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When Dad Bets On An Archrival


Big dramas and little companies can make for a volatile mix. Consider the recent travails of LCA-Vision Inc. (LCAV), which operates 55 LasikPlus vision correction surgery centers. In March, LCA founder and CEO Dr. Stephen N. Joffe disclosed that earlier this year he invested $27 million in shares of LCA's archrival, TLC Vision Corp. Soon after, he stepped down and the board replaced him on an interim basis with his son, Craig, LCA's chief operating officer. Stephen did not respond to requests for comment, but a Securities & Exchange Commission filing says he deemed TLC "an attractive investment opportunity." Responds Craig: "Our relationship is strained." LCA's shares fell 25%, to 42, during the monthlong fracas.

The younger Joffe is making progress reassuring investors that his dad's departure is merely a distraction and not a sign of trouble at the company. Just two weeks after taking over, Joffe announced that LCA's 2005 revenues soared 51% over 2004, to $192.4 million, while pretax income doubled, to $52.8 million. With nearsighted folks eager to undergo the short surgery that could allow them to shed their glasses and contact lenses, LCA saw its average annual earnings increase 108.7% a year during the three years ending in May, on sales that rose 47% annually. That earned it the No. 9 spot on BusinessWeek's Hot Growth ranking.

Since its founding in 1985, Cincinnati-based LCA has adopted a few key selling points that set it apart from the independent surgeons who dominate the laser correction market. LCA charges an average of $1,375 per eye -- about 35% less than the market average. By employing its own physicians and offering them benefits and performance-based compensation, the company attracts top-flight surgeons.

LCA has also mastered the art of targeted marketing. It has relationships with several vision-care insurance companies, which offer members discounts on LasikPlus surgery. Joffe opens new stores in markets where competing ophthalmologists have spent heavily on ads promoting Lasik. "We want customers who have already been primed," says Joffe, 33, as he tours a recently opened LasikPlus in Paramus, N.J. As in many LasikPlus stores, the office's surgical suite has glass walls, so prospective patients can watch others undergo the simple procedure (though some customers choose to draw the shades).

Word-of-mouth marketing has been a boon for LCA. Shawn Anderson, who works at UBS (UBS), decided to have his eyes fixed at LasikPlus in Cincinnati after his wife raved about the surgery she had there. Anderson, an avid hunter and archer, had been wearing glasses or contact lenses since the fifth grade. "My vision is better than it was when I had contacts," says Anderson, 37.

RUNNING ROOM

Analysts have dismissed the senior Joffe's stock purchase as a case of poor judgment, but they say that more tangible threats loom on the horizon. First is the worry that broad economic pressures such as high gas prices and inflation may cause consumers to put off elective surgeries. Maxim Group analyst Anthony Vendetti says he sees signs that LCA is boosting its spending on marketing, possibly to counteract a drop in patient volume. Such pressures may have driven LCA's stock down 13% since June 1, to 47.60. "If economic conditions worsen, it will be a concern," Vendetti says. Meanwhile, rival TLC Vision is expanding a chain of value-priced vision correction centers.

Investors will be looking to LCA's quarterly earnings release in July for reassurance that the company can ride through the economic dip. Joffe, who is one of the candidates for the top job at LCA, believes that Lasik has plenty of room to run, estimating that fewer than 10% of the 60 million people eligible for laser vision correction have had it done so far. And Joffe predicts the procedure will draw patients who are only slightly nearsighted, as he was before he went under the laser five years ago. "I didn't have Coke-bottle glasses, but they were an inconvenience anyway," he says. As for those inconvenient economic pressures, he says, "Given that 25% of Americans are myopic, even if discretionary spending dampens, we believe our growth will continue."

By Arlene Weintraub


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