Visx Shares Continue Slide After Doctors’ Royalty Fee Slashed

Visx Inc. (ticker symbol: VISX) wasn’t just seeing things: Its shares continued their downward spiral Wednesday, the day after the leading supplier of vision-correction lasers slashed the royalty it charges U.S. doctors and clinic operators by 60%.

Visx’s surprise move drove shares of down $5.56, or 25%, to $16.31 in Nasdaq trading Wednesday. The once-highflying Santa Clara, Calif.-based company’s stock has lost three-fourths of its value since December.

Shares of companies that run laser eye-surgery clinics, such as Canada-based TLC Laser Eye Centers Inc., rose on Nasdaq on optimism that they’ll pay lower royalties for the equipment they use to perform procedures.

TLC Laser (TLCV) and rivals Laser Vision Centers Inc. (LVCI) of St. Louis and LCA-Vision Inc. (LCAV) of Cincinnati have risen 15% to 27% since Visx said it was cutting the charge to $100 per procedure from $250.

“In the short term, [the clinic operators] get an instant profit gain,” said Dlouhy Investments analyst Joseph Walewicz. He said the cuts could save TLC as much as $22.5 million annually, based on the 150,000 procedures he expects the company to conduct this year.

TLC shares gained 75 cents to $17.50, LCA-Vision climbed $1.13 to $5.22 and Laser Vision Centers rose 13 cents to $10.69.

Visx’s decision was made to respond to smaller cuts by rival Summit Technology Inc. (BEAM), and to spur demand for eye-correction surgery. Summit, the No. 2 eye laser maker, matched Visx’s cuts Wednesday. Summit shares plunged $4.25, or 35%, to $7.81 on Nasdaq.

“When you control 75% of the marketplace and you lower the price, that sets the price for the market. Summit had to follow,” said Theodore Huber, an analyst at Advest Inc. “There’s going to be a big hit to profits and earnings.”

The majority of U.S. adults require glasses or contact lenses to see clearly. Laser surgery can be used to correct nearsightedness, farsightedness and astigmatism for some of those people. Visx was the first company to receive U.S. approval to treat all three conditions, and its new technology attracted keen investor interest in recent years.

But several analysts said Wednesday that they were whipsawed by Visx’s latest move. All 16 analysts tracked by First Call cut their earnings estimates.

“We have a lack of confidence in management’s ability to execute,” said David A. Gruber of Lehman Bros. Gruber, who recommended Visx shares in December when they traded at $57.13, cut his rating Wednesday to “neutral.”

Visx exemplifies how quickly a “momentum stock” can tumble when investors lose confidence that the price will continue to surge. Visx gained 136% last year after soaring fourfold in 1998, when few analysts even covered the stock. At its highest point in July 1999, Visx sold for 80 times expected per-share earnings.

This year, Visx is the worst performer in the Nasdaq 100 index, a tech-stock benchmark. Visx, weighed down after losing a patent decision and reporting weaker-than-expected growth in eye surgeries, now sells for 13 times projected earnings for the year ahead.

“If you lose momentum in this market, you’re out of play,” said Robert Cummisford, manager of the Kent Small Company Growth Fund.

Some investors also griped about Visx’s plan, announced Tuesday, to buy back as many as 10 million, or 16%, of its outstanding shares.

The buyback “is a grotesque misuse of corporate money,” said Jon Burnham, manager of the Burnham Fund, who said he sold all his Visx shares Wednesday. “If they’ve got such problems that they made that cut [in fees], they’ll need that cash.”

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Non-Tech Small-Stock Bargains?

The small-stock Russell 2,000 index has outperformed the blue-chip Standard & Poor’s 500 this year. Though tech stocks are the main reason, the Red Chip Review, the research unit of Portland, Ore.-based analyst RedChip.com, thinks there are plenty of bargains among small stocks outside the tech sector. On Wednesday, it upgraded the shares of 12 such companies, all with market values under $400 million. Warning: Small-cap stocks such as these are often thinly traded and highly volatile.

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Ticker Wed. YTD % Company symbol close change Industry Braun’s Fashions BFCI $16.00 -23.8 Women’s apparel Direct Focus DFXI 28.13 +1.4 Athletic equipment Grand Adventures GATT 6.38 +88.9 Travel services MarineMax HZO 9.88 +4.0 Boat retailer Meade Instr. MEAD 26.00 -8.8 Telescopes, binoculars Mity-Lite MITY 15.75 +1.2 Industrial furniture New World Coffee NWCI 3.06 +53.1 Coffee and bagels Nobel Learning NLCI 7.75 +6.9 Private schools Pacific Continental PCBK 13.25 +1.9 Community banks Sharper Image SHRP 9.38 -26.1 Specialty retailer Staar Surgical STAA 10.75 +10.3 Optical supplies Topps TOPP 7.50 -27.7 Collectibles Russell 2,000 index RUY 549.91 +8.9 S&P; 500 index SPX 1,360.69 -7.4

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Sources: Red Chip Review, Bloomberg News