November 01, 2012
14 min read

Investors, physicians join forces to boost private-pay sector of ophthalmology

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Demand for eye care is being driven largely by the baby boomer generation and the newly emerging echo boomers, active cohorts with high expectations for quality of life and longevity. Consequently, ophthalmologists need innovative products and techniques to meet the growing demand and rising expectations.

Innovation is expensive, time-consuming and complex, requiring highly coordinated teamwork and ample funding from venture capital and private equity firms to develop and market new products.

Richard L. Lindstrom, MD, OSN Global Chief Medical Editor, described capital as the lifeblood of innovation and marketing of new technologies.

Richard L. Lindstrom, MD 

Venture capital and private equity fill important niches in drug and device development, according to Richard L. Lindstrom, MD.

Image: Shari Fleming Photography

“Innovation, new product development and new product commercialization don’t happen without investment of both dollar capital and human capital,” Lindstrom said. “I’ve been a strong advocate and supporter of the venture capitalists and private equity companies that have chosen to invest in our field.”

Physicians are the prime movers behind innovation, according to Shareef Mahdavi, president of SM2 Strategic, a medical device consulting firm.

“Doctors come up with ideas,” Mahdavi said. “It wasn’t a bunch of people sitting in a corporate conference room saying, ‘Let’s invent something.’ Doctors are the source of innovation, and that goes back to Charles Kelman and phaco.”

Shareef Mahdavi 

Shareef Mahdavi

Close interaction between physicians and industry should continue to drive innovation that is unencumbered by federal regulations, Robert E. Grant, chairman of the private equity investment firm Strathspey Crown, said.

“We believe that the great engine of American innovation in medical technology has been a wonderful partnership and interaction between companies and physicians, not in spite of it,” he said.

Strathspey Crown has embarked on a strategy of identifying and supporting technologies, treatments and services exclusively within the private-pay sector of health care, which includes elective, lifestyle-oriented treatments and procedures in ophthalmology, plastic surgery, weight loss, sleep enhancement, cosmetic dentistry and medical aesthetics. Key investors describe Strathspey Crown’s business model as a strategy to revamp the delivery of private-pay care and spur innovation and growth.

Focus on private pay

The reimbursed health care sector in ophthalmology includes medically necessary procedures such as cataract surgery and the treatment of glaucoma and retinal disease. The private-pay sector includes procedures that are not covered by Medicare or private health insurance, such as laser refractive surgery, premium IOLs and some cosmetic operations.

Strathspey Crown is the first private equity firm to focus exclusively on the private-pay sector, Daniel S. Durrie, MD, OSN Refractive Surgery Section Editor, said.

“I have thought for a long time that we have needed somebody to concentrate on the private-pay portion of our health care system,” he said. “There’s a lot of talk about Medicare, insurance and Obamacare and that part of the system. But we have another part of the system, which provides services that aren’t covered by insurance. … In refractive surgery, plastic surgery, aesthetic dermatology and cosmetic dentistry, we are not focused on what the code is for a test or procedure or what tests we are allowed to order, but more on customer service and delivering the best quality product at a price that the public is willing to pay.”

Daniel S. Durrie, MD 

Daniel S. Durrie

Private-pay care depends heavily on customer service, William J. Link, PhD, president of Versant Ventures, said. Such a relationship encourages a productive exchange of ideas.

“The companies only win if the patients and doctors win,” Link said. “The fact that it’s a win-win for surgeons and patients can facilitate a reward for investors and companies. When we’re innovating, we have to serve the needs of the customers, surgeons in this case, and patients. Otherwise, there’s no assurance that we can do well.”

William J. Link, PhD 

William J. Link

The Strathspey Crown model will enable physicians to treat patients as customers, Mahdavi said.


“My experience over perhaps the last 20 years is that doctors generally do a mediocre job with the customer experience,” he said. “In the elective self-pay space, every patient is also a customer. [Strathspey Crown] is the first model that I’ve seen that takes very seriously the notion that in order for a technology, a procedure or a device to be successful when commercially launched, significant attention needs to be paid to how the doctors do what they do in the non-clinical aspects of the technology.”

Grant characterized customer service as a symbiotic partnership between industry and physicians.

“There are companies that believe that customers work for the company. And there are companies that understand and know that everyone in the company has to work for the customer. We’ve created a unique alignment of interests by co-aligning our customers with our shareholders,” Grant said. “Now we can be the first company that really does focus 100% on the success of our customers. That is very important.”

Regulatory burdens

Strathspey Crown’s model is largely predicated on a need to nurture growth and innovation without undue interference from federal regulation. Products and procedures in the reimbursed care realm are subject to heavy regulation, more so than those in the private-pay sphere, Lindstrom said. Also, some companies operate in both realms and need to follow AdvaMed and PhRMA rules and regulations, not to mention federal regulations, he said.

“At this time, there is a trend toward those types of businesses being acquirable at very reasonable prices. But also the large strategics like Alcon, Abbott and Bausch + Lomb are having a little bit of difficulty in these cash-pay markets because they have all of these 
AdvaMed and PhRMA rules that they have to follow because they also sell products that are reimbursed by the government … and that makes them exposed to more regulation and regulatory compliance risk than you might experience if you were only in the cash-pay segment,” Lindstrom said.

Anti-kickback laws, the Physician Payment Sunshine Act and other regulations stifle interaction between investors and physicians, to the detriment of innovation and growth, Grant said.

“For the 1% of bad actors that try to game the system, we have been buried with all kinds of regulations that are serving to create a massive impediment against American innovation in medical technology. We’re losing jobs as a result of it. People are moving overseas. The venture capital market is struggling. And we are falling behind in the pace of innovation in a market that we have historically led and been the worldwide leader in for the last 50 years. That is of great concern to me,” Grant said.

The Physician Payment Sunshine Act, a provision of the Affordable Care Act, goes too far in restricting discourse between physicians and industry, Mahdavi said.

“There’s a need for regulation when the government is paying for something,” he said. “When there’s no third-party reimbursement involved, you won’t want to restrict the ability of doctors and companies to work together. The Sunshine Act basically said, ‘We don’t want doctors and companies talking to one another very much.’ The unintended consequence is that we kill innovation in lifestyle medicine. We don’t want to do that.”

Strathspey Crown’s strategy is intended to enhance patient access to private-pay services, according to Guy M. Kezirian, MD, a surgeon who is a founding partner of Strathspey Crown.

“Strathspey Crown is redefining the practice of medicine and creates an environment where patients can contract with their physicians to receive the services they choose without interference from third parties,” Kezirian said. “In that regard, I see this project as one of the most significant improvements in medicine in the past 25 years. It repairs the damage done to the physician-patient relationship by HMOs, managed care and other forms of bureaucratized medicine and offers doctors and patients the opportunity to opt out of government medicine.”

Guy M. Kezirian, MD 

Guy M. Kezirian


Lindstrom said that the Food and Drug Administration Safety and Innovation Act, which was signed into law in July, is intended to improve the transparency, predictability and efficiency of the agency’s medical device and pharmaceutical review process. There is one caveat: The law increases FDA user fees that industry must pay to get devices reviewed.

“It’s starting to look like the FDA is actually, in response to the negotiations with industry, going to be more responsive, more helpful and more timely,” Lindstrom said. “It takes money to do that as well. Any capital that comes into ophthalmology or into health care is a good thing.”

Venture capital and private equity

Venture capital and private equity fill important niches in drug and device development, Lindstrom said.

“Venture capital basically works with pre-commercial companies primarily, although some of them transition to early commercialization while they’re under their direction. But they start with ideas and try to turn them into products,” Lindstrom said. “What private equity does is acquire companies that are already commercialized and restructure them to be more productive.”

Mahdavi expanded on Lindstrom’s observation.

“[Private equity] is not venture capital in that it doesn’t typically invest in things that are 10 years away,” he said. “It’s generally things that are already on the market where the marketing and sales components of it have not been done well or as well as it could be done. This is an opportunity to do it better that creates an advantage for doctors and an advantage for patients.”

Venture capital has played a major role in the development of technology in ophthalmology, Durrie said.

“In the past 5 years, we’ve really had a big change in our overall corporate structure, from companies that started out as small technology companies that were funded by venture capital,” he said. “And now we have large multinational firms that are in ophthalmology. I think it makes us more sophisticated in some ways and more cumbersome in others.”

Warburg Pincus acquired Bausch + Lomb, which was struggling in certain areas, in the hopes of causing a turnaround and getting a return on investment, Durrie said. Strathspey Crown is different because it aims to get a strong return on investment and lead innovation focused only on the private-pay sector.

“It’s trying to change the way private-pay health care is delivered, trying to bring together like-minded people in this area to share best practice patterns and grow the overall market,” Durrie said.

Link said there is a synergistic relationship between venture capital and private equity.

“Anything that empowers the surgeon and helps the surgeon get access to new technologies and products is synergistic with what we do on the venture side,” he said. “I think it’s compatible, a complementary approach.”

Traditionally, large companies have bought smaller startup companies with promising, potentially profitable product concepts, Lindstrom said. There are relatively few examples of private equity investors purchasing companies in the ophthalmology market.

“That’s why this is kind of an exciting new opportunity for us,” Lindstrom said. “Most of the recent acquisitions have all been done by the major strategics. The Warburg Pincus acquisition of Bausch + Lomb is a good example of a private equity investment in ophthalmology. They’ve done it successfully. Whenever you develop anything new, when you to try to build value and develop a new drug or device, you need a buyer who can afford to commercialize it. So, this basically creates a new buyer.”

A venture capital coup

Versant Ventures, under Link’s leadership, has helped to grow Glaukos and the development of the iStent trabecular micro-bypass implant. In October, the Wall Street Journal named Glaukos to its “Next Big Thing” list, which includes venture-backed companies in various industries.


Glaukos was ranked seventh on the list and was selected as the nation’s highest-ranking health care startup company, according to Glaukos. The list comprised 50 startup companies.

According to a press release, Glaukos has raised $126 million in enterprise capital to develop three generations of the iStent.

“I am proud to be affiliated with the outstanding team at Glaukos,” Link said. “Versant first invested in Glaukos in 2002, and I have been the chairman of the board of directors of this worthy company since that time. We were very pleased to gain FDA approval for the iStent G1 in July 2012 and are actively engaged in the commercial launch. The category of glaucoma treatment referred to as microinvasive glaucoma surgery is a boon for surgeons and their patients. MIGS appears to be the most important advance in surgical treatment of glaucoma in decades.”

Aggressive investment, innovation

Global market revenues in the selected private-pay specialties totaled $18 billion in 2011 and may exceed $30 billion by 2020, Grant said. Revenues in private-pay ophthalmology totaled $4.1 billion and are projected to grow by 9% by 2016. Overall revenues are expected to grow 11% by 2016.

“When you start looking at those different segments, they’re growing at about three times the pace of the rest of the market for health care,” Grant said. “It’s growing in double digits. We see a great opportunity to be able to free up assets because not only are valuations lower in those segments today than they’ve been over the last 20 years that I’ve been tracking them, but secondly, we believe that these assets today in part are trading at lower valuations because of their overlap with reimbursed medicine.”

Strathspey Crown has a group of private equity firms that are ready to partner with them and invest in select acquisitions. Physician partners in each specialty will help select companies and technologies that appear to be good investments, Lindstrom said.

“I suspect it would be exactly the same thing Warburg Pincus did when they decided to buy Bausch + Lomb,” he said. “Typically, you find a company that you think is underperforming in some way. Then, with the addition of some capital and some high-quality management, some restructuring can be [accomplished]. Part of it is picking the right investments, and that’s where the leader doctors they’ve been recruiting will play a role.”

The Strathspey Crown model will likely improve patient care and even save money in the reimbursed care sector, Kezirian said.

“The business model is inherently innovative,” he said. “It will allow patients to receive better care and better products, it will allow physicians to enjoy better incomes, and it will save the reimbursed system money by allowing patients to opt to pay for their own choices.”

Collaboration with physicians

The ability to collaborate with physicians in driving innovation is Strathspey Crown’s “strongest and most powerful advantage, comparatively and competitively,” Grant said.

Robert E. Grant 

Robert E. Grant

“We believe very strongly that physicians are very capable of providing excellent experiences and excellent outcomes for their patients without the need for over-regulation or government intervention or any third-party intercession,” he said. “There is a very significant and growing segment of the population that wants to be able to have greater choice in health care and also for their doctors to be able to have a louder voice. That’s what’s really been changed over the few years.”

Kezirian said he thinks Strathspey Crown has much to offer to physicians.

“I encourage all physicians to participate in the growth of lifestyle medicine and believe that most, if not all, ophthalmologists will benefit from what Strathspey Crown is doing,” he said. “Strathspey Crown provides a distinctive investment opportunity to ophthalmologists. We are uniquely positioned to understand the firm’s goals and growth potential. Many prominent ophthalmologists have already invested in it, and we expect many more will join.”


Durrie said Strathspey Crown’s plan is an opportunity for physicians to share ideas and promote innovation.

“I think that sharing business ideas and focusing on customer service, employee satisfaction, word-of-mouth referrals, things that are really specific for our type of business are game changers. I think it’s great to have a company that has that as their core value and core expertise. That’s why I’m excited about this new company,” Durrie said.

Link said there is an entrepreneurial spirit with these practices.

“Our model is to invest in companies that can develop the technology with a very entrepreneurial team,” Link said. “We’ll invest in those entities. The relationship we have with the surgeons is very critical. We always have advisers and participants, surgeons who participate early to help guide us and evaluate our progress in developing surgical technologies. … I refer to it as outsourced research and development.” – by Matt Hasson

  • Daniel S. Durrie, MD, can be reached at Durrie Vision, 5520 College Blvd., Suite 200, Overland Park, KS 66211; 913-491-3737; fax: 913-491-9650; email:
  • Robert E. Grant can be reached at Strathspey Crown LLC, 4040 MacArthur Blvd., Suite 210, Newport Beach, CA 92660; 949-260-1700; email:
  • Guy M. Kezirian, MD, FACS, can be reached at SurgiVision Consultants, 28071 North 90th Way, Scottsdale, AZ 85262; 480-664-1800; fax: 480-664-1881; email:
  • Richard L. Lindstrom, MD, can be reached at Minnesota Eye Consultants, 9801 Dupont Ave. S, Suite 200, Bloomington, MN 55431; 952-888-5800; fax: 952-567-6182; email:
  • William J. Link, PhD, can be reached at Versant Ventures, 450 Newport Center Drive, Suite 600, Newport Beach, CA 92660; 949-219-8985; fax: 949-729-4501; email:
  • Shareef Mahdavi can be reached at SM2 Strategic, 555 Peters Ave., Suite 100, Pleasanton, CA 94566; 925-425-9900; email:
  • Disclosures: Durrie is an investor in Strathspey Crown. Grant is chairman of and an investor in Strathspey Crown. Kezirian is president of 
SurgiVision Consultants and a founding partner of Strathspey Crown. Lindstrom is a shareholder in and consultant for Strathspey Crown. Link is chairman of Versant Ventures, which is an investor in AcuFocus, Glaukos, Second Sight, Transcend, WaveTec, Neurotech, Ocular Therapeutics, Nexis Vision, ForSight Vision 4 and ForSight Vision 5. Neither Link nor Versant are investors in Strathspey Crown. Mahdavi is president of SM2 Strategic and a consultant to Strathspey Crown.


As private equity investors increasingly focus on private-pay procedures such as LASIK and premium IOLs, how will that affect investment in developing technologies for reimbursed procedures?


Investment in reimbursed sector will wane

Private equity firms have risen sharply over the last decade in the eye care space as aggregators of private practices into “super-group” practices (akin to the physician practice management company phenomenon of the 1990s) and as innovation funders for syndicated self-pay services (eg, hearing aid dispensing) and new technology launches.


Money follows opportunity. As opportunities diminish in one sphere, money goes elsewhere. Although federal fee reform is just around the corner, and the fees paid by third-party payers per unit service will diminish, the total size of the geriatric eye care market will continue to expand sharply due to the 3% annual growth rate in seniors and their vastly higher rates of eye care utilization compared with younger patients.

Private equity firms are more nimble, harder-driving and less risk-averse than larger, more traditional market participants. We can expect them to continue to be overrepresented in lower-barrier-to-entry and less-regulated (and much smaller) spheres than those major market segments typically pursued by the major public companies operating in eye care. The likes of Allergan and Alcon are not likely to pursue niche technology or ancillary service markets, nor are they willing or able at this point to vertically integrate into the ownership of eye care practices.

John B. Pinto 

John B. Pinto

I think we can expect that all worthy opportunities developed by innovative, entrepreneurial physicians — whether they develop new devices or new service/value models — will find ever-increasing interest and financial support in the future, especially from private equity firms. At many levels, it is both a profoundly difficult and a profoundly exciting time to be involved with eye care.

John B. Pinto is OSN Practice Management Section Editor. Disclosure: Pinto has no relevant financial disclosures.


Demand for innovation exists across ophthalmology

The increase in the number of geriatric patients, due in large part to the aging of baby boomers, will drive more demand for ophthalmic procedures and surgeries to help patients restore and protect their most precious sense, their vision. While we can draw a line between private-pay procedures and reimbursed surgeries, the demand for innovation currently exists across the full spectrum of ophthalmology.

With the current health care environment in the U.S., sufficient reimbursement and upside potential exists to compel companies to invest in technologies to address diseases that tend to be covered by insurance plans. Procedures and devices for which patients pay out of pocket, such as premium IOLs and LASIK, may offer a wider margin of profit for companies that invest in these technologies, but the volume of these procedures tends to be significantly less than the reimbursed ones.

In the future, should reimbursement decline further, these companies, as well as surgeons, will find themselves at a crossroads: pursue the private-pay procedures or try to increase volume of covered treatments to make up for narrower margins. There is, however, another option: allow patients to choose the technologies that they feel are best in their situation, with partial reimbursement from health plans for a good baseline level of care and the ability to self-pay for more advanced care.

Uday Devgan, MD 

Uday Devgan

When it comes to my own health care, I want the ability to choose the best technologies, products and surgeons, and I will happily pay out of pocket to do so. By restoring a free market to health care, we will see increasing investments in all aspects of health care. Should we continue down the path of diminishing returns, then we will see less time, money and energy devoted to diseases and procedures that are deemed poor investments.

Uday Devgan, MD, is Section Editor. Disclosure: Devgan has no relevant financial disclosures.