Advanced Medical Optics Inc. had been banking on sales of vision correction surgery gear to offset other struggling parts of its business, particularly its recall-racked contact lens solution unit.
Now the Santa Ana-based company is worried that an economic slowdown might put off people from going under the laser to sharpen their vision.
“We have seen the deteriorating U.S. economy negatively impact our domestic Lasik procedure volumes,” said James Mazzo, Advanced Medical’s chief executive, during the company’s fourth-quarter earnings call earlier this month. “We feel a more conservative view is prudent at this time.”
Vision correction devices, related products and licensing fees were $368 million or 34% of Advanced Medical’s $1.1 billion in sales last year.
Surgery products to treat cataracts make up about half of the company’s business. Contact lens solutions, which were recalled last year over safety concerns, make up about 15% of sales.
Advanced Medical made a big push into vision correction surgery gear with last year’s $800 million buy of Irvine’s IntraLase Corp., which makes a laser, software and other products used to create a flap in the eye’s cornea.
This year, Advanced Medical expects laser vision correction surgeries to fall 10%. That stands to ding sales,the company gets a fee for each procedure done with its machines as well as sales from a disposable kit used in each surgery.
The result: a forecast of lower profits for 2008.
Advanced Medical now expects to earn $75 million to $87.5 million this year after charges. The lower end of the range is below the $83 million Wall Street had expected.
The company’s shares actually jumped on the Feb. 14 news in what some called a relief rally as the company also outlined cost cutting. Advanced Medical had a market value of $1.4 billion last week.
“I was obviously pleasantly surprised by the enormity of the reaction,” Mazzo said. “I think (Wall Street) liked it that we weren’t chasing a number.”
The lowered outlook gives Advanced Medical room to beat its forecast if “things improve a little in the U.S.,” Mazzo said.
Vision correction surgery costs $2,000 to $5,000 for both eyes, though some doctors offer the procedure for less.
Surgeon Gregg Feinerman of Feinerman Vision Center in Newport Beach said he sees the economic slowdown hitting discount chains.
“It will not make a major impact on high-quality (laser) centers,” he said.
That would be good for Advanced Medical, as discount chains still might use a metal blade to cut a corneal flap, instead of Advanced Medical’s laser.
Feinerman uses lasers made by rival Ziemer AG of Germany.
Charles Manger, a surgeon who owns Saddleback Eye Center in Laguna Hills, said his practice has remained relatively constant.
Economic concerns are valid, he said, but “people who are motivated to have Lasik still have the procedure done regardless of the economic forecasts.”
Advanced Medical is trying to spur interest in vision correction surgery by working with doctors. One of its efforts is called iLasik, which mixes its IntraLase laser and the company’s Advanced CustomVue procedure, which treats nearsighted patients with astigmatism, or curvature of the eye’s lens.
Some 450 doctors have signed up for iLasik. Advanced Medical provides marketing tools and a Web site.
Another part of Advanced Medical’s plan: cost cutting.
The company plans to cut 4% of its workforce, or about 150 jobs, to save $10 million to $12 million a year. As part of that, the company is going to take restructuring charges of $25 million to $30 million this year.
The rationale for the job cuts is philosophical, Mazzo said. He cited a book, “Good to Great: Why Some Companies Make the Leap … and Others Don’t” by Jim Collins.
“In it, he talks a lot about what great companies do and what happened to great companies and why they were no longer great companies,” Mazzo said.
Fallen companies “fell in love with their own press clippings,” he said. “They didn’t look to modify or constantly increase productivity.”
Advanced Medical’s cataract surgery business is a bright spot, according to Mazzo. And contact lens solution sales are recovering from last year’s recall, he said.
Advanced Medical returned to solutions last fall with a reformulated version of its Complete that emphasizes rubbing lenses, rather than just soaking. The Complete EasyRub replaced the original Complete MoisturePlus, which was recalled in late May over links to an eye infection.
But one analyst fears Advanced Medical lost customers for good in the recall.
“The company still expects to get back to 16% to 18% global branded share by the end of 2008 but we remain skeptical,” said Mark Mullikin, an analyst with Piper Jaffray, in a note to clients.
After the past few years of acquisitions, Mazzo said he expects Advanced Medical to move away from buying companies and look to grow on its own.
The company plans to launch nine products this year, including several next-generation lasers, viscoelastics used in cataract surgery and a new Tecnis intraocular replacement lens, which improves vision in varying light.
“This is probably the best pipeline we have,” Mazzo said.
