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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-19671
LASERSIGHT INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 65-0273162
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(State of incorporation) (I.R.S. Employer
Identification No.)
3300 University Blvd, Suite 140, Winter Park, Florida 32792
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 678-9900
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Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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None N/A
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Preferred Share Purchase Rights
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sale price on March 28, 2001 was
approximately $43,564,156. Shares of common stock held by each officer and
director and by each person who has voting power of 10% or more of the
outstanding common stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
Number of shares of common stock outstanding as of March 29, 2001:
23,562,814.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be included in Part III is incorporated
herein by reference to the Company's definitive proxy materials to be filed with
the Securities and Exchange Commission on or before April 30, 2001.
LASERSIGHT INCORPORATED
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplemental Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relations and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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The information in this Annual Report on Form 10-K contains forward
looking-statements, as indicated by words such as "anticipates," "expects,"
"believes," "estimates," "intends," "projects," and "likely," by statements of
the Company's plans, intentions and objectives, or by any statements as to
future economic performance. Forward-looking statements involve risks and
uncertainties that could cause the Company's actual results to differ materially
from those described in such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in Item 7 under the caption "Risk Factors and Uncertainties" as well
as those discussed elsewhere in this Report. All references to "LaserSight(R)"
"we," "our" and "us" in this Report refer to LaserSight Incorporated and its
subsidiaries unless the context otherwise requires.
PART I
ITEM 1. BUSINESS
OVERVIEW
We develop, manufacture and market quality product technologies for
laser refractive surgery and other areas of vision correction. Our products
include precision beam microspot scanning excimer laser systems used to perform
procedures that correct common refractive vision disorders such as
nearsightedness (myopia), farsightedness (hyperopia) and astigmatism, as well as
keratome systems, keratome blades, diagnostic and other products for use in
refractive vision correction procedures. We believe that our precision beam
microspot scanning lasers have significant technological advantages and produce
smoother and more precise ablation areas than older, broad-beam laser systems
and other scanning systems offered by many of our competitors. We also believe
that the breadth of our product offering provides us with a competitive
advantage relative to many other excimer laser system manufacturers because it
provides us with a platform to become a single-source supplier of refractive
vision correction products to refractive surgeons. Moreover, our broad product
offering affords us the opportunity to participate in the anticipated growth in
refractive laser vision correction procedure volume by collecting per procedure
fees and by selling our single-use keratome products and keratome blades.
We have over seven years of experience in the manufacture, sale and
service of precision beam microspot scanning laser systems for refractive vision
correction procedures. Since 1994, we have sold our scanning laser systems
commercially in over 30 countries worldwide. As a result, we believe that our
installed base of over 350 scanning laser systems, including approximately 180
of our most advanced laser system, the LaserScan LSX(R), is among the largest
installed bases of scanning laser systems in the industry. In November 1999, the
FDA approved our LaserScan LSX scanning laser system for commercial sale in the
U.S. for the treatment of nearsightedness of up to 6.0 diopters using a pulse
repetition rate of 100 Hz. Subsequently the FDA approved our PMA Supplement to
increase the pulse repetition rate of the LaserScan LSX to 200 Hz, which we
believe is the fastest pulse repetition rate available in our industry.
Currently, all LSX systems delivered into the U.S. and international markets
operate at the 200 Hz rate. The labeling stipulations of our FDA approval allows
for the treatment of nearsightedness up to 10.0 diopters at the surgeon's
discretion and under specific labeling warnings. We currently have pending with
the FDA PMA Supplement applications seeking approval of the use of our laser
system for the laser in-situ keratomileusis (LASIK) treatment of
nearsightedness, nearsightedness with astigmatism, farsightedness,
farsightedness with astigmatism and mixed astigmatism.
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We are currently in litigation with one of our major competitors
regarding intellectual property claims. We have a broad intellectual property
portfolio, and believe that we own or license all intellectual property
necessary for commercialization of our products. See Item 3 ("Legal
Proceedings") below.
Our family of products for individualized refractive treatments (often
referred to as custom ablations) includes the AstraMax(TM) diagnostic work
station designed to provide precise diagnostic measurements of the eye and our
new AstraPro(TM) surgical planning software that utilizes advanced levels of
diagnostic measurements for the planning of custom ablation treatments. The
AstraMax integrated diagnostic workstation was introduced in October 2000 at the
Annual Meeting of the American Academy of Ophthalmology and we anticipate a
commercial launch for this product during the fourth quarter of 2001.
International clinical testing of the AstraPro planning software has already
begun, and we plan to begin our U.S. IDE trials in this area during 2001.
Our MicroShape(R) family of keratome products includes our UniShaper(R)
single-use keratome, UltraShaper(TM) durable keratome, a control console that
may be used interchangeably with our single-use and durable keratomes, and our
UltraEdge(R) keratome blades. Our MicroShape family of keratome products work
with the LaserScan LSX and also with other laser systems used to perform LASIK.
We began commercial shipment of keratome blades in July 1999 and of our
single-use keratomes and control consoles in December 1999. We anticipate that
sales of our UniShaper single-use keratome and our UltraEdge keratome blades
will provide us with the opportunity to participate in the expected growth in
refractive laser vision correction procedure volume by generating recurring
revenue streams, regardless of which laser system a refractive surgeon uses. We
intend to aggressively develop and market other refractive vision correction
products in the future, including our UltraShaper durable keratome product that
is FDA 510(k) cleared, and that we expect to commercially launch in the second
quarter of 2001. We believe the UltraShaper will compare favorably to existing
keratome products in the marketplace due to its relative ease of assembly and
consistency of performance.
OPERATING SEGMENTS. LaserSight Incorporated and its subsidiaries
(collectively, "LaserSight") operate in three major operating segments:
refractive products, patent services and health care services. Our principal
wholly-owned subsidiaries include: LaserSight Technologies, Inc. ("LaserSight
Technologies"), LaserSight Patents, Inc. ("LaserSight Patents"), and MRF, Inc.
("The Farris Group" or "TFG").
Our refractive products segment, that primarily includes the laser
vision correction products and services of LaserSight Technologies, develops,
manufactures and markets ophthalmic lasers with a galvanometric scanning system
for use in performing refractive surgery. The LaserScan LSX uses a 0.8
millimeter scanning laser beam to ablate microscopic layers of corneal tissue to
reshape the cornea and to correct the eye's point of focus in persons with
myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Our patent
services segment consists primarily of LaserSight Patents, that owns and
licenses various patents related to the use of excimer lasers to ablate
biological tissue. The health care services segment consists of TFG. TFG
provides health care and vision care consulting services to hospitals, managed
care companies and physicians. For information regarding our export sales and
operating revenues, operating profit (loss) and identifiable assets by industry
segment, see Note 14 of the Notes to Consolidated Financial Statements.
ORGANIZATION AND HISTORY. LaserSight was incorporated in Delaware in
1987, but was inactive until 1991. In April 1993, we acquired LaserSight Centers
Incorporated in a stock-for-stock exchange with additional shares issued in
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March 1997 pursuant to an amended purchase agreement. In February 1994, we
acquired TFG. In July 1994, LaserSight was reorganized as a holding company. In
October 1995, we acquired MEC Health Care, Inc. (MEC). In July 1996, our LSI
Acquisition, Inc. (LSIA) subsidiary acquired the assets of the Northern New
Jersey Eye Institute, P.A. On December 30, 1997, we sold MEC and LSIA in
connection with a transaction that was effective as of December 1, 1997. Late in
2000, we abandoned the LaserSight Centers mobile laser strategy due to industry
conditions and our increased focus on development and commercialization of our
refractive products. Our principal offices and mailing address are 3300
University Boulevard, Suite 140, Winter Park, Florida 32792, and our telephone
number is (407) 678-9900 and our address on the world wide web is www.lase.com.
INDUSTRY OVERVIEW
REFRACTIVE VISION CORRECTION
Laser vision correction is a surgical procedure for correcting vision
disorders such as nearsightedness, farsightedness and astigmatism using an
excimer laser. This procedure uses ultraviolet laser energy to ablate, or
remove, tissue from the cornea and sculpt the cornea into a predetermined shape.
Because the excimer laser is a cold laser, it is possible to ablate precise
amounts of corneal tissue without causing thermal damage to surrounding tissue.
The goal of laser vision correction is to achieve patient vision levels that
eliminate or significantly reduce a person's reliance on corrective eyewear. The
first laser vision correction procedure on a human eye was conducted in 1985 and
the first human eye was treated with the excimer laser in the U.S. in 1988.
There are currently two principal methods for performing laser vision
correction with excimer laser systems: photorefractive keratectomy, or PRK, and
laser in-situ keratomileusis, or LASIK. According to industry sources,
approximately 95% of the refractive vision correction procedures performed in
the U.S. in 2000 were LASIK procedures. In both PRK and LASIK procedures, a
refractive surgeon determines the exact refractive correction required to be
made to the cornea, typically using the same examination used to prescribe
eyeglasses and contact lenses. Required corrections are then programmed into the
excimer laser system's computer. During the procedure, the excimer laser system
emits laser pulses, each of which lasts several billionths of a second, to
remove submicron layers of corneal tissue. While the length of laser treatments
range from 15 to 60 seconds, cumulative exposure to the laser light during each
procedure is less than one second. The entire procedure, including patient
preparation and post-operative dressing, generally lasts no longer than thirty
minutes.
PHOTOREFRACTIVE KERATECTOMY (PRK)
In PRK, the refractive surgeon prepares the eye by gently removing the
surface layer of the cornea called the epithelium. The surgeon then applies the
excimer laser beam, reshaping the curvature of the cornea. A bandage contact
lens is then placed on the eye to protect it. Following PRK, a patient typically
experiences blurred vision and discomfort until the epithelium heals. It
generally takes one month, but may take up to six months, for the full benefit
of PRK to be realized. PRK has been used commercially since 1988.
LASER IN-SITU KERATOMILEUSIS (LASIK)
LASIK was commercially adopted internationally in 1994 and in the U.S.
in 1996. Immediately prior to a LASIK procedure, the refractive surgeon uses a
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surgical instrument called a keratome to create a thin, hinged flap of corneal
tissue. Patients do not feel or see the cutting of the corneal flap, which takes
only a few seconds. The flap is flipped back, the laser beam is directed to the
exposed corneal surface, the flap is placed back and the flap and interface are
rinsed. Once the procedure is completed, surgeons generally wait two to three
minutes to ensure the corneal flap has fully re-adhered. At this point, patients
can blink normally and the corneal flap remains secured in position by the
natural suction within the cornea. Since the surface layer of the cornea remains
intact during LASIK, no bandage contact lens is required and the patient
experiences virtually no discomfort. The LASIK procedure often results in a
higher degree of patient satisfaction due to an immediate improvement in visual
acuity and generally involves less post-operative discomfort than PRK.
REFRACTIVE VISION CORRECTION MARKET
The worldwide market for products and services to correct common
refractive vision disorders such as nearsightedness, farsightedness and
astigmatism is large and growing. Industry sources estimate that 50% of the U.S.
population, or approximately 140 million people, presently wear eyeglasses or
contact lenses. There are approximately 14,000 practicing ophthalmologists in
the U.S., of whom approximately 4,000 reportedly perform refractive laser vision
correction procedures on a regular basis.
Laser vision correction is a fast growing segment of the vision
correction market. Total laser refractive procedure volume in the U.S. has
increased rapidly each year since 1996 to an estimated 1,400,000 procedures in
2000 and a projected 1,800,000 procedures in 2001. A procedure refers to laser
treatment on a single eye, and most patients have procedures performed on both
eyes during a single visit to a refractive surgeon. Laser vision correction's
growth in the U.S. is also reflected in the expansion of excimer laser
installations and in the rise in average annual procedure volume per laser.
Many, but not all, manufacturers of excimer laser systems seek to share
in the anticipated growth in procedure volume by receiving a fee for each
procedure performed by a refractive surgeon using laser systems manufactured by
them. The per procedure fees charged by these manufacturers vary and have been
significantly reduced during 2000 due to competitive pressures and changing
market conditions. See "Business-Competition."
DEVELOPMENT OF EXCIMER LASER SYSTEM AND KERATOME TECHNOLOGY
EXCIMER LASER SYSTEMS
The excimer laser systems utilized for laser vision correction have
evolved over time with improvements in laser and beam delivery technology. Until
recently, broad beam laser systems, that were initially developed during the
late 1980's, were the only systems approved by the FDA for commercial use in the
U.S. As a result, broad beam laser systems reportedly represent about 75% of the
installed laser systems in the U.S., down from over 90% at the end of 1999. This
downward trend appears to be continuing as the newer generation of narrow beam
scanning laser systems obtain the broader range of treatment approvals currently
held by the older generation systems. Broad beam laser systems are characterized
by the use of a relatively large, fixed laser beam of six to eight millimeters
in diameter to deliver relatively high amounts of laser energy (100 - 200 mj) at
low laser pulse repetition rates (generally 10 Hz) to the corneal surface.
Because of the relatively large diameter of the laser beam, these systems
require a number of mechanical elements to condition, size, shape and deliver
the beam profiles necessary to produce the required ablation. These mechanical
means of beam shaping have limited the flexibility of broad beam systems and
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require hardware modifications in order to adapt to more complex applications
such as custom ablation.
Broad beam laser systems operate by delivering a consistent laser beam
across the entire vision field of the cornea. In order to reduce the likelihood
of possible adverse effects resulting from constant exposure, the beam width is
reduced incrementally, or in steps, during the course of the procedure. The use
of broad beam laser systems can result in a corneal ablation profile
characterized by ridges on the corneal surface as a result of the stepping
action of the laser's mechanical elements, and may also result in central
islands, an irregularity formed on the corneal bed resulting from the fixed
nature of the laser beam. Additionally, the relatively high laser energy of
broad beam systems can lead to corneal damage from acoustic shock and the
possibility of retinal detachment in those patients needing higher levels of
correction. Glare, halo when looking at lights and other bright objects, and
reduction in night vision and contrast sensitivity have also been associated
with the use of broad beam systems.
Improvements in excimer laser technology during the early 1990's have
made it possible to develop refractive excimer laser systems that have
significantly narrower laser beams (less than one millimeter in diameter) that
use reduced amounts of laser energy (10 mj) at higher pulse repetition rates (up
to 200 Hz) to achieve corneal ablations. LaserSight was the leader in the
development of precision microspot beam technology and the first company to
commercialize it. This new generation of narrow beam scanning excimer laser
systems incorporated scanning mirrors and computer control to shape the ablation
profile, making it unnecessary to utilize mechanical elements to size and shape
the laser beam to attain the desired results. Techniques incorporated into
scanning laser technology such as purposeful overlapping of laser pulses and
random scanning patterns can lead to overall improved clinical results as
evidenced by smoother ablations, the elimination of corneal ridges and central
islands, and the reduction in the incidence of glare, halos, loss or reduction
of night vision and contrast sensitivity. Narrow beam scanning excimer laser
systems are currently the most flexible laser vision correction platforms
available as they can be adapted to expansions in treatment modalities and the
incorporation of new technologies such as higher laser pulse repetition rate,
active eye tracking and custom ablation through software and minor hardware
upgrades.
KERATOMES
Keratomes used to cut the thin corneal flap during the LASIK procedure
are similar in design to those used to perform earlier non-laser surgical
refractive techniques such as automated lamellar keratoplasty (ALK). The
Automated Corneal Shaper (ACS), developed by Luis A. Ruiz, M.D. and Sergio
Lenchig, is an example of an ALK keratome that is utilized extensively in
association with LASIK procedures without modification from its original design.
The ACS durable keratome, manufactured and marketed by Bausch & Lomb
pursuant to a license agreement, was the leading keratome during the early and
mid-1990's at a time when many refractive surgeons learned to perform LASIK.
Since we licensed the rights to commercially market keratomes based on the same
technology in 1997, Bausch & Lomb has discontinued the ACS, and has introduced
an alternative durable keratome product that requires a modified surgical
technique. We believe that a significant number of refractive surgeons prefer
the surgical technique associated with the ACS.
The introduction of our MicroShape family of keratome products provides
refractive surgeons with the opportunity to not only utilize keratomes based on
the original design of the ACS, but to also incorporate a number of significant
improvements intended to make the performance of the instruments safer and more
consistent. Working with refractive surgeons we were able to develop an advanced
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design for our UltraShaper durable keratome incorporating advancements that
address a number of the issues encountered with current keratome designs. Ease
of assembly after cleaning has been improved by utilizing a three-piece
construction. Drive gears have been recessed to minimize the possibility of lid
or lash entrapment, a constant speed drive motor is utilized and the applanation
plate has been integrated into the keratome head. The blade angle is 25 degrees
for a more predictable flap thickness and cut. The open design of the keratome
head allows the surgeon to observe the creation of the flap. A unique LaserSight
patent-pending blade handling and insertion system allows the surgeon to inspect
the blade and insert it into the keratome head without the blade ever being
touched by hands or instruments. This handling system also ensures a more
positive blade location and alignment. In addition, the UltraShaper can
accommodate a surgeon's preference by creating nasal and temporal flaps.
The MicroShape control console utilized with the UltraShaper
incorporates operating and safety features not available with prior generation
systems. A high and low suction level have been incorporated into the console,
allowing use of a lower suction setting during fixation of the keratome on to
the globe of the eye. A "low suction" warning prevents the keratome from
advancing when the console detects suction below a preset limit.
Our UniShaper single-use keratome provides the refractive surgeon with
a sterilized, fully assembled and tested keratome solution that eliminates the
cleaning and maintenance associated with durable keratomes. We believe our
UltraEdge blades offer refractive surgeons the ability to use the only blades
currently offered in the market that are precision ground from surgical grade
stainless steel and cleaned and sterilized utilizing a proprietary process.
LASERSIGHT RECENT DEVELOPMENTS
Our LaserScan LSX excimer laser system is based on patented precision
beam microspot scanning technology rather than broad beam technology, that until
recently was the only commercially available excimer laser vision correction
technology in the U.S. We believe we are well-positioned to become a leading
provider of excimer laser systems, diagnostic products, disposable and durable
keratomes and blades and other related products as a result of our technology
and the following recent developments:
o REISSUANCE OF SCANNING PATENT. In February 2001, the United
States Patent and Trademark Office issued a Notice of Allowance,
thereby completing its examination of LaserSight's reissue
application for our U.S. Patent No. 5,520,679, ("'679 patent").
After a more than 2 1/2 year review of the reissue application,
including detailed analysis of a number of public protests filed
by a third party, the Patent and Trademark Office has confirmed
our broad patent rights to precision beam microspot scanning laser
refractive surgery and issued LaserSight 68 additional patent
claims. Prior to the reissue, the original '679 patent included
one independent claim and 23 total claims, whereas the reissue
application adds nine new independent claims, and a total of 68
additional claims to better encompass the breadth of technology to
which we are entitled. The 23 original claims remain essentially
unchanged. The reissue of the `679 patent should allow us to
protect the uniqueness of our LaserScan LSX's precision beam
microspot scanning technology since the fundamental teachings of
the original `679 patent encompass a refractive laser system
utilizing an excimer laser with a low fluence and high repetition
rate that ablates corneal tissue using small pulses delivered to
the corneal surface in an overlapping pattern. We believe that
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many of the other laser manufacturers will have to respect the
intellectual property rights granted to us through the reissue of
the `679 patent.
o SALE OF BLUM PATENT. In March 2001, we completed the sale of
U.S. Patent No. 4,784,135 ("Blum Patent") for a cash payment of
$6.5 million. We retained a non-exclusive royalty free license
under the patent, that relates to the use of ultraviolet light for
the removal of organic tissue. The book value of the patent at
December 31, 2000, was approximately $2.4 million.
o CREDIT FACILITY. In March 2001, we entered into a loan agreement
with Heller Healthcare Finance, Inc. ("Heller") for a $3.0 million
term loan at an annual interest rate of prime plus 2.5% and a
revolving loan in an amount up to $10.0 million with availability
based on 85% of eligible receivables at an annual interest rate of
prime plus 1.25%. In connection with the loan, we paid a
commitment fee of $130,000 and issued warrants to purchase 243,750
shares of common stock at an exercise price per share of $3.15.
Borrowings under the loan agreement are secured by substantially
all of the Company's assets. The loan agreement requires the
Company to meet certain covenants, including the maintenance of a
minimum level of net worth.
o COMMERCIAL LAUNCH OF OUR LASERSCAN LSX EXCIMER LASER SYSTEM IN THE
U.S. In November 1999, the FDA approved our LaserScan LSX
precision beam microspot scanning excimer laser system for use in
the U.S. for the treatment of nearsightedness. We aggressively
entered the U.S. market in February 2000, and began commercial
shipment of our laser systems to customers in the U.S. in March
2000. We currently have a number of PMA Supplements pending with
the FDA seeking approval of the use of our laser system for the
LASIK treatment of nearsightedness, nearsightedness with
astigmatism, farsightedness, farsightedness with astigmatism and
mixed astigmatism. Our laser systems sold to both U.S. and
international customers operate at a 200 Hz pulse repetition rate,
which we believe is the fastest laser pulse rate currently
available in our industry . We are currently in litigation with
Visx, one of our major competitors, regarding intellectual
property claims. We have a broad intellectual property portfolio,
that was recently strengthened and broadened through reissue of
our `679 patent, and believe that we own or license all
intellectual property necessary for commercialization of our
products. See Item 3 ("Legal Proceedings--Visx, Incorporated")
below.
o COMMERCIAL LAUNCH OF OUR ULTRASHAPER KERATOME PRODUCT. We began
commercial shipments of our UltraEdge keratome blades in July 1999
and of our UniShaper single-use keratomes and our control console
in December 1999. We plan to commercially launch our UltraShaper
durable keratome during the second quarter of 2001. We believe
that the combination of our UltraShaper durable keratome and our
UltraEdge keratome blades, that are intended to be replaced after
each procedure when used in durable keratomes, provide us with an
attractive opportunity to generate recurring revenues on a per
procedure basis.
o INDIVIDUALIZED ABLATIONS. In March 2000, we purchased from
` Premier Laser Systems, Inc. all intellectual property related to
a development project designed to provide front-to-back analysis
and total refractive measurement of the eye. The technology we
acquired includes the acquisition of two U.S. patents, six foreign
patents, and a pending patent application along with an exclusive
license to nine patents that are intended to be used to complete
development of an integrated refractive diagnostic work station.
This diagnostic tool is intended to be utilized as a stand-alone
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diagnostic unit and as part of our Astra(TM)system for
personalized treatment plans. Upon completion of development, we
believe the AstraMax integrated diagnostic work station will be
the first product to integrate precision diagnostic measurements
such as anterior and posterior corneal elevation, corneal
thickness, anterior chamber depth and measurements of photopic and
scotopic pupil size into a single instrument. We plan to add
wavefront analysis to the AstraMax's capabilities at a later time.
The precision measurements from the AstraMax integrated
workstation will be utilized in our AstraPro software for planning
individualized ablations. We believe our Astra system represents a
new standard of eye care that goes beyond conventional laser
vision correction by individualizing the laser treatment utilizing
a patient-specific set of diagnostic criteria intended to address
and control both refractive error and optical aberrations. We
began international research for personalized treatment plans
during the second quarter of 2000.
PRODUCTS
EXCIMER LASERS
LaserSight was the first company to develop an advanced precision beam
microspot scanning excimer laser system, the LaserScan LSX, that has evolved
from the patented optical scanning system incorporated in the Compak-200
Mini-Excimer laser system, introduced internationally in 1994. Since the
introduction of the Compak-200 laser system we have offered several generations
of our scanning laser, each incorporating enhancements and new features. We have
sold our precision beam microspot scanning excimer laser systems in over 30
countries and believe our installed base of over 350 scanning laser systems,
including approximately 180 of our most advanced laser system, the LaserScan
LSX, is among the largest installed bases of scanning laser systems in the
industry. Throughout the evolution of our precision beam microspot scanning
excimer laser systems, the core concept of utilizing our proprietary precision
beam microspot scanning software to ablate corneal tissue with a low energy,
microspot laser beam at a rapid pulse repetition rate has remained the
underlying basis for our technology platform.
In November 1999, the LaserScan LSX was approved by the FDA for
commercialization in the U.S., and we began commercial shipments to U.S.
customers in March 2000. We believe that the patented precision beam microspot
scanning technology and other advanced features incorporated into our LaserScan
LSX excimer laser system offer refractive surgeons and patients significant
advantages over broad beam and other scanning laser systems. The key benefits of
the LaserSight LSX include the following:
o PRECISION BEAM MICROSPOT SCANNING LASER. We believe that
techniques like the patented purposeful overlapping of laser
pulses and random scanning patterns used by our patented precision
beam microspot scanning technology can lead to overall
improvements in clinical results with smoother ablations, the
elimination of surgical anomalies associated with broad beam laser
systems such as rings, ridges and central islands, and reductions
in the incidence of glare, halos and loss of night vision. The
LaserScan LSX uses patented precision beam microspot scanning to
deliver a high resolution, 0.8 millimeter low-energy "flying
spot," in a proprietary, randomized pattern. The LaserScan LSX is
a true precision scanning software-controlled laser that uses a
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pair of galvanometer controlled mirrors to reflect and scan the
laser beam directly onto the corneal surface, without the
mechanical elements used by broad beam excimer laser systems.
o HIGHER PULSE REPETITION RATE. Operating at higher pulse repetition
rates can result in a number of benefits, including reduced
average procedure times and elimination or reduction of
dehydration problems associated with longer exposure of the
corneal tissue to ambient conditions. The LaserScan LSX operates
at a pulse repetition rate of 200 Hz. Many competitive laser
systems currently operate at lower pulse repetitions, often 50 Hz
or less.
o EYE TRACKING. Proper alignment of the refractive correction is
important in all laser vision correction procedures, and is
essential in order to perform custom ablations. Our AccuTrack(R)
eye tracking system maintains alignment of the refractive
correction relative to the visual axis of the eye, and can be
turned on or off based on the refractive surgeon's clinical
preference. The LaserSight AccuTrack eye tracker is an "active"
system that is capable of following even small, involuntary eye
movements. The tracking system eliminates most errors normally
introduced by eye movements during untracked laser refractive
surgery, and does not require dilation of the pupil or any
apparatus to be in contact with the eye. Our AccuTrack eye
tracking system is currently available only on international
versions of the LaserScan LSX, and we are currently pursuing a PMA
Supplement that seeks approval for use of this system in the U.S.
o SOFTWARE DRIVEN FLEXIBLE PLATFORM. Individualized ablations have
resulted in increased patient satisfaction in international
studies and we believe the ability to perform individualized
ablations will generally result in improved, more predictable
results and less post-operative regression relative to other
refractive surgery techniques. We also believe that individualized
ablation will also be the technique most preferred by refractive
surgeons for correction of irregular astigmatism. In our LaserScan
LSX scanning laser, ablation profiles and spot location are
determined by system software, not mechanical elements. The
LaserScan LSX is able to perform individualized ablations because
its software has the ability to move the "flying spot" beam to
the precise predetermined areas on the cornea requiring treatment.
Upon receipt of FDA approvals, software upgrades can be used to
readily update U.S. models to include features currently available
only on international models, including the ability to treat
farsightedness, astigmatism and mixed astigmatism.
o ADVANCED DESIGN AND ERGONOMICS. The LaserScan LSX's relatively
light weight and compact design allows it to fit into small
spaces, and its wheels enable it to be easily moved around in a
multi-surgeon practice. This allows for higher utilization of the
laser system. The efficient design also enables users to implement
a mobile strategy, since the laser is readily transportable to
other locations.
o IMPROVED RELIABILITY AND LOWER MAINTENANCE REQUIREMENTS. Our
LaserScan LSX laser system uses a lower energy laser, fewer
optical elements, and a smaller laser head compared to broad beam
laser systems and other scanning systems on the U.S. market. This
design requires less frequent replacement of expensive optical
elements and a lower volume of laser gas. Savings achieved from
less frequent replacement of optical elements and reduced laser
gas usage translate directly into reduced down time and
maintenance costs.
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CLINICAL EXPERIENCE AND OUTCOME QUALITY
We believe that there are several measures to evaluate with regard to
the safety and clinical effectiveness of a laser vision correction system,
including the incidence of adverse side effects such as double vision, night
driving problems like glare, halos or haze, the post-operative best visual
acuity that can be obtained using corrective eyewear such as glasses or contact
lenses, BSCVA, and the post-operative uncorrected visual acuity, or UCVA (such
as 20/20 or 20/40).
We believe that the degree to which negative, and sometimes permanent,
side effects occur as a result of refractive procedures performed using a laser
system is a key measure of a laser system's performance. In some cases, the
BSCVA deteriorates following a laser vision correction procedure. In addition,
the incidence of side effects such as double vision or haze can substantially
reduce patient satisfaction even if a high level of post-operative visual acuity
is achieved. The data from FDA clinical trials shows that with respect to
symptoms such as corneal haze and night vision problems the LaserSight LSX
compares favorably to the data for the Visx and/or Summit broad beam laser
systems. We believe these qualitative improvements are a result of the
technological features of the LaserScan LSX, including larger treatment zones
and a small scanning microspot that provides a smoother corneal ablation.
CLINICAL RESULTS
FDA clinical trials for the LaserScan LSX laser were conducted in the
U.S. on patients with nearsightedness with required levels of correction of 6
diopters and less. We believe that the average pre-operative level of required
correction is a significant factor that must be taken into account in evaluating
the clinical results of an excimer laser system. The average pre-operative level
of required correction in our FDA clinical trials was 4.8 diopters. Six months
following the procedure, approximately 88% of patients could see 20/40 or
better, the refractive condition required to drive in most states without
corrective lenses.
We expect the post-procedure uncorrected visual acuity (UCVA) of
patients treated with our LaserScan LSX laser system following FDA approval to
exceed the results obtained in our FDA clinical trials as refractive surgeons
gain experience using our laser system.
We intend to continue to develop and improve our technology and to
aggressively continue the process of gaining regulatory approvals for our laser
products in order to expand our access to the U.S. market for refractive
procedures. We currently have a PMA supplement pending with the FDA to expand
the use of our laser systems for the treatment of nearsightedness with
astigmatism, using PRK, and additional PMA supplements on file for the LASIK
treatment of nearsightedness with and without astigmatism, farsightedness with
and without astigmatism and mixed astigmatism.
DIAGNOSTIC AND CUSTOM TREATMENT PRODUCTS
Our Astra family of diagnostic instruments and individualized ablation
planning tools includes the AstraMax integrated diagnostic workstation and the
AstraPro individualized ablation planning software. The AstraMax is an
integrated diagnostic workstation that obtains precision diagnostic measurements
such as anterior and posterior corneal elevation, corneal thickness, anterior
chamber depth and measurements of photopic and scotopic pupil size. Prior to the
AstraMax these measurements would have to be taken utilizing two or more
instruments. We plan to add wavefront analysis to the AstraMax's capabilities at
a later time. The precision diagnostic measurements from the AstraMax integrated
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workstation will be utilized in our upcoming AstraPro software for planning
individualized ablations. We believe our Astra system will represent a new
standard of eye care that goes beyond conventional laser vision correction by
individualizing the laser treatment utilizing a patient-specific set of
diagnostic criteria intended to correct both refractive error and optical
aberrations.
KERATOME PRODUCTS
Our MicroShape family of keratome products includes our UltraShaper
durable keratome, UniShaper single-use keratome, a control console that may be
used interchangeably with our durable and single-use keratomes, and our
UltraEdge keratome blades. We began commercial shipment of keratome blades in
July 1999 and of our single-use keratomes and control consoles in December 1999.
We plan to commercially launch our UltraShaper durable keratome during the
second quarter of 2001.
The following is an overview of our MicroShape family of keratome
products:
FDA Status Product Features/Benefits
---------- -------------------------
UltraShaper durable 510(k) o Easy-to-use blade insertion
keratome clearance eliminates manual handling of blades
received o Built-in stopper provides consistent
stopping point for flaps
o Integrated components provide reduced
assembly time
o Design reduces possible eyelash or
eyelid entrapment or injury
o Automated dual-drive mechanism
with 7,500 RPM blade speed can create
a consistent flap size of 8.7 mm
with an average thickness of 160
microns and hinge width of 5.5 mm
UniShaper single-use 510(k) o Pre-assembled (including blade),
keratome clearance sterile and ready to use
received o Built-in stopper provides consistent
stopping point for flaps
o Covered gears reduces possible
eyelash or eyelid entrapment or
injury
o Automated dual-drive mechanism with
7,500 RPM blade speed can create flap
size of 8.5 mm or larger
Control console 510(k) o Interchangeable for use with the
clearance UniShaper single-use keratome and the
received UltraShaper durable keratome
o Continuous suction monitoring
features including visual and
auditory cautionary alarms and
indicated total time elapsed at high
suction
o Low suction setting for surgeons
using suction ring for globe fixation
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UltraEdge keratome No 510(k) o Manufactured to precise
blades notification specifications for dimensional
required accuracy and consistency
o Proprietary finishing processes
applied to every blade
o Manufactured with surgical grade
steel
o Extensive testing and verification
We acquired the right to manufacture and sell the UniShaper single-use
disposable keratome in September 1997 from inventors Ruiz and Lenchig, who had
invented the ACS distributed by another company. The UniShaper single-use
keratome and the UltraShaper durable keratome each incorporate the market proven
features found in the ACS with new enhancements and features, including
pre-assembly, transparent components for improved visibility while cutting the
flap, and a dual drive mechanism with covered gears. We plan to launch our
UltraShaper durable keratome during the second quarter of 2001 after completion
of the quality evaluation phase of our product release requirements. We believe
that, when launched, the UltraShaper will have undergone a more rigorous
clinical evaluation than any other keratome currently on the market. See "Risk
Factors - Company and Business Risks -- Required Minimum Payments Under Our
UniShaper License Agreement may Exceed Our Gross Profits From Sales of Our
UniShaper Product."
PRODUCT UPGRADES AND OTHER PRODUCTS. As a convenience to our customers,
we also offer a number of ancillary products that either complement our core
laser system, diagnostic products and keratome product portfolio or leverage our
laser technology. We offer various upgrades and modules to purchasers of prior
models of our excimer laser systems, including the AccuTrack eye tracking system
for international customers, a video display system for observation or recording
of refractive procedures, and the latest version of our proprietary software,
version 9.0, that provides international users with features including expanded
treatment options and patient databases. In addition, we offer certain
scientific lasers and related equipment for medical research and scientific
research applications. During 2000, our focus on the refractive industry
resulted in the elimination of our erbium laser, the Crystalase, as a product
line, that was used to perform dermatological procedures. Our revenue from sales
of our ancillary and other products generally is included in refractive product
net revenue and represents, in the aggregate, less than 5% of our total
refractive product net revenue.
GROWTH STRATEGY
Our goal is to become a leading worldwide provider of excimer laser
systems, diagnostic and individualized ablation planning products, single-use
and durable keratomes and other products for the refractive vision correction
industry. We believe that our more than seven years of experience in the
manufacture, sales and service of excimer laser systems, our significant
penetration of international markets and the advanced technology of our laser
systems diagnostic instruments and keratome products provide us with a strong
platform for future growth as we continue to penetrate the U.S. and
international markets for refractive surgical lasers and instruments.
The following are the key elements of our growth strategy:
o PENETRATE U.S. EXCIMER LASER MARKET. We believe that our LaserScan
LSX precision beam microspot scanning excimer laser system
represents a significant technological advancement over the broad
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beam and other scanning laser systems currently being marketed in
the U.S., as our precision beam microspot scanning lasers can
provide more precise corneal ablations, reduced visual side
effects, enhanced visual acuity and shorter procedure times.
o PENETRATE WORLDWIDE DIAGNOSTIC INSTRUMENT MARKET. We believe that
our AstraMax integrated diagnostic workstation also represents a
significant technological advancement over existing corneal
topographers since it is a single instrument that more precisely
obtains a wide variety of diagnostic information not provided by
current topographers. In addition, the AstraMax's precise
measurements are over the total area of the cornea thus providing
the necessary information for planning individualized ablations.
o PENETRATE WORLDWIDE KERATOME AND KERATOME BLADE MARKETS. We
believe that a key competitive strength of our MicroShape family
of keratome products is the relative simplicity and ease of use of
our UltraShaper durable keratome and fact that the flexibility of
the keratome control console offers refractive surgeons the option
to utilize either a single-use or durable keratome based on their
clinical preference. Commercial shipments of our UniShaper
single-use keratome product began in December 1999 and the
commercial launch of our UltraShaper durable keratome is expected
to occur in the second quarter of 2001. In addition to the
keratome blades we make for use in our keratome products, in July
1999 we also began distributing our UltraEdge keratome blades for
use in the keratomes of other manufacturers.
o GENERATE RECURRING REVENUE STREAMS. We have positioned our
business to benefit from the anticipated future growth in
refractive vision correction procedure volume. In addition to
receiving the purchase price for each laser system sold in the
U.S., we believe we will generate recurring revenue streams by
participating in per procedure fees resulting from the use of our
laser systems. We also believe that our AstraPro ablation
planning software, our UniShaper single-use keratome and our
UltraEdge keratome blades, that are intended to be replaced after
each procedure when used in durable keratomes, provide additional
sources of recurring revenue for us. In addition, we also plan to
continue to develop or acquire additional single-use ophthalmic
products in order to complement our line of products for
refractive vision correction.
o PROPRIETARY TECHNOLOGY LEADERSHIP. We believe that technological
advances in the refractive vision correction market will continue
to evolve through the advancement of existing technologies and the
introduction of new treatment modalities. Accordingly, we intend
to strategically develop and/or acquire complementary products and
other refractive vision correction modalities. For example, in
March 2000, we acquired the intellectual property that we have
developed into our AstraMax integrated diagnostic workstation. In
February 2001, we received notice of allowance of the reissuance
of our `679 patent, covering methods for performing ophthalmic
surgery using a scanning laser with 68 additional claims.
SALES AND MARKETING
We sell our excimer laser systems, diagnostic products, keratomes and
related products through a direct sales force, independent sales representatives
and distributors, and through the sales and marketing capabilities of our
strategic allies. Since 1994, we have marketed our laser systems commercially in
15
over 30countries worldwide and currently have an installed base of over 350
scanning lasers, including over 180 of our LaserScan LSX laser systems.
EXCIMER LASER SYSTEMS
Following receipt of FDA approval of the LaserScan LSX in November
1999, we began to commercially market our excimer laser systems in the U.S. We
employ five dedicated sales professionals targeting key refractive markets
within the U.S. These territorial managers are responsible for sales within
their respective territories.
Laser system sales in international markets are generally to hospitals,
corporate centers or established and licensed ophthalmologists. We market our
excimer laser systems in Canada, Europe, Russia, the Pacific Rim, Asia, South
and Central America, and the Middle East. We are also exploring potential
clinical trial advisors and distribution agents in Japan. As of December 31,
2000, we employed five territorial managers who are responsible for sales in
international markets, both directly and through our approximately 35
independent distributors and representatives within their respective
territories.
All of our distributors and representatives have been selected based on
their experience and knowledge of their respective ophthalmic equipment market.
In addition, the selection of international distributors and representatives is
also based on their ability to offer technical support. Distributor and
representative agreements provide for either exclusive territories, with
continuing exclusivity dependent upon achievement of mutually-agreed levels of
annual sales, or non-exclusive agreements without sales minimums. Currently,
separate distributor and representative agreements are in place for all major
market areas. During 2000, approximately 68% of our product sales resulted from
distributors and representatives with the balance from sales made by employees
of LaserSight. No single customer or distributor was responsible for generating
sales in excess of 10% of our consolidated revenues in 2000. TLC Laser Eye
Centers Inc. ("TLC") represented approximately 14% of our consolidated revenues
in 1999.
In conjunction with our sales activities, we participate in a number of
foreign and domestic ophthalmology meetings, exhibits and seminars.
Historically, two large U.S. meetings, the American Academy of Ophthalmology and
the American Society of Cataract and Refractive Surgery, have yielded
substantial interest in our products.
We believe that educating our customers and informing them about system
developments is an important way to ensure customer satisfaction and desirable
clinical results. Our clinical specialists are available to travel to a customer
site to train the refractive surgeon on how to safely operate our excimer laser
system and achieve optimum clinical results. We have also developed an extensive
set of written materials to inform refractive surgeons about how our laser
system works and a series of marketing related materials to assist the surgeon
in marketing his refractive practice to his patient base.
KERATOME PRODUCTS
In October 1999, we entered into a marketing and distribution alliance
with Becton Dickinson, the current manufacturer of our UltraEdge keratome blades
and a leading worldwide manufacturer of medical supplies, devices and diagnostic
systems. We recently received notice from Becton Dickinson claiming that they
have the right to end our marketing arrangement in six months and are currently
involved in discussions with Becton Dickinson regarding modifications to this
agreement. See "Risk Factors and Uncertainties--Industry and Competitive
Risks--We cannot assure you that our keratome products will achieve market
acceptance." We have developed alternative strategies for marketing and
distributing our keratome products in the event we are unable to agree on the
terms of a modified relationship with Becton Dickinson. Currently, Becton
Dickinson is, subject to limited exceptions, the exclusive distributor of our
keratomes and keratome related products in the U.S., the U.K., Ireland and
Japan, and has a non-exclusive right to distribute kits including keratome
products in other countries. We have retained the right to sell directly to TLC
and to market and
16
sell our keratome products in markets other than the U.S., U.K., Ireland and
Japan. In these markets, our keratome products are marketed both through our
existing distributor network for excimer laser system sales and through direct
sales efforts.
MANUFACTURING
EXCIMER LASER SYSTEMS
MANUFACTURING FACILITIES. Our manufacturing operations primarily
consist of assembly, inspection and testing of parts and system components to
assure performance and quality. We acquire components of our laser system and
assemble them into a complete unit from components that include both
"off-the-shelf" materials and assemblies and key components that are produced by
others to our design and specifications. We conduct a series of final system
integration and acceptance tests prior to shipping a completed system. The
proprietary computer software that operates the scanning system in our laser
systems was developed and is maintained internally.
We have excimer laser system manufacturing operations in Winter Park,
Florida and San Jose, Costa Rica. LaserScan LSX excimer laser systems assembled
in our Florida facility are shipped to U.S. customers and systems assembled in
our Costa Rica facility are shipped to our international customers. We relocated
our U.S. manufacturing operation to a larger leased facility in Winter Park, FL
during the second quarter of 2000. In October 1996, we received certification
under ISO 9002, an international system of quality assurance, for our
manufacturing and quality assurance activities in our Florida and Costa Rica
facilities. Since that time we have maintained our ISO 9002 certification
through a series of periodic surveillance audits and have also been certified at
our Winter Park facility to ISO 9001 quality system standards.
AVAILABILITY OF COMPONENTS. We purchase the vast majority of components
for our laser systems from commercial suppliers. These include both standard,
"off-the-shelf" items, as well as components produced to our designs and
specifications. While most components are acquired from single sources, we
believe that in many cases there are multiple sources available to us in the
event a supplier is unable or unwilling to perform. Since we need an
uninterrupted supply of components to produce our laser systems, we are
dependent upon these suppliers to provide us with a continuous supply of
integral components and sub-assemblies.
We contracted with TUI Lasertechnik und Laserintegration GmbH, Munich,
Germany, in 1996 to develop an improved performance laser head based on their
innovative technology and our performance specification and laser lifetime
requirements. We began to incorporate this new laser head into our products,
notably the LaserScan LSX, in the fourth quarter of 1997. Currently, TUI is a
single source for the laser heads used in the LaserScan LSX. Currently,
SensoMotoric Instruments GmbH, Teltow, Germany, is a single source for the eye
tracker boards used in the LaserScan LSX. We continue to evaluate joint ventures
with critical suppliers as well as other potential supplier relationships.
DIAGNOSTIC AND CUSTOM TREATMENT PRODUCTS
Our AstraMax integrated diagnostic workstation will be manufactured in
our Winter Park manufacturing facility. The AstraPro software is under
development by LaserSight's software engineers and will be distributed from
Winter Park when it has been completed and receives the necessary approvals.
17
KERATOME PRODUCTS
The UltraShaper durable keratome is being manufactured exclusively for
us by Owens Industries, Inc. Owens is experienced in the machining and assembly
of precision instruments. The control console for our keratomes is manufactured
for us by Humphrey Instruments, a division of Carl Zeiss, Inc., located in San
Leandro, California.
The UniShaper single-use keratome is manufactured for us under an
exclusive agreement with Frantz Medical Development Ltd., an ISO 9001 certified
company experienced in the manufacture of disposable medical devices from
engineering-grade polymer. This agreement has a 30-month term that expires in
May 2002, and we are obligated to purchase 50,000 units during each year of the
contract following receipt of final product approval, that occurred in October
1999. This agreement has been suspended indefinitely until the UltraShaper
durable keratome is commercialized and design changes from the UltraShaper are
incorporated into the UniShaper.
Our UltraEdge keratome blades are manufactured by Becton Dickinson
pursuant to our manufacturing agreement with them. Becton Dickinson has agreed
to manufacture keratome blades exclusively for us, and we have agreed to
purchase keratome blades exclusively from them. We generally are required to
purchase one million keratome blades over a five-year period. The consummation
of this agreement resulted in the cessation of internal blade manufacturing
operations by LaserSight. We recently received notice from Becton Dickinson
claiming that they have the right to end our manufacturing agreement and are
currently involved in discussions with Becton Dickinson regarding modifications
to this agreement. See "Risk Factors and Uncertainties--Industry and
Competitive Risks--We cannot assure you that our keratome products will achieve
market acceptance." We are developing alternative strategies for manufacturing
our keratome blades in the event we are unable to agree on the terms of a
modified relationship with Becton Dickinson.
COMPETITION
The vision correction industry is subject to intense, increasing
competition. We operate in this highly competitive environment that has numerous
well-established U.S. and foreign companies with substantial market shares, as
well as smaller companies. Many of our competitors are substantially larger,
better financed, better known, and have existing products and distribution
systems in the U.S. marketplace. FDA approval requirements are a significant
barrier to entry into the U.S. market for commercial sales of medical devices.
Two of our competitors, Visx and Alcon (Summit), received FDA approval of their
broad beam laser systems more than four years ago, and have manufactured and
sold laser systems that currently account for about 66% of the installed excimer
laser systems in the U.S. Visx, Alcon, Bausch & Lomb and Nidek currently
manufacture laser systems specifically approved by the FDA for use in LASIK
procedures. In the market for keratome products, Bausch & Lomb sold a
significant majority of the keratomes and keratome blades used by refractive
surgeons in the U.S. in 1999 and 2000.
We believe competition in the excimer laser system market is primarily
based on safety and effectiveness, technology, price, regulatory approvals, per
procedure fee payments, royalty payments, dependability, warranty coverage and
customer service capabilities. We believe that safety and effectiveness,
technology, price, dependability, warranty coverage and customer service
capabilities are among the most significant competitive factors, and we believe
that we compete favorably with respect to these factors.
Currently, five manufacturers, Visx, Alcon, Nidek, Bausch & Lomb and
LaserSight, have excimer laser systems with the required FDA approval to
commercially sell the systems in the U.S. Some of the approvals are for broader
18
labeled indications, a key competitive element in the industry. A laser system
with broader labeling approvals is attractive because it enlarges the pool of
laser vision correction candidates to whom the procedure can be marketed. At
present, the laser systems manufactured by all of our competitors in the U.S.
market have FDA approval to perform a wider range of treatments than our laser
system, including higher degrees of nearsightedness, astigmatism, and in the
case of Visx and Alcon, farsightedness. These approvals have given Visx a
competitive advantage, with laser systems sold by Visx having performed nearly
70% of the laser vision correction procedures performed in the U.S. in 1999 and
2000. Our LaserScan LSX excimer laser system is not presently approved to treat
farsightedness, astigmatism or more than 10 diopters of nearsightedness in the
U.S. Our PMA supplements for treatment of nearsightedness with astigmatism,
farsightedness with astigmatism and mixed astigmatism are presently pending.
While regulatory approvals play a significant role with respect to the U.S.
market, competition from new entrants may be prevalent in other countries where
regulatory barriers are lower.
In February 2000, Visx announced that it was reducing the fee it
charges to customers from $250 to $100 for each laser vision correction
procedure performed on an excimer laser manufactured by Visx. Shortly after this
announcement, Alcon announced it would also reduce its licensing fee to $100,
plus an additional $25 for astigmatism and hyperopia correction and $150 for its
Ladarvision systems. Bausch & Lomb has indicated it will charge a fee of $100
for each laser vision correction procedure performed on an excimer laser
manufactured by Bausch & Lomb. We are currently charging a per procedure fee of
up to $130. Nidek has indicated that it does not intend to charge per procedure
fees. The per procedure fees received by us as well as our competitors who
currently receive such fees are subject to change based on competitive factors
and changing market conditions, and there can be no assurance that such fees
will not be reduced or eliminated in the future.
In addition to conventional vision correction treatments such as
eyeglasses and contact lenses, we also compete against other surgical
alternatives for correcting refractive vision disorders such as surgically
implantable rings that recently received FDA approval, as well as implantable
intraocular lenses and a holmium laser system developed for the treatment of
farsightedness, that have also been approved by the FDA.
We believe competition in the market for keratome products is primarily
on the basis of performance, ease of use, design, automation, price,
availability, regulatory approvals, royalty payments, warranty coverage and
customer service capabilities. We believe that performance, ease of use, design,
automation, and price are among the most significant, and believe that we
compete favorably with respect to these factors. In addition to Bausch & Lomb,
who manufactured a significant majority of the keratomes and keratome blades
used by refractive surgeons in the U.S. in 1999 and 2000, our principal
competitors in the keratome and keratome blade business include Moria and
Innovative Optics.
INTELLECTUAL PROPERTY
There are a number of U.S. and foreign patents or patent rights
relating to the broad categories of laser devices, use of laser devices in
refractive surgical procedures, delivery systems for using laser devices in
refractive surgical procedures, keratometers, and keratomes. We maintain a
portfolio of what we believe to be strategically important patents, patent
applications, and licenses. Our patents, patent applications and licenses
generally relate to the following areas of technology: UV and
infrared-wavelength laser ablation for refractive surgery, our precision beam
microspot laser scanning system, harmonic conversion techniques for solid state
lasers, calibration of refractive lasers, treatment of glaucoma and other
19
retinal abnormalities, keratometer design, enhanced techniques for corneal
topography, techniques for treatment of nearsightedness and farsightedness,
techniques to optimize clinical outcomes of refractive procedures, and keratome
design. We monitor intellectual property rights in our industry on an ongoing
basis and take action, as we deem appropriate, including protecting our
intellectual property rights and securing additional patent or license rights.
Among the more significant of our intellectual properties are our `679
patent, solid-state laser-related, and keratometer patents. In May 1996, we were
granted the original '679 Patent relating to an ophthalmic surgery method
utilizing a non-contact scanning laser. In 1998 we petitioned the U.S. Patent
and Trademark Office for reissue of this patent, and in February 2001, we
received a Notice of Allowance from the U.S. Patent and Trademark Office
indicating that our '679 Patent will be reissued. Prior to the reissue the
original '679 Patent included one independent claim and 23 total claims. The
reissue application added nine new independent claims, and a total of 68
additional claims to better encompass the breadth of technology to which we are
entitled. The 23 original claims remain essentially unchanged. The fundamental
teachings of the original '679 Patent cover a refractive laser system using an
excimer laser with low energy and a high laser pulse repetition rate to ablate
corneal tissue with small pulses delivered to the corneal surface in an
overlapping pattern. Through the reissue process, we were able to broaden
several elements of the `679 Patent's original claims by removing certain
restrictive elements.
Our U.S. Patent No. 5,144,630 relates to a solid state laser operating
at multi-wavelengths using harmonic frequency conversion techniques. This is the
technology incorporated into our developmental solid state system that can
produce both infrared and ultraviolet wavelengths.
Two of our U.S. patents, Nos. 5,847,804 and No. 5,953,100, cover a
multi-camera corneal analysis system that is the underlying technology for our
AstraMax diagnostic workstation. This state-of-the-art multi camera (stereo)
technology provides the precise corneal height measurements that will be needed
for the planning of individualized, or custom ablation, treatments when these
treatments are commercially available.
A number of our competitors, including Visx and Alcon, have asserted
broad intellectual property rights in technology related to excimer laser
systems and related products, and intellectual property lawsuits are sometimes a
competitive factor in our industry. In November 1999, Visx asserted that the
Company's technology infringed one of Visx's U.S. patents for equipment used in
ophthalmic surgery. See "Legal Proceedings--Visx, Incorporated" in Item 3 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors and Uncertainties - We are subject to risks and
uncertainties relating to our patent litigation with Visx" in Item 7. We believe
that we own or have a license to all intellectual property necessary for
commercialization of our products.
PATENT SEGMENT. We have generated royalty income pursuant to license
agreements with respect to certain of our intellectual property rights,
primarily the Blum Patent and related license agreements we acquired from
International Business Machines Corporation ("IBM") in August 1997. These
patents ("IBM Patents"), the Blum Patent and U.S. Patent No. 4,925,523 ("Braren
Patent") relate to the use of ultraviolet light for the removal of organic
tissue and may be used in laser vision correction, as well as for non-ophthalmic
applications, and is the fundamental blocking patent that underlies the
technology of ultraviolet laser refractive surgery. Under the license agreements
with Visx and Alcon we acquired from IBM, Visx and Alcon were each obligated to
pay a royalty to us on all excimer laser systems they manufacture, sell or lease
in the U.S., excluding those systems manufactured in the U.S. and sold into a
country where a foreign counterpart to the IBM Patents exists.
20
We purchased the Blum and Braren patents from IBM in August 1997 for
$14.9 million. Shortly thereafter, we granted an exclusive paid up license in
the cardiovascular field in exchange for a payment of $4 million. In February
1998, we entered into an agreement with Nidek pursuant to which we retained all
of the IBM Patent rights within the U.S. and sold to Nidek, for $7.5 million,
the foreign counterparts to those patents. We also granted Nidek a non-exclusive
license to utilize the IBM Patents in the U.S. In addition, Nidek granted us an
exclusive license to the foreign counterparts to the IBM Patents in the
non-ophthalmic, non-vascular and non-cardiovascular fields. Since our 1997
purchase of the IBM Patents we have realized over $5 million in royalty revenues
from licenses to the patent.
In March 2001, we entered into a business arrangement with Alcon
regarding the Blum Patent. As part of the arrangement, we sold the Blum Patent
to Alcon for $6.5 million and assigned to Alcon certain licenses to the Blum
Patent. We have retained a non-exclusive royalty free license under the Blum
Patent and have also retained the license to the Blum Patent that was granted to
Visx. LaserSight and Alcon will share in royalties received from any future
licenses to the Blum Patent and we will also receive a portion of any recovery
from parties found to be infringing the Blum Patent. Including the transaction
with Alcon, we will have received a total of approximately $24 million from the
Blum Patent and will continue to enjoy a royalty free license in the U.S.
OTHER INTELLECTUAL PROPERTY. We also believe that our other
intellectual property rights are valuable assets of our business. For example,
we entered into an agreement with a subsidiary of TLC in October 1998 that
grants us an exclusive license under U.S. Patent No. 5,630,810 (TLC Patent)
relating to a treatment method for preventing the formation of central islands
during laser surgery. Central islands are a problem generally associated with
laser refractive surgery performed with broad beam laser systems used to ablate
corneal tissue. In 1999 we filed a lawsuit against Visx, our competitor,
asserting that they infringe this patent. We have agreed to pay TLC for the term
of the exclusive license 20% of the aggregate net royalties we receive in the
future from licensing the TLC patent and other patents currently owned by us.
The TLC Patent is currently in reissue at the U.S. Patent and Trademark Office.
The extent of protection that may be afforded to us by our patents, or
whether any claim embodied in our patents will be challenged or found to be
invalid or unenforceable, cannot be determined at this time. Our patents and
other pending applications may not afford a significant advantage or product
protection to us.
We maintain an internal program that encourages development of
patentable ideas. As of March 15, 2001, we have approximately 30 U.S. patent
applications undergoing prosecution at the U.S. Patent and Trademark Office and
a number of counterparts to these applications filed internationally. Our patent
applications generally relate to the use of laser devices in refractive surgical
procedures, delivery systems and other technology related to the use of laser
devices in refractive surgical procedures, diagnostic devices for eye
measurements, and keratomes.
In the U.S., our trademarks include LaserSight(R), AccuTrack(R),
LSX(R), LaserScan LSX(R), MicroShape(R), UltraEdge(R), and UniShaper(R). We have
also applied for registration of 11 additional trademarks.
21
REGULATION
MEDICAL DEVICE REGULATION
The FDA regulates the manufacture, use, distribution and production of
medical devices in the U.S. Our products are regulated as medical devices by the
FDA under the Federal Food, Drug, and Cosmetic Act. In order to sell such
medical devices in the U.S., a company must file a 510(k) premarket notice or
obtain premarket approval after filing a PMA application. Noncompliance with
applicable FDA regulatory requirements can result in one or more of the
following:
o fines;
o injunctions;
o civil penalties;
o recall or seizure of products;
o total or partial suspension of production;
o denial or withdrawal of premarket clearance or approval of devices;
o exclusion from government contracts; and
o criminal prosecution.
The FDA also has authority to request repair, replacement or refund of the cost
of any device manufactured or distributed by a company.
Medical devices are classified by the FDA as Class I, Class II or Class
III based upon the level of risk presented by the device and whether the device
is substantially equivalent to an already legally marketed Class I or II device.
Class III devices are subject to the most stringent regulatory review and cannot
be marketed in the U.S. until the FDA approves a PMA for the device.
CLASS III DEVICES. A PMA application must be filed if a proposed device
is not substantially equivalent to a legally marketed Class I or Class II
device, or if it is a Class III device for which the FDA requires PMAs. The
process of obtaining approval of a PMA application is lengthy, expensive and
uncertain. It requires the submission of extensive clinical data and supporting
information to the FDA. Human clinical studies may be conducted only under an
FDA-approved protocol and must be conducted in accordance with FDA regulations.
In addition to the results of clinical trials, the PMA application includes
other information relevant to the safety and efficacy of the device, a
description of the facilities and controls used in the manufacturing of the
device, and proposed labeling. After the FDA accepts a PMA application for
filing and reviews the application, a public meeting may be held before an FDA
advisory panel comprised of experts in the field.
After the PMA is reviewed and discussed, the panel issues a favorable
or unfavorable recommendation to the FDA and may recommend conditions. Although
the FDA is not bound by the panel's recommendations, it historically has given
them significant weight. If the FDA's evaluation of the PMA application is
favorable, the FDA typically issues an "approvable letter" requiring the
applicant's agreement to comply with specific conditions (such as specific
labeling language) or to supply specific additional data (such as post-approval
patient follow-up data) or other information in order to secure final approval.
Once the approvable letter is satisfied, the FDA will issue approval for certain
indications that may be more limited than those originally sought by the
manufacturer. The PMA approval can include post-approval conditions that the FDA
22
believes necessary to ensure the safety and effectiveness of the device
including, among other things, restrictions on labeling, promotion, sale and
distribution. Failure to comply with the conditions of approval can result in
enforcement action, including withdrawal of the approval. Products manufactured
and distributed pursuant to a PMA will be subject to extensive, ongoing
regulation by the FDA. The FDA review of a PMA application generally takes one
to two years from the date such application is accepted for filing but may take
significantly longer. The review time is often significantly extended by FDA
requests for additional information, including additional clinical trials or
clarification of information previously provided.
Modifications to a device subject to a PMA generally require approval
by the FDA of PMA supplements or new PMAs. We believe that our excimer laser
systems require a PMA or a PMA supplement for each of the surgical procedures
that they are intended to perform. The FDA may grant a PMA with respect to a
particular procedure only when it is satisfied that the use of the device for
that particular procedure is safe and effective. In granting a PMA, the FDA may
restrict the types of patients who may be treated.
FDA regulations authorize any interested person to petition for
administrative review of the FDA's decision to approve a PMA application.
Challenges to an FDA approval have been rare. We are not aware that any
challenge has been asserted against us and do not believe any PMA application
has ever been revoked by the agency based on such a challenge.
During 1994, we began the clinical studies required for approval and
commercialization of our laser scanning system in the U.S. In April 1998, we
filed a PMA application for PRK treatment of nearsightedness using our scanning
laser system. We received notification from the FDA that our laser system had
received PMA approval for low to moderate nearsightedness in November 1999. The
QSR/GMP regulations impose certain procedural and documentation requirements
upon us with respect to our manufacturing and quality assurance activities. Our
facilities will be subject to ongoing inspections by the FDA, and compliance
with QSR/GMP regulations is required for us to continue marketing our laser
products in the U.S. In addition, our suppliers of significant components or
sub-assemblies must meet quality requirements established and monitored by
LaserSight, and some may also be subject to FDA regulation.
The following table summarizes the FDA regulatory status of the
LaserScan LSX excimer laser system. The labeling for each device contains a more
detailed description of the ranges summarized below.
Condition Regulatory Status
--------- -----------------
Low to Moderate Nearsightedness.....Approved (to -6 diopters) (PRK) (1)
PMA supplement filed (LASIK)
Moderate to High Nearsightedness PMA supplement filed (PRK/LASIK)
-- with astigmatism...............
Higher Degrees of Nearsightedness...PMA supplement filed (LASIK)
-- with astigmatism...............PMA supplement filed (LASIK)
Moderate to High Farsightedness.....PMA supplement filed (LASIK)
-- with astigmatism...............PMA supplement filed (LASIK)
200 Hz pulse rate...................PMA supplement approved
AccuTrack eye tracking system.......PMA supplement in process
23
(1) The LaserScan LSX has been approved by the FDA for treatment of
nearsightedness of up to -6 diopters. The labeling stipulations of our
approval allows for the treatment of nearsightedness up to 10.0
diopters at the surgeon's discretion and under specific labeling
warnings.
During 1998, we submitted and received approval to begin U.S. clinical
trials of our scanning laser for treatment of nearsightedness and
farsightedness, with and without astigmatism, utilizing the LASIK procedure. In
early 2001, we submitted PMA supplements seeking approvals based on the data
from such clinical trials. We also began a clinical trial of our scanning laser
system for LASIK treatment of nearsightedness and nearsightedness astigmatism in
Canada in late 1998 and received Device License Approval from Canadian Medical
Devices Bureau in mid-1999. During 1996, we began clinical trials for
photo-astigmatic refractive keratectomy, or PARK, in the U.S. The PMA supplement
reflecting this data is currently pending with the FDA.
In July 1997, we acquired from Photomed the rights to a PMA application
filed with the FDA by Dr. Kremer for an excimer laser system for LASIK
treatment. In July 1998, the FDA approved the PMA application for the laser to
perform LASIK for correction of nearsightedness and nearsightedness with
astigmatism. This approval, however, was for the treatment of nearsightedness
and nearsightedness with astigmatism, specifically using LASIK at a single-site
only. The commercial sale of the Photomed laser in the U.S. would require
additional FDA approvals and compliance with QSR/GMP. Based on these factors and
our submission in December 2000 of a PMA supplement for LASIK based on clinical
data from our LaserScan LSX laser systems, we have abandoned further efforts to
commercialize this PMA. The FDA's approval of this PMA is unrelated to the PMA
for our LaserScan LSX scanning laser system. Laser systems approved by the FDA
for PRK are routinely used off-label to perform LASIK. A physician may decide,
as part of the practice of medicine, to use a medical device outside of its
FDA-approved indications for an unapproved or "off-label" use. Prior to late
1999, all LASIK procedures performed in the U.S. with commercially available
lasers were performed in accordance with the practice of medicine. See
"Products--Overview of Competitive Laser Systems" above.
CLASS I OR II DEVICES. Devices deemed to pose relatively less risk are
placed in either Class I or II, which requires the manufacturer to submit a
510(k) premarket notification, unless an exemption applies. The premarket
notification must demonstrate that the proposed device is "substantially
equivalent" to a "predicate device" that is either in Class I or II, or is a
"pre-amendment" Class III device that was in commercial distribution before May
28, 1976, for which the FDA does not require PMA approval. The FDA issued
determinations of equivalency for our UniShaper single-use keratome in January
1998 and for our UltraShaper durable keratome in January 2000. Our UltraEdge
keratome blades are exempt from the 501(k) requirement.
After the FDA has issued a determination of equivalency for a device,
any modification that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use, requires a new 510(k)
notice. The FDA requires each manufacturer to make this determination in the
first instance, but the FDA can review any such decision. If the FDA disagrees
with a manufacturer's decision not to submit a new 510(k), the agency may
retroactively require the manufacturer to submit a premarket notification. The
FDA also can require the manufacturer to cease marketing and/or recall the
modified device until receipt of the necessary 510(k).
In February 2001, we received notification from the FDA that the
Company may begin commercial distribution of its AstraMax diagnostic
workstation.
24
OTHER REGULATORY REQUIREMENTS. Labeling and promotional activities are
subject to scrutiny by the FDA and by the Federal Trade Commission. Current FDA
enforcement policy prohibits manufacturers from marketing and advertising their
approved medical devices for unapproved or off label uses. The scope of this
prohibition has been the subject of recent litigation. The only materials
related to unapproved devices that may be disseminated by companies are peer
reviewed articles. Our lasers are also subject to the Radiation Control for
Health and Safety Act administered by the Center for Devices and Radiological
Health of the FDA. The law requires laser manufacturers to file new product and
annual reports and to maintain quality control, product testing and sales
records. In addition, laser manufacturers must incorporate specified design and
operating features in lasers sold to end users and comply with labeling and
certification requirements. Various warning labels must be affixed to the laser
depending on the class of the product under the performance standard. The
manufacture, sale and use of our products is also subject to numerous federal,
state and local government laws and regulations relating to such matters as safe
working conditions, manufacturing practices, environmental protection, fire
hazard control and disposal of hazardous or potentially hazardous substances.
INTERNATIONAL REGULATORY REQUIREMENTS. The manufacture, sale and use of
our products is also subject to regulation in countries other than the U.S.
During November 1996 we completed all requirements necessary to obtain authority
to apply the CE Mark to our LaserScan 2000 System, an earlier generation of
excimer laser system we sold in international markets. In September 1998, we
received similar certification to apply the CE Mark to our LaserScan LSX excimer
laser system. The CE Mark, certifying that the LaserScan Models 2000 and
LaserScan LSX meet all requirements of the European Community's medical
directives, provides our products with marketing access in all member countries
of the EU. All countries in the EU require the CE Mark certification of
compliance with the EU Medical Directives as the standard for regulatory
approval for sale of excimer laser systems.
The EU Medical Directives include requirements under EU laws regarding
the placement of various categories of medical devices on the EU market. This
includes a "directive" that an approved "Notified Body" will review technical
and medical requirements for a particular device. All clinical testing of
medical devices in the EU must be done under the Declaration of Helsinki, which
means that companies must have ethics committee approval prior to commencement
of testing, must obtain informed consent from each patient tested, and the
studies must be monitored and audited. Patient records must be maintained for 15
years. Companies must also comply with the Medical Device Vigilance reporting
requirements. In obtaining the CE Mark for our excimer laser system, we
demonstrated that we satisfied all engineering and electro-mechanical
requirements of the EU by having our manufacturing processes and controls
evaluated by a Notified Body (Semko) for compliance with ISO 9002 and ISO 9001
requirements, and conducted a clinical study in France to confirm the safety and
efficacy of the excimer laser system on patients.
RESEARCH AND DEVELOPMENT
We continue to research and develop new laser products, laser systems,
product upgrades enhancements, keratome products, including the UltraShaper
durable keratome, and ancillary product lines. In March 2000, we acquired the
intellectual property that we have developed into the AstraMax. We believe the
AstraMax will assist us in developing our personalized treatment plan
capabilities.
Other research and development efforts include the continued
development of a solid-state laser and enhancements for our advanced
eye-tracking system that is standard on the international model of LaserScan
25
LSX. The solid-state is the first true non-gas laser capable of delivering a
laser beam in the ultraviolet spectrum (common to all excimer lasers used for
refractive surgery). In addition, the solid-state laser could be capable of
generating multiple wavelengths, thus permitting its use for other ophthalmic
procedures that now require separate lasers.
Past solid-state research and development efforts resulted in the
identification of many features that were subsequently incorporated into our
excimer laser system. Further efforts will continue to be directed at an
appropriate level towards the development of this system. As is the case with
many new technology products, the commercialization of the solid-state laser is
subject to potential delays.
While the risk of failure of these specific activities may be
significant, we believe that if developed, these products could provide us with
a leading edge technology that would further differentiate our products from
other companies in the industry. There is no assurance that any of these
research and development efforts will be successful.
HEALTH CARE CONSULTING SERVICES
We also provide health care and vision care consulting services to
hospitals, managed care companies and physicians through our TFG subsidiary. The
core business of TFG is two-fold: developing and maintaining physician databases
for clients' needs and providing customized strategic plans. Services included
are physician recruitment tools, competitive intelligence, demand studies,
community health analyses and distribution channel mapping. TFG clients include
multi-hospital health systems, community hospitals, academic medical centers,
specialty health care providers and manufacturers and distributors of health
care products. In 1998, as a result of losses incurred in previous years, TFG
reduced staffing substantially, tightened it business focus and began
outsourcing certain services such as teleresearch and physician recruiting. In
1999, two senior consultants joined who have helped develop new business during
2000, resulting in improved financial results for TFG.
The senior consulting staff of TFG includes seven individuals with
significant experience in health care. We believe that new business will
increase as a result of existing business relationships and previously developed
leads for new business. In addition to working with former clients, sales
efforts are in development to generate new clients in the hospital, academic
medical center, hospital system and other health care provider categories. TFG
served approximately 10 clients in 2000.
Industry projections indicate continued turbulence in the health care
industry as prices paid by government and managed care organizations continue to
decrease. Consolidation, diversification, divestiture and downsizing are among
the actions many health care providers are being forced to consider in order to
solidify a position in the fast changing market place. TFG believes it is
positioned to assist health care managers in understanding the range of
available options and selecting an appropriate course of action. See
"Management's Discussion and Analysis -- Results of Operations -- Revenues."
Clients are generally asked to pay a certain amount at the commencement
of the engagement and at the point where predefined milestones are reached, but
no less than monthly. Certain clients pay a monthly retainer. Projects may be
priced on an hourly rate or at a fixed project price, exclusive of out of pocket
expenses.
26
We believe that the key competitive factors in the health care
consulting services segment is the experience of consultants, contacts within
the industry, pricing of services and satisfaction of clients. Primary
competitors are national consulting firms and small health care consulting
firms.
EMPLOYEES
As of December 31, 2000, we had 180 full-time and two part-time
employees. None of our employees is a member of a labor union or subject to a
collective bargaining agreement. LaserSight generally considers its employee
relations to be good.
ITEM 2. PROPERTIES
Our principal offices, including executive offices and administrative,
marketing and U.S. manufacturing facilities, are located in approximately 22,700
square feet of space that we have leased in Winter Park, Florida. This lease
expires on June 14, 2002. We have leased approximately 15,600 square feet of
additional space in Winter Park, Florida for administrative office space and to
provide capacity for an increase in U.S. manufacturing. The lease of this
additional space in Winter Park expires January 31, 2004. We lease approximately
3,900 square feet of office space in St. Louis, Missouri, which lease expires
July 31, 2001. We lease approximately 6,400 square feet of space near San Jose,
Costa Rica, that we use as a manufacturing facility. The lease of the San Jose
manufacturing facility expires November 30, 2003. We lease approximately 5,500
square feet of space in Munich, Germany, that we use as our European base of
operations. The Munich lease expires in February 2004. In our opinion, the
various properties used in our operations are generally in good condition and
are adequate for the purposes for which we utilize them.
ITEM 3. LEGAL PROCEEDINGS
VISX, INCORPORATED. On November 15, 1999, we were served with a
complaint filed by Visx asserting that the Company's technology infringed one of
Visx's U.S. patents for equipment used in ophthalmic surgery. On November 16,
1999, LaserSight and Visx reached agreement to stay the patent litigation and to
continue negotiations toward a U.S. license agreement in our effort to
facilitate commercialization of its laser systems in the U.S. During the stay,
we could commence manufacturing our laser systems in the U.S. but could not
sell, offer to sell, ship or use commercially our laser systems in the United
States until the parties entered into a license agreement or the stay was
otherwise lifted. On February 1, 2000, we announced that we withdrew from the
licensing negotiations and allowed the litigation to proceed. The stay was
lifted effective February 16, 2000. In addition, on February 1, 2000, we filed
suit against Visx claiming non-infringement and invalidity of the Visx patent
and asserting that Visx infringes U.S. Patent No. 5,630,810. Management believes
that we do not infringe Visx's patent and that this action will not have a
material adverse effect on our business, financial condition or results from
operations. However, the outcome of patent litigation, particularly in jury
trials, is inherently uncertain, and an unfavorable outcome in the Visx
litigation could have a material adverse effect on our business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Risk Factors and
Uncertainties - We are subject to risks and uncertainties relating to our patent
litigation with Visx" in Item 7.
FORMER NNJEI OWNERS. On March 22, 1999, we received notice of an action
filed on March 15, 1999 by the former owners of Northern New Jersey Eye
Institute, or NNJEI, and related assets and entities against LaserSight in U.S.
District Court for the District of New Jersey. The complaint alleged breach of
27
contract in connection with a provision in our July 1996 acquisition agreements
related to the assets of NNJEI and related assets and entities. Such provision
provided for additional issuance of LaserSight common stock if our stock price
was not at certain levels in July 1998. We issued the additional common stock in
July 1998 in accordance with the provisions of the agreements. The plaintiffs
allege that, based on the price of LaserSight common stock in July 1998,
additional payments were required of approximately $540,000. In November 2000,
we settled this litigation in exchange for a one-time payment of $135,000.
J.T. LIN. On June 24, 1999, Jui-Teng Lin, a former president, chief
executive officer and director of LaserSight, filed an action in the Circuit
Court of the Ninth Judicial Circuit in Orange County, Florida, against
LaserSight. This action asserts that LaserSight is currently in default on a
promissory note executed in June 1991, and payable to Mr. Lin in the principal
amount of $1,180,000. In February 2001, this matter was settled with prejudice
at no cost to LaserSight.
FORMER SHAREHOLDER OF TFG. On November 12, 1999 a lawsuit was filed in
the U.S. District Court for the Eastern District of Missouri on behalf of a
former shareholder of TFG, a wholly-owned subsidiary of LaserSight. The lawsuit
names Michael R. Farris, our Chief Executive Officer, as the sole defendant and
alleges fraud and breach of fiduciary duty by Mr. Farris in connection with the
redemption by TFG of the former shareholder's capital stock in TFG. At the time
of the redemption, which occurred prior to LaserSight's acquisition of TFG, Mr.
Farris was the President and Chief Executive Officer of TFG. Our Board of
Directors has authorized LaserSight to retain and, to the fullest extent
permitted by the Delaware General Corporation Law, pay the fees of counsel to
defend Mr. Farris, TFG and LaserSight in the litigation so long as a court has
not determined that Mr. Farris failed to act in good faith and in a manner Mr.
Farris reasonably believed to be in the best interest of TFG at the time of the
redemption. Management has reviewed the lawsuit and believes that the
allegations set forth therein are without merit, and that our obligations with
respect to Mr. Farris' legal defense will not have a material adverse effect on
our financial condition or results from operations.
LAMBDA PHYSIK, INC. On January 20, 2000 a lawsuit was filed in the
Circuit Court of Broward County, Florida on behalf of Lambda Physik, Inc.
("Lambda") against LaserSight. The action alleges that we breached an agreement
we entered into with Lambda for the purchase of lasers from Lambda. Lambda has
requested $1,852,813 in damages, plus interest, costs and attorney's fees. We
believe that the allegations made by the plaintiff are without merit, and we
intend to vigorously defend the action. Management believes that we have
satisfied our obligations under the agreement and that this action will not have
material adverse effect on our financial condition or results from operations.
KREMER. On November 16, 2000 a lawsuit was filed in the United States
District Court for the Eastern District of Pennsylvania on behalf of Frederic B.
Kremer, M.D. and Eyes of the Future, P.C. The action alleges that LaserSight is
in breach of certain terms and conditions of an agreement it entered into with
Dr. Kremer relating to LaserSight's purchase of a patent from Dr. Kremer. Dr.
Kremer has requested equitable relief in the form of a declaratory judgment as
well as damages in excess of $1,600,000, plus interest, costs and attorney's
fees. LaserSight believes that the allegations made by the plaintiff are without
merit, and intends to vigorously defend the action. Management believes that
LaserSight has satisfied its obligations under the agreement and that this
action will not have material adverse effect on tour financial condition or
results from operations.
ROUTINE MATTERS. In addition, we are involved from time to time in
routine litigation and other legal proceedings incidental to our business.
Although no assurance can be given as to the outcome or expense associated with
any of these proceedings, we believe that none of such proceedings, either
28
individually or in the aggregate, will have a material adverse effect on the
financial condition of LaserSight.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on The Nasdaq Stock Market(R) under the symbol
LASE. The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices for our common stock on The Nasdaq Stock Market.
1998: High Low
---- ---- ---
First Quarter $3.38 $1.56
Second Quarter 5.38 2.25
Third Quarter 8.03 3.38
Fourth Quarter 6.00 2.75
1999:
----
First Quarter $5.94 $3.88
Second Quarter 20.38 5.22
Third Quarter 17.63 12.13
Fourth Quarter 18.31 7.19
2000:
----
First Quarter $13.00 $5.50
Second Quarter 6.75 3.25
Third Quarter 5.56 3.09
Fourth Quarter 3.81 0.91
On March 28, 2001, the closing sale price for our common stock on the
Nasdaq National Market was $2.06 per share. As of March 29, 2001, LaserSight had
23,562,814 shares of common stock outstanding held by approximately 261
stockholders of record and, to our knowledge, approximately 9,423 total
stockholders, including stockholders of record and stockholders in "street
name."
We have never declared or paid any cash dividends on our common stock
and do not anticipate paying cash dividends on our common stock in the
foreseeable future. Our current policy is to retain all available funds and any
future earnings to provide funds for the operation and expansion of our
business. Any determination in the future to pay dividends will depend upon our
financial condition, capital requirements, results of operations and other
factors deemed relevant by our board of directors, including any contractual or
statutory restrictions on our ability to pay dividends.
29
POSSIBLE DILUTIVE ISSUANCES OF COMMON STOCK
Each of the following issuances of common stock may depress the market
price of the common stock. See "Management's Discussion and Analysis - Risk
Factors and Uncertainties - Common Stock Risks--The Significant Number of Shares
Eligible for Future Sale and Dilutive Stock Issuances may Adversely Affect Our
Stock Price."
LaserSight Centers and Florida Laser Partners. Based on
previously-reported agreements entered into in 1993 in connection with our
acquisition of LaserSight Centers (our development-stage subsidiary) and
modified in July 1995 and March 1997, we may be obligated as follows:
o To issue up to 600,000 unregistered shares of common stock ("Centers
Contingent Shares") to the former stockholders and option holders of
LaserSight Centers (including two trusts related to our Chairman of
the Board and certain of our former officers and directors). The
Centers Contingent Shares will be issued only if we achieve certain
pre-tax operating income levels through March 2002. Such income
levels must be related to our use of a fixed or mobile excimer laser
to perform PRK, the arranging for the delivery of PRK or receipt of
license or royalty fees associated with patents held by LaserSight
Centers. The Centers Contingent Shares are issuable at the rate of
one share per $4.00 of such operating income.
o To pay to a partnership whose partners include our Chairman of the
Board and certain of our former officers and directors a royalty of
up to $43 (payable in cash or in shares of common stock ("Royalty
Shares")), for each eye on which PRK is performed on a fixed or
mobile excimer laser system owned or operated by LaserSight Centers
or its affiliates.
o Royalties do not begin to accrue until the earlier of March 2002 or
the delivery of all of the 600,000 Centers Contingent Shares.
As of March 29, 2001, we have not accrued any obligation to issue
Centers Contingent Shares or Royalty Shares. We cannot assure you that any
issuance of Centers Contingent Shares or Royalty Shares will be accompanied by
an increase in our per share operating results. We are not obligated to pursue
strategies that may result in the issuance of Centers Contingent Shares or
Royalty Shares and, in fact, late in 2000 we abandoned the LaserSight Centers
mobile laser strategy due to industry conditions and our increased focus on
development and commercialization of our refractive products. It may be in the
interest of our Chairman of the Board for us to pursue business strategies that
maximize the issuance of Centers Contingent Shares and Royalty Shares.
FOOTHILL WARRANT. In April 1997, we issued to Foothill Capital
Corporation a warrant to purchase 500,000 shares of common stock (the "Foothill
Warrant") at a price of $6.067 per share. We are required to make anti-dilution
adjustments to both the number of warrant shares and the warrant exercise price
if we sell common stock or common stock-equivalents (such as convertible
securities or warrants) at a price per share that is (or could be) less than the
fair market value of the common stock at the time of such sale (a "Below-Market
issuance"). To date, such anti-dilution adjustments have resulted in (1) an
increase in the number of Foothill Warrant shares to 595,367, and (2) a
reduction to the exercise price of the Foothill Warrant shares to $5.06 per
share. Additional anti-dilution adjustments to the Foothill Warrant could also
result from any future Below-Market Issuance. The Foothill warrants may be
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exercised at any time through March 31, 2002. As of March 29, 2001, warrants for
98,367 shares of our common stock remain outstanding.
SERIES B WARRANT. In connection with our issuance of the Series B
Preferred Stock in August 1997, we issued to the former holders of the Series B
Preferred Stock warrants to purchase 750,000 shares of common stock (the "Series
B Warrant") at a price of $5.91 per share at any time before August 29, 2002. In
connection with a March 1998 agreement whereby we obtained the option to
repurchase the Series B Preferred Stock and a lock-up on conversions, the
exercise price of the Series B Warrant shares was reduced to $2.753 per share.
We are required to make anti-dilution adjustments to both the number of warrant
shares and the warrant exercise price in the event we make a Below-Market
Issuance. To date, these anti-dilution adjustments and other agreements among
the former holders of the Series B Preferred Stock and us have resulted in (1)
an increase in the number of Series B Warrant shares to 807,506, and (2) a
reduction to the exercise price of Series B Warrant shares to $2.53 per share.
Additional anti-dilution adjustments to the Series B Warrants could also result
from any future Below-Market Issuance. As of March 29, 2001, 140,625 of such
warrants had been exercised and 666,881 of such warrants remained outstanding.
SHORELINE WARRANT. In connection with our sale of the Series B
Preferred Stock in August 1997, we issued to four individuals associated with
our placement agent warrants to purchase 40,000 shares of common stock (the
"Shoreline Warrant") at a price of $5.91 per share at any time before August 29,
2002. We are required to make anti-dilution adjustments to both the number of
warrant shares and the warrant exercise price in the event we make a
Below-Market Issuance. To date, these anti-dilution adjustments have resulted in
(1) an increase in the number of Shoreline Warrant shares to 43,269, and (2) a
reduction to the exercise price of Shoreline Warrant shares to $5.42 per share.
Additional anti-dilution adjustments to the Shoreline Warrants could also result
from any future Below-Market Issuance of common stock. As of March 29, 2001,
8,589 of such warrants had been exercised and 34,680 of such warrants remained
outstanding.
SERIES D PREFERRED STOCK. In accordance with the terms of our
Certificate of Designation, Preferences and Rights of the Series D Preferred
Stock, the holders of the Series D Preferred Stock are entitled to certain
anti-dilution adjustments if we issue common stock or common stock-equivalents
(such as convertible securities or warrants) at a price per share (or having a
conversion or exercise price per share) less than $4.00 per share. To date, no
anti-dilution adjustments have been made.
MARCH 1999 PRIVATE PLACEMENT WARRANTS. In connection with our sale of
common stock in March 1999, we issued the purchasers warrants to purchase a
total of 225,000 shares of common stock at an exercise price of $5.125 per
share, the closing price of the Company's common stock on March 22, 1999. The
warrants have a term of five years. As of March 29, 2001, 45,000 of such
warrants had been exercised and 180,000 of such warrants remained outstanding.
CONSULTING WARRANTS. On February 22, 1999, in connection with a
consulting services agreement that we entered into with Guy Numann, we issued
warrants to purchase a total of 67,500 shares of our common stock at a price of
$5.00 per share. One-third of the warrants become vested on each annual
anniversary of the grant until all the warrants are vested. To the extent
vested, the warrants are exercisable at any time prior to February 22, 2004. As
of March 29, 2001, 45,000 of such warrants had vested and all such warrants
remained outstanding.
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SEPTEMBER 2000 PRIVATE PLACEMENT WARRANTS. In connection with our sale
of common stock in September 2000, we issued the purchasers warrants to purchase
a total of 600,000 shares of common stock at an exercise price of $3.60 per
share. The warrants have a term of three years. As of March 29, 2001, all such
warrants remained outstanding.
HELLER WARRANTS. In connection with our March 2001 loan agreement with
Heller Healthcare Finance, Inc., we issued the Heller warrants to purchase a
total of 243,750 shares of common stock at an exercise price of $3.15 per share.
The warrants have a term of three years. As of March 29, 2001, all such warrants
remained outstanding.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The summary financial information as of
and for each of the years in the five-year period ended December 31, 2000 is
derived from our consolidated financial statements for such years.
(In thousands, except for per share amounts)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $ 34,518 $ 21,728 $ 17,756 $ 24,389 $ 21,504
Gross profit 19,283 11,951 11,410 11,687 11,381
Loss from operations (22,196) (15,102) (11,461) (9,262) (4,960)
Gain on sale of subsidiaries -- -- 364 4,129 --
Net loss (21,430) (14,424) (11,882) (7,253) (4,074)
Conversion discount
on prefe