LCA-Vision, Inc.

7840 Montgomery Road
Cincinnati, Ohio 45236
U.S.A.
Telephone: (513) 792-9292
Toll Free: (800) 688-4550
Fax: (513) 792-5620
Web site: http://www.lasikplus.com

Public Company
Incorporated: 1985 as Laser Centers of America, Inc.
Employees: 575
Sales: $192.4 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: LCAV
NAIC: 621320 Offices of Optometrists; 621498 All Other Outpatient Care Centers

Nearly three-quarters of a million Americans and Canadians have shed their eyeglasses and contact lenses, thanks in part to the foresight of LCA-Vision, Inc.'s founder Stephen N. Joffe. By organizing a management company to oversee the emerging laser eye correction market, Joffe became a pioneer in introducing affordable laser surgery to North America. Joffe's first laser vision correction center opened in 1995 and a decade later there were 53 Lasik Plus Vision Centers in the United States and Canada with no end in sight. Although laser vision surgery is a highly popular elective procedure, LCA-Vision estimates that less than 3 percent of Americans with corrective vision problems have had it. To meet the demand, the company claims to be "within a one-hour drive of approximately 40 percent of the country's population."

SIGHT FOR SORE EYES

Stephen Joffe was a successful general surgeon and professor at the University of Cincinnati Medical Clinic in the 1980s. With the advent of numerous emerging surgical techniques using lasers, Joffe recognized the need to organize and implement some sort of surgical management program for healthcare centers. His insights led to a nationwide professional management company called Laser Centers of America, Inc. (LCA). The company assisted hospitals and medical centers in managing their laser and minimally invasive surgery programs. A decade later, 80 hospital-based specialized laser surgery programs were in place throughout the United States.

During this time, the first laser vision correction procedure was performed and approved in Canada. Photorefractive keratectomy (PRK) was an outpatient procedure in which lasers reshaped the cornea to correct nearsightedness and other minor eye conditions. Joffe saw the potential of a $10 billion market yet had to wait until the Food and Drug Administration (FDA) approved the process in the United States.

In preparation for an American rollout of laser surgery centers, LCA purchased Toronto LaserSight Center in a risky reverse merger. LCA bought shares in the already public LaserSight in exchange for financial control of the company. The new public company was renamed LCA-Vision, Inc., and gambled its future on the pending FDA decision.

In October 1995 Joffe's bets paid off. The FDA approved PRK technology in the United States and LCA-Vision hit the ground running. Joffe set up LCAVision's corporate headquarters in Cincinnati, and then began leasing surgical laser equipment. He opened refractive eye surgery centers in several neighboring cities, including Cleveland, Dayton, and Toledo, then ventured south to Savannah, Georgia, and northeast to Baltimore and New York City. A year later, in 1996, LCA-Vision went public and began to be traded on the NASDAQ.

NEW PROCEDURES, NEW CLIENTS, 1997–99

While Joffe expected a slowly developing market, laser surgeries did not gain momentum as quickly as he had hoped. Instead, LCA-Vision was not only saddled with millions of dollars in debt and negative shareholder equity, but the company's major creditor, Fifth Third Bank, questioned its ability to make payments on its $8 million line of credit. To make matters worse, Joffe and his wife had guaranteed the Fifth Third loan with their personal assets.

Joffe, however, did not lose hope; contact lens and eyeglass wearers continually complained of dry, red eyes and inconvenience. The demand was there; he just had to manage the balance sheet until LCA-Vision took off. For its first two years as a public company, LCA failed to make a profit but earnings rose from 1997's $17.6 million to 1998's $35.2 million. By late summer 1999, Joffe used half of his LCA stock to purchase a laser manufacturer, Summit Technologies, which also managed a chain of laser vision centers in Massachusetts. He paid off most of the Fifth Third credit by issuing convertible preferred stock. Although the company's stock had fallen below $1 per share, as reported by the Cincinnati Business Courier (August 13, 1999), a new laser procedure was creating fresh interest in laser eye surgery.

Laser in situ keratomileusis (LASIK) became the preferred treatment for refractive eye disorders. The 15-minute outpatient procedure offered high success rates and a relatively quick and painless recovery. Capitalizing on this latest breakthrough, LCA-Vision renamed its vision centers Lasik Plus and saturated the media with a new advertising campaign. As the century drew to a close, LCA-Vision experienced a higher volume in procedures as costs stabilized.

As LCA-Vision began to see the light at the end of the tunnel, so did many perspective patients across the United States and Canada. Laser vision correction centers and surgeons were soon popping up everywhere. A May 2000 report by Crain's New York Business found there were 5,000 ophthalmologists trained to perform LASIK surgeries by 1999, with hundreds more eye care professionals learning the procedures on a daily basis.

By the end of the century, LCA-Vision was the third largest publicly held vision correction company in the United States, with 21 locations in the United States and two in Canada. The largest chain of laser vision correction companies, TLC Vision based in Toronto, Canada, operated 50 centers in North America. One way TLC had expanded its business in areas such as Baltimore was by using offers of higher salaries to lure away LCA doctors, then setting up the physicians in offices near Lasik Plus centers.

To sharpen LCA-Vision's competitive edge and answer the threat posed by TLC, Joffe slashed costs to boost sales. By employing the company's own physicians, rather than outsourcing, LCA-Vision was able to reduce procedure costs. Locations also offered price incentives and financing plans. In the highly competitive Baltimore market, for example, customers paid $2,995 for both eyes (a 33 percent decrease from a typical procedure cost of $2,250 per eye) and could choose to make payments for up to a year. "We're positioned for growth," Joffe told the Cincinnati Business Courier (August 13, 1999). Revenues for 1999 reached $57.4 million and the company was finally in the black with net income of $10.9 million.

COMPANY PERSPECTIVES

LCA-Vision Inc. is a leading provider of laser vision correction services under the Lasik Plus brand. Lasik Plus vision correction centers are staffed with skilled ophthalmologists and optometrists and other health-care professionals. Advanced diagnostic equipment and multiple laser brands are used to help correct nearsightedness, farsightedness and astigmatism.

SEEING IS BELIEVING, 2000–02

Joffe's crystal ball seemed accurate in the early 2000s as LCA-Vision reported that procedures for the fourth quarter of 2000 had grown by 92 percent from the previous year's figures. However, as the American economy slowed and consumer spending decreased, so did LASIK procedures. Less disposable income ignited fierce price wars, with some competitors offering procedures for under $500 per eye. In July 2000, LCA stock fell to $2.69 per share from a high of $11.94 in the summer of 1999. Although revenues increased slightly in 2000 to $63.5 million, LCA suffered a loss of $2.4 million for the year.

In addition to the slowing economy, class-action lawsuits filed by disgruntled patients began eroding consumer confidence in LASIK procedures by 2001. While no lawsuits were filed against LCA-Vision, consumers began hearing horror stories about severe complications (such as infections and botched procedures) performed by inexperienced surgeons. While LCA-Vision hired only certified, licensed surgeons, the negative media affected all LASIK practitioners. LCA's revenues for 2001 reached $68.1 million, an increase of only $4.6 million from the previous year, but its net income plummeted to a loss of $23.4 million. By the following year, 2002, LCA-Vision had completed only 57,104 procedures, a decrease of nearly 20,000 from the year before.

To counteract the decline, LCA-Vision invested an estimated $15 million in a new media plan. According to ADWEEK Southeast (October 7, 2002), the newly hired Zimmerman & Partners decided to market LCAVision's procedures to contact lens–wearing adults between the ages of 35 and 44, "who are health conscious and conscious of their appearance." Unfortunately, their strategies backfired when the Federal Trade Commission (FTC) filed a false advertising claim against LCA-Vision (and Laser Vision Institute). The FTC claimed the two vision centers advertised the LASIK surgery would completely eliminate the need for glasses and contacts, according to the Review of Optometry (April 15, 2003). However, following the surgery, some patients still needed glasses to correct their vision.

According to a report by the Columbus Dispatch (March 27, 2003), LCA believed its ads were "adequately substantiated," but decided not to fight the charges and avoid costly litigation against the FTC. The case was settled and both LCA-Vision and the Laser Vision Institute agreed to stop advertising guarantees without scientific evidence.

ON A CLEAR DAY, 2003 AND BEYOND

Despite setbacks in the early 2000s, LCA-Vision enjoyed a steady rise in procedures and revenue for the next three years beginning in 2003, with the appointment of a new president, Kevin Hassey. Hassey initiated expansion plans to open about ten new Lasik Plus centers each year and helped increase LCA-Vision's managed care business. Hassey's efforts, including the development of new and successful marketing strategies, helped boost the company's revenue from $81.4 million in 2003 to over $192.4 million for 2005. The company was also earning a profit again, with net income of $31.6 million for 2005, up substantially from $7.3 million in 2003. The company's North American vision centers (with 50 in the United States and three in Canada) performed a record-high of 142,000 procedures in 2005 and had regained the ground lost in the early part of the century. LCA was headed for smooth sailing, until Joffe rocked the boat.

KEY DATES

1985:

General surgeon Stephen N. Joffe forms Laser Centers of America, Inc.

1991:

The first laser vision correction procedure is approved in Canada.

1995:

The Food and Drug Administration (FDA) approves photorefractive keratectomy; LCA opens its first laser vision correction center.

1996:

LCA-Vision goes public on the NASDAQ.

1997:

FDA approves laser in situ keratomileusis (LASIK), a more advanced laser procedure.

1998:

LCA-Vision introduces the Lasik Plus name for its vision correction centers.

2000:

LCA-Vision becomes the third largest corporate laser chain in the United States and Canada.

2004:

The company's profits increase 50 percent in one year.

2006:

Joffe invests in competitor TLC Vision as his son Craig Joffe becomes chief executive of LCA-Vision.

On March 1, 2006, Joffe stepped down as chief executive and was succeeded by his son, Craig, on an interim basis. Two days later, Joffe announced he and his nonprofit Joffe Foundation had invested $27 million in shares of TLC Vision Corporation, LCA's primary rival and the leading laser vision correction firm in North America, with 2005 revenues of $260 million. Joffe's 7.7 percent stake in TLC gave him limited access to the company's operations and decision-making process, a clear conflict of interest as a majority shareholder of LCA-Vision. Joffe considered the purchase an "attractive investment opportunity," according to the Wall Street Journal (March 29, 2006), yet shareholders of LCA and industry analysts found it troublesome. TLC Vision's shareholders, however, were pleased when, a day after Joffe's investment, the company's stock rose 14 percent.

As for LCA-Vision, Stephen Joffe remained a member of the company's board and continued a cooperative relationship with its management. His departure, however, triggered changes in the executive management team and uneasiness in the stock market. In October 2006, Kevin Hassey resigned as the company's president and soon after the announcement, shares of LCA-Vision fell 25 percent to $30.81, a 52-week low. Craig Joffe, however, still had high hopes of weathering the transition and maintaining LCA-Vision's competitive edge. Each of the company's Lasik Plus locations continued to offer potential clients competitive pricing, insurance discounts, and certified, thoroughly trained physicians. Many Lasik Plus centers found a new way to advertise their success and the high quality of their procedures by installing glass partitions so prospective patients could actually watch some procedures.

Despite these enhancements, the economy remained shaky in the middle years of the first decade of the 2000s and some analysts believed the industry might once again stumble. Craig Joffe remained optimistic about LCA-Vision's future, echoing words spoken by his father a decade earlier in telling Business Week (July 3, 2006), "Given that 25 percent of Americans are myopic, even if discretionary spending dampens, we believe our growth will continue."

Jodi Essey-Stapleton;

Nelson Rhodes

PRINCIPAL OPERATING UNITS

LasikPlus Vision Centers.

PRINCIPAL COMPETITORS

Emerging Vision, Inc.; LaserSight Inc.; NovaMed, Inc.; TLC Vision Corporation.

FURTHER READING

Brulliard, Nicolas, "Stake in Rival Costs Chairman's Job," Wall Street Journal, March 29, 2006, p. C12.

Cohen, Judy Radler, "LCA Chairman Buys Big Chunk of TLC Vision," Mergers & Acquisitions Report, March 13, 2006, p. 1.

Coppola, Vincent, "Zimmerman's Retail Savvy Impresses LCA-Vision," ADWEEK Southeast, October 7, 2002, p. 3.

Curtis, Richard, "LCA, Finally Has Success in Its Sights," Cincinnati Business Courier, August 13, 1999, p. 1.

Evanson, David R, "Opposites Attract: Is the Road to an IPO Too Torturous?" Entrepreneur, September 1996, p. 60.

"Federal Trade Commission," Review of Optometry, April 15, 2003, p. 4.

Head, Lauren Lawley, "LCA Volume Up, Earnings Down amid Price War," Cincinnati Business Courier, August 4, 2000, p. 27.

Korman, Richard, "A Rush to Laser Surgery and, Possibly, Profits," New York Times, December 7, 1997, p. 3.

"Laser Market Gets Abrupt Reality Check," Medical Laser Insight, February 2001, p. 2.

Robaton, Anna, "The Vision Thing: Competition Heats Up Among Laser Correction Centers," Crain's New York Business, May 15–21, 2000, p. 1.

Turnbull, Lornet, "FTC Takes Action Against Laser-Eye Surgery Providers, Says Claims Overstated," Columbus Dispatch, March 27, 2003.

Verna, Gigi, "LCA-Vision Surges into New Laser Market," Cincinnati Business Courier, June 24, 1996, p. 19.

"Vision Quest," People Weekly, April 3, 2000, p. 135.

Weintraub, Arlene, "When Dad Bets On an Archrival," Business Week, July 3, 2006, p. 110.