Medical Lasers Successful, but Profits Ailing

Times Staff Writer

The horror began just a few days after Justine Balanos was born four years ago. Suddenly, the small red mark on the infant’s right cheek began spreading until it became a bulbous, red splotch that stretched across her cheekbone to the edge of her nose.

The mark, called a strawberry hemangioma, was more than an ugly cosmetic problem. It interfered with Justine’s eyesight and, left untreated, might have partially blinded her.

Considering traditional treatments inadequate, Justine’s doctor at UC Irvine’s Medical Center turned to the newest weapon in the plastic surgeon’s arsenal: the laser.

In just two treatments under the laser beam’s intense heat, the enlarged blood vessels feeding the growth were severed and welded. And, with its blood supply gone, Justine’s birthmark immediately began shrinking.


‘Best Possible Treatment’

“Until the laser, there was no good way of treating the hemangioma,” explains Bruce Achauer, Justine’s doctor. “Now it’s the best possible treatment.”

Stories like Justine’s abound. Over the last two decades no fewer than 12 medical specialties have gradually discovered more than 100 applications for the laser’s varied abilities.

As a “light scalpel,” the laser removes tumors in previously inaccessible recesses of the brain. As a welder, it repairs an eye’s detached retina. And as an on-the-spot vaporizer, it erases warts, tattoos and birthmarks.


However, while lasers long ago justified their billing as medical marvels, they have yet to produce the long-predicted and long-awaited financial rewards for their manufacturers, investors and researchers.

“The technology is wondrous, but the bottom line is that the industry is not successful financially,” says Larry Haimovitch, a medical technology analyst in San Francisco for Swergold, Chefitz & Sinsabaugh Inc. “The industry is glamorous, interesting and sexy and I think some investors and businessmen get blinded by that.”

The problem isn’t sales. Those are expected to hit at least $200 million worldwide this year and jump to $750 million by 1990. The trouble, analysts explain, is that profits have been squeezed by fierce competition, a watchful Food and Drug Administration and ever-changing technology.

“First you have the cost of developing the product,” complains John Moore, vice president and general manager of the medical division of Coherent Inc. in Palo Alto, the nation’s largest manufacturer of all types of lasers.

“Then you spend four or five years testing the product and getting it approved by the FDA. And in the end, the product’s life cycle ranges from one to five years.”

Targeting Same Customer

Still other executives moan that there are too many companies targeting the same customer.

Consider the plight of Lasermed Inc. By the time this tiny, 3-year-old Costa Mesa company produced its first opthalmic laser system last year, President Jack Baldridge recalled, at least a half dozen companies were already selling comparable products. Unable to distinguish itself from the pack, Lasermed was forced into filing for a Chapter 11 reorganization earlier this month.


Although bankruptcies aren’t common among laser companies, neither are big operating profits. In fact, the profits earned last year by Coherent and Israel-based Laser Industries, two of the giants in the market, are considered the rare exceptions in a sea of otherwise red ink.

Despite the meager profits, stiff competition and potential for bankruptcy, dozens of laser companies are still betting that big bucks await those able to survive the laser’s slow-arriving surge.

Several reasons are cited for this persistent optimism.

One is the still-huge potential market for medical lasers. Currently analysts estimate that about 65% of the laser sales are for eye treatments, leaving a vast, untapped source of future sales in other medical specialties.

According to a research report from Swergold, Chefitz, lasers could be used in 40% of the 11.5 million hospital surgeries in the United States. Currently, it is estimated to be used in less than 10% of hospital surgeries.

Furthermore, the report projects that one-third of the nation’s 60,000 physician offices should be considered prime candidates for a laser system. Analysts estimate that substantially fewer than 10% of the country’s doctors have lasers in their offices now.

Wide-Open Market

Another source of optimism is the highly fragmented and openly competitive market among laser manufacturers.


Although the companies range from subsidiaries of such well-heeled drug companies as Johnson & Johnson, Squibb, Bausch & Lomb and American Hospital Supply, to clusters of starry-eyed engineers such as those who formed Directed Energy Inc. in Irvine and Laserscope in Santa Clara, the market is still considered wide-open to both the current players and future entrants.

Still another reason stems from government and insurance company efforts to clamp down on soaring health-care costs by imposing reimbursement ceilings for most medical procedures.

The moves are seen by many analysts as a big boon for laser sales because laser surgery, which often requires only a tiny incision to accommodate the light beam, generally involves fewer days of hospitalized recovery for the patient.

And at the bottom line, that means insurance companies and government medical programs pay less for a laser surgery than a traditional “cut and sew” procedure.

Biomedical Business International, a Tustin-based medical research firm, estimates that using a laser in brain surgery, for example, can cut a hospital stay in half.

In other cases, including glaucoma and early-stage cervical cancer, physicians can perform the laser procedures in their offices or in special “surgicenters,” entirely eliminating the need for overnight hospitalization.

No Hospital Stay

“In some cases we are talking about absolutely bloodless surgeries with lasers. Of course, many of them don’t require a hospital stay,” says Pamela Goforth, a medical technology analyst in Santa Barbara. Carolyn Mackety, a laser consultant in Chicago estimates that 30% of the surgeries currently performed in hospitals could be done on an “out-patient basis,” (in a physician’s office or a surgicenter) with a laser.

However, it is the laser’s potential uses that generate the most excitement for its future.

For example, researchers are currently experimenting with lasers to vaporize the fatty deposits that clog blood vessels and ultimately cause heart disease.

If the procedure is as successful as early research suggests, it could be considered a far less-costly and dangerous alternative to the estimated 160,000 heart bypass surgeries performed each year in the United States.

In other clinics, including one at UC Irvine, doctors are using lasers to explode cancerous tumors. According to Michael Berns, director of the Beckman Laser Institute at UC Irvine and a medical school professor at that university, drugs are injected into the patient to dye the tumor.

When a laser is later beamed to the tumor, the light reacts with the dye to kill the cancer cells within a few days. Berns said the treatment has been partially to fully successful in nearly 80% of the patients in the UCI study.

Still other researchers are looking to laser eye surgery to eliminate the need for glasses or contact lenses.

Huge Potential

“Heart disease, cancer and bad eyes. Those cover a lot of people,” observes Pieter Halter, president of Biomedical Business International. “Clearly the potential market is huge, both in terms of the number of possible patients--and profits.”

Nevertheless, Halter and other analysts caution that the laser’s enormous financial potential won’t be fully realized without some significant changes in the way the machines are made, marketed and used.

Furthermore, analysts agree that doctors still must overcome their lack of formal laser training and, particularly among older physicians, an aversion to high-tech medicine.

“We should have put laser training into medical school training far earlier,” argues Leon Goldman, the 80-year-old founding president of the American Society for Laser Surgery and Medicine. “We just should have kicked out the old medical school chiefs and gotten some new blood.”

Old foggies aside, the biggest problem facing the laser is its cost.

Currently, the devices carry price tags ranging from about $20,000 for the portable hand-held model made by Directed Energy Inc. in Irvine to about $120,000 for high-powered machines such as the experimental multipurpose system developed by Laserscope in Santa Clara.

The average surgical laser costs about $50,000, a fairly steep price given the fact that most lasers cannot be used for more than a handful of similar procedures.

For example, the laser that repairs a detached retina cannot be used to remove warts. A device capable of zapping a brain tumor is far too powerful to handle genital herpes, a birthmark or a tattoo. And the same model that etches uterine growths cannot treat glaucoma.

Need More Versatility

To become a standard operating room device, future laser systems will have to accommodate a wider variety of procedures in order to justify their prices, Halter contends.

Halter is particularly intrigued by the multipurpose system developed by Laserscope Inc. in Santa Clara, a new company that is still testing a machine that claims to combine the cutting, vaporizing and welding abilities of other lasers.

However, Laserscope President Thomas Brunner said the system has received FDA approval for use only in dermatology and plastic surgery procedures, a major road block to the company’s plans to market the system as a do-all device.

Even if a multipurpose machine is developed for the hospital operating room, argues consultant Goforth, laser companies will still have a tough time penetrating the vast office market with $30,000 devices a physician might use just a few times a week.

“Sure a laser would be a great way to take off warts,” agrees one dermatologist. “But do you know how many warts I’d have to remove to pay for it?”

However, lowering the price of laser units, notes Haimovitch, puts manufactures in a Catch-22 bind. To reduce the price, the companies say they need sales significantly higher than the 500 units a so-called popular model might sell in a given year. But until the prices drop, sales are unlikely to soar.

While struggling to find a solution to that problem, Moore, the vice president of Coherent, says the smart companies will also start targeting the surging numbers of surgicenters, the free-standing clusters of operating rooms that handle surgeries not requiring overnight hospitalization.

Not only is the laser often the best device for such minor “out patient” procedures, but the laser system would soon pay for itself through the high volume, according to analyst Mackety.

Still, laser makers are unlikely to find big profits looming brightly on the immediate horizon. “The market has been slower to emerge than everyone originally thought,” says Haimovitch. “It’s going to be a marathon, not a quick one-two-three race.”