Innovation in Laser Eye Surgery: VISX System Overview

1. Recommendation: BUY Michael Delaney Raghu Velamati

2. Who is VISX? • Worldwide leader in laser vision correction systems • Founded in 1986; Over 300 Employees • Design, Manufacture, and Market technologies • 1st to be FDA approved and Japan approved • Goal: Reduce or eliminate the need for corrective lenses or eyeglasses

3. Vision: How it works • Light enters eye through cornea • Properly bent cornea refracts light causing images to be sent to the retina • Retina sends to brain for processing • If cornea is bent improperly, image is bent and equals blurred vision

4. How VISX system works • Changes shape of cornea so image properly focused on retina • 7 beams ablate submicron layers of tissue to properly bend cornea • No heat applied and never breaks surface of eye • Procedure takes 15-40 seconds • Entire patient visit = 30 minutes

5. Revenue Generating Sources • VISX System: VISX STAR S3 • Excimer laser and computer work station • Vision Key Card (each eye) • Memory card required for operation • Stores patient data • Patents on technologies and procedures • New product: Wave scan • No dilation of the pupils: faster procedure

6. Customers/Market Share • Nearsightedness, Farsightedness, Astigmatisms • Over 157 million people in U.S. alone • Currently have 65% of market share • Little over 2 million procedures done to date = only 1 million patients

7. By Location Europe 1.7% Americas 1.2% Asia & other 5.4% U.S. 91.7% By Customer The Laser Center 12% Laser Vision Centers, Inc. 13% All others < 10% Revenue Breakdown

8. Stock Statistics Ownership • 3% Insiders • 45% Institutional • 14% increase from last quarter • 8 MM shares bought back in February

9. Market Participants • VISX • Summit Autonomous • Nidek • LaserSight • Bausch & Lomb

10. 5 Year Stock Chart

11. Ratios

12. Strengths 50 Countries & 30 Distributors 8,000 opthamologists 150 & 100 patents 65% market share Outpatient procedure Not capital intensive No major side effects Weaknesses Pending litigation Procedure not covered by most medical insurance cos. SWOT Analysis

13. Opportunities 157 million potential customers in US International market Decreasing procedure costs Threats Further litigation possibilities New technologies Lower per procedure revenues No studies beyond 10 years SWOT Analysis

14. Financial Statements • In Excel

15. Valuation Using FCF

16. Valuation Using PE

17. Issues • VISX has very little systematic risk • Is the unique risk beneficial? • What is the risk inherent in VISX? • Monthly Returns: 2% vs. 8% • Standard Deviation: 6% vs. 31%

18. What does the Street think? • Value Line: • Annual appreciation potential of 13-23% • Wall Street Analysts: • 9 Buy • 5 Hold • 0 Sell

19. Summary • Have 65% of laser vision correction market • Main revenue generating sources: 1) Laser vision correction system sales and 2) $100 per eye per procedure fee • Have only penetrated 0.67% of potential US market; have just begun to aggressively enter international market • Over 50% of opthamologists have had procedure themselves • Only ~10% of revenues generated internationally • Profit margin is ~25%, with gross margins of ~70% • Sales in 50 countries worldwide

20. Summary • Laser eye surgery is an outpatient procedure which takes less than 30 minutes • No major side effects in 10 year history of procedure • Using cash flow and P/E estimates, we valued the company at $67 per share • Our conservative estimates value VISX at $45 per share and our0 aggressive estimates value them at $100 per share • There will be a diversification benefit added to the portfolio because the correlation between “the market” and VISX is 0.02