3400 Central Expressway
Santa Clara, California 95051-0703
Telephone: (408) 733-2020
Fax: (408) 773-7200
Sales: $133.8 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: VISX
NAIC: 339112 Surgical & Medical Instrument Manufacturing; 334510 Laser Equipment, Electromedical, Manufacturing
VISX is committed to the continued development of technology designed to enable millions of individuals worldwide to eliminate or reduce their need for corrective lenses by taking advantage of innovative ophthalmic procedures, including Photorefractive Keratectomy (PRK).
VISX, Incorporated is the leading designer, manufacturer, and marketer of laser vision correction systems. The company, which was founded in 1986, manufactures laser systems to treat vision problems such as nearsightedness, farsightedness, and astigmatism. VISX was the first company to be awarded FDA approval for systems used to perform Photorefractive Keratectomy (PRK), a procedure in which the cornea is reshaped to correct the patient's vision. VISX systems are also used to perform Laser Assisted in-Situ Keratomileusis (LASIK), a similar procedure that uses an instrument called a microkeratone to fold back a layer of the cornea so a laser can be used to reshape it. LASIK has become the procedure of choice among ophthalmologists because it can be used to treat higher levels of nearsightedness and offers a shorter recovery time. A typical PRK or LASIK procedure lasts about 15 to 40 seconds and consists of about 150 laser pulses, each of which lasts several billionths of a second. A patient visit is usually 30 minutes, including postoperative dressing. Patients may experience mild discomfort for 48 to 72 hours after the procedure. VISX has more patents than any other laser vision system correction company--over 140 and at least 70 more pending. The company's revenues stem from its global sales of laser systems, service and parts sales, and license fees collected from ophthalmologists. VISX markets its lasers to ophthalmologists who then market the procedures to the public. Its revenues were just under $134 million in 1998 for an operating income of $59 million. Both the company's corporate headquarters and its manufacturing centers are located in Santa Clara, California.
The Beginning in 1986
In the early 1980s, researchers discovered that IBM's new excimer laser, which was initially used to etch computer chips, could be used for laser vision correction surgeries. The excimer laser used an ultraviolet beam of light that was so fine 200 pulses were needed to cut through a single strand of human hair. The laser used "cold light" that did not damage the surrounding tissue the way other thermal or "heat" lasers did.
Doctors Charles Munneryn and Stephen Trokel founded VISX in 1986, after designing a laser vision correction system with an excimer laser and a computerized workstation. Munnerlyn and Trokel sold their system to ophthalmologists, who used it to perform Photorefractive Keratectomy (PRK) on patients with low levels of myopia, more commonly known as nearsightedness. PRK was usually performed on one eye at a time. Numbing drops were applied to the eye so the procedure was painless. The ophthalmologist used an instrument called a speculum to hold the eye open. He or she then removed the epithelium--the layer of protective skin covering the cornea. While the patient fixated on a red, blinking light, the ophthalmologist used the laser to reshape the cornea by removing microscopic layers of tissue.
VISX hoped to eventually win the approval of the Food and Drug Administration (FDA), so it could market and sell its system in the United States. Once it gained FDA approval, the company planned to tap into the huge market of vision correction--the one out of two people worldwide suffering from vision problems.
In 1987 the first eye was treated with VISX technology and the company was incorporated. In 1989 VISX went public and began to market its laser systems overseas.
However, VISX and another company, Taunton Technologies Inc., had been disputing bitterly for several years regarding patents for the excimer laser and the system itself. While no one can obtain a patent on laser surgery in general, inventors can file patents on the parts and designs used in the system. Taunton Technologies was founded in 1986 by Dr. Francis L'Esperence, who believed he had a right to some patents regarding the system used to perform the surgery. The two companies eventually resolved their disagreements through a merger. VISX was acquired by Taunton in 1990. After the merger, Taunton adopted the VISX name.
Pillar Point Partners in 1992
Despite the potential of the VISX system, the company was having trouble acquiring the patents and finances it needed to gain FDA approval. After negotiating for about a year and a half, executives from VISX met with executives from Summit Technology Inc., its main competitor, in 1992 on a golf course in Half Moon Bay in California. The two competitors worked out an agreement to "pool" their patents and raise enough revenue to move toward gaining FDA approval. They named the patent-pool agreement Pillar Point Partners after Half Moon Bay's most prominent feature, the Pillar Point. The two companies agreed to sell the excimer laser systems for about $500,000 and charge ophthalmologists an additional licensing fee of $250 per eye for each surgery they performed.
In 1993 VISX submitted its first application to the FDA for approval of its excimer laser system to perform PRK. The FDA recommended conditional approval in 1994, around the time the company shipped its 200th system overseas.
Significant Advances in the Mid-1990s
In 1995 VISX received FDA market approval for PRK with its system. In March 1995, the company upgraded its system and introduced its new STAR Excimer Laser System, which could treat about 90 percent of Americans with mild to moderate levels of myopia. The FDA approved this system in 1996.
In the same year, the U.S. Navy purchased a STAR System to treat nearsighted military personnel. The system was installed at the Navy Medical Center in San Diego, California. Before purchasing the system, the Navy performed clinical studies on military personnel who had undergone the PRK with the system. The studies measured combat activities of these personnel, such as rifle shooting accuracy, before and after the surgery. The results were promising. After the surgery, military personnel were able to shoot just as accurately as they had before the surgery while wearing corrective lenses.
Around the time of the Navy purchase, VISX launched its web site, www.visx.com, to provide consumers, ophthalmologists, and others in the eyecare industry with information about laser vision correction surgery. The interactive web site included testimonials from patients who had undergone the surgery as well as a referral network for people considering laser vision correction surgery.
In April 1997, the STAR system received FDA approval to treat higher levels of myopia and hyperopia, more commonly known as farsightedness. The system could also be used to treat astigmatism, an eyesight disorder where an incorrect curve of the eye prevents focusing. Astigmatism affects about 28 million Americans. The approval of the STAR system to treat astigmatism made the headlines in all of the major U.S. print and broadcast media. To treat astigmatism and higher levels of myopia, ophthalmologists used the VISX system to perform LASIK, in which they fold back a layer of the cornea and then use a laser to reshape the tissue. Patients who had undergone LASIK healed more quickly and returned to normal vision sooner than those who had undergone PRK.
Word of the STAR system spread fast. In May 1997, the U.S. Department of Veteran Affairs signed a two-year contract with VISX that allowed certain branches of the United States military to purchase the STAR system. The U.S. Air Force purchased its first System under this contract, which was installed at Wilford Hall Medical Center, Lackland Air Force Base, San Antonio, Texas.
FTC Charges in 1998
The year 1998 was a difficult one for VISX. In March, the Federal Trade Commission (FTC) charged VISX with price-fixing and patent fraud. The price-fixing charges stemmed from the agreement VISX had made with Summit Technology in 1992, in which the two companies combined their patents. The FTC wanted Pillar Point dissolved because it determined that, by working together, VISX and Summit were able to inflate their prices because no other company could compete with their combined patents and finances. The FTC also believed that without the partnership VISX and Summit would be unable to force doctors to pay the $250 per eye licensing fee. In a competitive environment, physicians would be able to shop around for the best deal.
VISX countered that Pillar Point was created to enable the technology to be marketed, not to eliminate the competition. "We've spent $52 million bringing this to market, and there's no way we could sell these lasers for $500,000 and ever recoup what we've put into it," Mark Logan, Chairman and CEO of VISX explained in the Knight Ridder/Tribune Business News. "If it weren't for the $250 fee, we'd have to sell these systems for $3 million each and have a very small market, which isn't good for anyone." VISX eventually ended the Pillar Point partnership on its own. The company insisted the dissolution had nothing to do with the FTC charges, and that its partnership with Summit was not amicable. In June 1998, VISX and Summit dissolved Pillar Point and settled all pending disputes. VISX paid Summit $35 million, which caused its stock to drop.
The FTC patent charges proved to be more serious, however. The complaint charged that Dr. Trokel, cofounder of VISX, withheld information from the Patent Office about previous patents that had been filed by other researchers. The complaint also accused Dr. Francis L'Esperance, the founder of Taunton, with falsifying a notebook to take credit for others' inventions. VISX had to pay a substantial litigation charge from the patent suit. As of 1999, the suit remained in the appeals process and was expected to take several years before a final decision was reached. However, the patents remained valid until the situation was resolved, which enabled VISX to solidify its position as a market leader.
In 1998 the FDA approved VISX's new STAR S2 Excimer Laser System, which offered patients smoother ablations--removal of layers of the cornea. The STAR S2 achieved this smoothing capability through a seven-beam laser system that resulted in nearly flawless results. VISX marketed the STAR S2 internationally as the VISX STAR S2 Smoothscan.
Logan commented on the STAR S2 in articles carried over Business Wire: "We have listened to our customers and believe the STAR S2 offers tremendous advantages. Unlike single-beam scanning lasers, the System's seven scanning beams cover a larger area of the cornea and allow procedures to be completed quickly and efficiently."
A Clear Outlook for the Future
As of 1999, VISX had the only system with FDA approval in the United States for correcting all three major refractures: nearsightedness, farsightedness, and astigmatism. However, the company's competitors were taking strides to gain similar approvals. Summit Technology was advancing technologically, and Bausch and Lomb planned to introduce its own laser system. Nidek, a privately held Japanese firm with its own laser system to treat myopia, waived its licensing fee in an effort to gain market share. Despite the competition, however, VISX could be expected to remain a market leader well into the future.
Aragon, Lawrence, "Pillar Point Receives Laser Patents from VISX, Summit," Business Journal, June 22, 1992, p. 4.
Barlas, Pete, "VISX Getting Tough in Fight for Its Royalties," Business Journal, August 7, 1995, p. 3.
Barrere, Michelle, "VISX Gets Approval for Excimer Laser," Ophthalmology Times, April 15, 1996, p. 26.
Borzo, Greg, "Royalty for Eye Surgery May Drop," American Medical News, July 6, 1998, p. 23.
Bray, Hiawatha, "Rival Firms Celebrate FDA Approval of Laser Eye Surgery Treatment," Knight-Ridder/Tribune Business News, April 26, 1997, p. 426B1033.
Delevett, Peter, "Recent FTC Allegations Against VISX May Involve PTO," Business Journal, April 20, 1998, p. 5.
----, "VISX Sees the Lawyers Coming," Business Journal, April 13, 1998, p. 1.
"FDA Approves New VISX STAR S2 Laser Excimer Laser System," Business Wire, March 24, 1998, p. 3241093.
Hertz, Beth Thomas, "VISX Gets Panel's OK on Hyperopia," Ophthalmology Times, September 1, 1998, p. 1.
"Laser Vision Centers Say FDA Approval of Astigmatism Will Have Positive Impact; Company Says Majority of U.S. Laser Fleet Affected," Business Wire, April 25, 1997, p. 4250027.
Ray-Durpree, Janet, "Nation's Two Eye-Surgery Laser Firms Accused of Price Fixing," Knight-Ridder/Tribune Business News, June 28, 1996, p. 6280221.
Rosenberg, Ronald, "FDA Approves VISX, Inc. Plan to Use Laser Equipment for Astigmatism," Knight-Ridder/Tribune Business News, January 16, 1997, p. 116B1143.
Sabbagh, Leslie B., "LASIK Safer Than PRK in High Myopia," Ophthalmology Times, December 1, 1998, p. 1.
"Summit, VISX Sign Consent Agreements," Ophthalmology Times, August 15, 1998, p. 52.
"VISX and U.S. Military Sign Two-Year Contract; United States Air Force Orders VISX STAR Excimer Laser System," Business Wire, May 14, 1997.
"VISX Announced Expansion of Patent Portfolio," Business Wire, February 12, 1997, p. 2121050.
"VISX, Inc. Comments on Recent Drop in Share Price," Business Wire, August 1, 1996, p. 0811053.
"VISX Launches Excimer Laser Correction Web Site," PR Newswire, August 19, 1996, p. 0819PHMO11.
"VISX Philosophy Differs," Health Industry Today, February 1, 1996.
"VISX Reports Record Sales and Earnings," Business Wire, October 14, 1998, p. 0294.
Source: International Directory of Company Histories, Vol. 30. St. James Press, 2000.