to expand in-office lens casting
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NEW BRUNSWICK, N.J. — It did not take long for other companies to move into the opening created by the withdrawal of the Innotech Excalibur in-office lens casting system from the market.
Johnson & Johnson, based here, shocked its in-office lens casting customers in December 1998 with its announcement that it would discontinue production of the Excalibur LensSystem in-office lens casting system made by Innotech Inc., a Johnson & Johnson company. Innotech also will stop supplying power plates, resin and replacement accessories needed to make lenses as of March 31.
The response of many customers was immediate, as Innotech and some of its competitors were deluged with phone calls from practitioners who wanted to continue in-office casting and were looking for ways to get use out of their systems. Johnson & Johnson offered cash to customers and also announced a supply agreement with Louisville, Ky.-based Optical Dynamics Corp. (ODC), formerly FastCast Corp.
ODC, the only supplier to reach an agreement with Innotech, will sell parts and consumables needed by the Excalibur system through the end of 1999, while also trying to recruit these customers as new clients. Also taking advantage of Innotech’s departure from the market by offering either lease or equipment trade-ins are Super Systems Optical Technologies in Cincinnati; Optical Molding Systems (OMS) in Ada, Ohio; and Gerber Coburn, in South Windsor, Conn.
Innotech purchase
In February 1997, Johnson & Johnson purchased Innotech for about $135 million. This gave some customers more confidence in Innotech’s lone product, the Excalibur system, and some bought or leased the equipment based on the strength of the new parent company. About 250 of the 1,000 Excalibur systems sold since they became available in 1993 were bought after Johnson & Johnson acquired the company.
“I thought the purchase legitimized Innotech,” said Daniel C. Harris, OD, in private practice in Piqua, Ohio. “I thought that if Johnson & Johnson bought this company, they must believe in the company and its technology.”
By December 1998, however, it was clear to Johnson & Johnson that the in-office casting systems could not be a profitable venture.
“From a business standpoint, it was a very easy decision to make,” W. Ben Deibler, Innotech president, told Primary Care Optometry News. “What made it difficult was having to terminate employees and disappoint some of our best customers. What really drove the decision was that Innotech — both before and after being acquired by Johnson & Johnson — had been selling the Excalibur system for 6 years, and in those 6 years, we never made a penny.”
No breaking even
---A new in-office lens casting system: Optical Dynamics Corp. (ODC) is negotiating with the lease companies used by Innotech customers to allow them to trade in their equipment to upgrade to ODC’s new system, the Q-2100.
Mr. Deibler estimated that there were about 800 Innotech customers who had leased or purchased approximately 1,000 systems. The company determined that it would have had to triple the number of customers just to break even. Seeing no realistic way to make this happen, it was decided to leave the in-office casting industry and shift the focus of Innotech to research and development. This development is likely to involve Innotech’s proprietary SurfaceCasting technology, as Johnson & Johnson attempts to increase its share of the semi-finished lens market. Mr. Deibler declined to comment on specific plans for Innotech or on a timeline for its research efforts.
Although Johnson & Johnson is closing an Innotech plant in Petersburg, Va., it has plans to build another complex in Roanoke, Va., where Innotech is based. Innotech plans to build a manufacturing plant, a four-story office building and a research and development facility. The expansion here is the exception to Johnson & Johnson’s global consolidation of its manufacturing facilities, which will result in the elimination of 36 plants and a net reduction of 4,100 employees, about 4% of the company’s total work force.
Financial assistance offered
---Optical Molding Systems is offering Innotech customers $5,000 to trade in their Excalibur system for its new OptiCast molding equipment.
Innotech offered customers a partial reimbursement based on the length of time the practitioner had the system. The reimbursement formula assumed that it would take 3 years for the practitioner to see a return on the initial investment, according to John McKeegan, manager of corporate communications for Johnson & Johnson. All owners and lessors who accepted the offer received at least $2,000, he said, and doctors who had the machine less than 3 years received more money. For example, a doctor who paid $15,000 for the machine 18 months ago would receive $7,500, said Mr. McKeegan.
Signing the standard release form required for payment of the reimbursement also meant the customer agreed not to participate in litigation against Johnson & Johnson and Innotech and would assist the companies in defense of any suit or claim brought against them. Initially, customers were given until Jan. 29 to accept this offer. In response to many phone calls from customers, Innotech agreed to extend the deadline to June 30.
ODC to supply parts, service
In late December 1998, officials from Innotech and ODC began negotiating an agreement that would allow customers to use the Excalibur system through the end of 1999. In addition to the cash settlement from Innotech, ODC will offer customer service, technical support, resin, power plates, parts and accessory replacements starting on April 1. It will continue to provide supplies and support to Innotech customers through the end of 1999.
ODC is working on other ways to support Innotech customers, Paul Michel son, chairman of the board of ODC told Primary Care Optometry News. The company is currently negotiating with the lease companies used by Innotech customers, as well as developing other financing options, to allow them to trade in their equipment to upgrade to ODC’s new in-office casting system, the Q-2100, which will be introduced at Vision Expo East this month. The offer will be good through the end of the year.
“The complaints certainly gave us a sense of urgency,” Mr. Deibler said. “I think most of what we heard we expected. We didn’t expect some of the intensity that we heard. Our problem was that we didn’t want to recommend something that we didn’t think was a viable option. We couldn’t close the ODC deal any sooner than we did, and we didn’t want to delay the announcement to our customers any longer.”
Potential Q-2100 customers
---Gerber Coburn has reached agreements with major lease companies that will allow Innotech customers to roll an existing lease into a new lease for the Premier Lab finishing and surfacing system.
Even before the agreement was reached between the two companies, Innotech customers had been calling ODC, Mr. Michelson said. After ODC sent letters outlining the agreement, more practitioners called. The company also has begun contacting former Innotech customers, some of whom have visited the company’s headquarters in Louisville for a first-hand look at the Q-2100 system.
“This system represents state-of-the-art technology allowing the practitioner the opportunity to produce high-quality, high-index, low-cost lenses almost anywhere. Everyone who has seen it has been very positive and favorably impressed,” Mr. Michelson said.
Innotech customers are under no obligation to buy the Q-2100 or any other equipment from ODC, but the company believes these practitioners fit well into the company’s target audience, he said.
“We view the Innotech customers as just the kind of people with whom we want to build relationships. They are willing to try new technology, and we view them as the leaders of the industry,” Mr. Michelson said.
Other companies make offers
Other companies also viewed the former Innotech customers as potential clients and have made financial offers independent of Johnson & Johnson.
After receiving calls from a number of Innotech customers, Super Systems began making arrangements with some of the companies that held the leases on the Excalibur systems, John Corsini, vice president of marketing and sales, told Primary Care Optometry News.
“We’ve been able to work with the major lease companies to get a preferred buy-out of the lease, which we would then roll into a new lease for the Fast Grind 2000 system,” Mr. Corsini said.
Super Systems is able to negotiate more favorable terms than if the practitioners tried to buy out an existing lease themselves and also is offering discounts on the Fast Grind 2000, he said. After deducting the discount from Super Systems, the terms of the new lease would be determined by the doctor and the lease company. The company encourages doctors to contact their leasing companies to determine the balance remaining on the lease before contacting Super Systems.
Deciding to accept the settlement offered by Johnson & Johnson would not affect a practitioner’s ability to take part in the Super Systems program, Mr. Corsini said.
OMS is offering $5,000 to Innotech customers who wish to trade in their systems for the company’s new Opticast lens molding system, said president Duane Wires, OD.
Customers interested in the OMS offer would receive a $5,000 rebate after entering an agreement to purchase or lease the Opticast system, Dr. Wires said. OMS can help arrange financing for interested customers and also has made arrangements with a company that will collect the Excalibur equipment for scrap and electronic parts.
Gerber Coburn is offering Innotech customers a trade-in program toward its Premier Lab system, which provides fully integrated, computer-controlled lens surfacing and finishing, according to Norm Nelson, vice president of sales.
“We can provide several financing options to Innotech customers,” Mr. Nelson said. “Because of our relationships with all of the major leasing companies, we are able to put together a package that best suits the customer’s business requirements.”
Customer response mixed
According to Mr. Deibler, the response from customers to the arrangement with ODC was overwhelmingly positive. After announcing that ODC would continue providing service and supplies through the end of 1999, Innotech representatives began calling customers to gauge their reactions.
“About 75% said that we had met the mark and addressed their major concerns,” Mr. Deibler said. “Even some of the accounts that were the most vocally dismayed are now satisfied and pleased to do business with us.”
Innotech and Johnson & Johnson have gone beyond what other companies in a similar situation could have done, said Excalibur owner James Rubin, OD, in private practice in Gladstone, Mo.
“Innotech and Johnson & Johnson are not saying ‘We are within our legal rights. You have to eat the losses.’ They are contacting all the customers on an individual basis. I think they are going way above what the legal system would force them to do,” Dr. Rubin said.
Johnson & Johnson had to make a business decision, but has not forgotten customers who made an investment in the company, he said. Dr. Rubin bought his system outright in May 1998. He had his Excalibur for only about 6 months when Innotech announced it was leaving the lens casting industry.
“I was shocked that they stopped, because the machine works. It has helped my office tremendously. I was able to compete with the malls and 1-hour service. It saved a lot of walk-outs,” Dr. Rubin said.
After comparing what he spent on the system and supplies to how much his office had profited from the machine, Dr. Rubin said Innotech’s settlement offer allowed him to break even, and he accepted it. “Now they’re telling me that instead of giving the machine up in March, I have until the end of the year. That means I can make even more money off the machine, and it gives me time to find another in-office casting machine. Innotech is working with a company to make that happen,” Dr. Rubin said.
Other Innotech customers have not responded as favorably. Sanford Ring, OD, in private practice in Santa Ana, Calif., had only a few months remaining on his lease when he received a settlement offer from Innotech. “The reimbursement was not fair at all,” Dr. Ring said.
Unhappy with the way Johnson & Johnson treated customers and reluctant to enter a similar agreement on another lens casting system, Dr. Ring accepted Innotech’s settlement, but applied it toward Super Systems’ lease roll-over offer. Because there was only a small balance remaining on his original lease, he is essentially starting over to keep his practice competitive. “Now I am starting over with a whole new system and a whole new lease and another long-term commitment,” Dr. Ring said.
Dr. Harris also is not satisfied with Innotech’s attempts to make restitution or with the arrangement with ODC.
“The letter from ODC really doesn’t change anything, because come Dec. 31, my machine is still useless. Then, the idea is to sell us another expensive machine,” Dr. Harris said.
Some customers seek legal advice
Rather than accept Innotech’s settlement offer, Dr. Harris is one of about 140 customers who have contacted Craig S. Steinberg, OD, JD, in both legal and optometric practice in Sherman Oaks, Calif., to try to negotiate a better arrangement with the company, said Dr. Stein berg. Although he did not own an Innotech system, a number of customers who were not satisfied with Innotech’s reimbursement offer contacted him. He is now acting as a liaison between these former customers and Perkins Coie, LLP, a law firm with 13 offices in the United States and Asia. It is anticipated that Perkins Coie will formally represent the doctors in negotiations with Johnson & Johnson and Innotech, Dr. Steinberg said. The law firm has not yet contacted Johnson & Johnson regarding possible discussions.
“Right now, we are trying to find out who wants us to speak on their behalf, and then our hope is to try to work something out with Johnson & Johnson. We’re not running into court, because that might not be necessary,” Dr. Steinberg said.
“We think that there should be a better way to resolve this so that the doctors get a significant portion of what they bargained for,” he continued. “The doctors don’t feel they should have to absorb the risk that Johnson & Johnson took when they bought Innotech.”
For Your Information:
- Daniel C. Harris, OD, can be contacted at (937) 773-4441; fax: (937) 773-6291; e-mail: dharris@wesnet.com. Dr. Harris has no direct financial interest in the products mentioned in this article, nor is he a paid consultant for any companies mentioned.
- W. Ben Deibler, president of Innotech, can be contacted at (540) 362-2020; fax: (540) 265-7809.
- John McKeegan, manager of corporate communications for Johnson & Johnson, can be contacted at (732) 524-1130; fax: (732) 524-3621.
- Paul Michelson, chairman of the board of Optical Dynamics Corp., can be contacted at (800) 587-2743, (502) 671-2020; fax: (502) 719-0731; web site: www.optdycorp.com.
- John Corsini, vice president of marketing and sales for Super Systems Optical Technologies, can be contacted at (800) 543-7376; fax: (800) 421-1047; web site: www.superoptical.com.
- Duane Wires, OD, president of Optical Molding Systems, can be contacted at (888) 893-CAST, (419) 634-CAST; fax: (419) 634-9858; web site: www.optical-molding.com.
- Norm Nelson, vice president of sales for Gerber Coburn, can be contacted at (860) 644-1551; fax: (860) 644-5547; web site: www.gerberscientific.com.
- James Rubin, OD, can be contacted at (816) 452-3937; fax: (816) 455-2428. Dr. Rubin has no direct financial interest in the products mentioned in this article, nor is he a paid consultant for any companies mentioned.
- Sanford Ring, OD, can be contacted at (714) 543-3333; fax: (714) 543-3032. Dr. Ring has no direct financial interest in the products mentioned in this article, nor is he a paid consultant for any companies mentioned.
- Craig S. Steinberg, OD, JD, can be contacted at (818) 948-7218; fax: (818) 609-8318; e-mail: craig@visioncare.com; web site: www.visioncare.com/cityeyes. Dr. Steinberg has no direct financial interest in the products mentioned in this article, nor is he a paid consultant for any companies mentioned.