Last September, I came very close to buying

Visx

(VISX)

, which would have been a very painful mistake as the stock is down 80% since.

In my

column on the laser eye-surgery device maker last month, I cited a number of reasons why I didn't invest, but perhaps none was more important than what I was told by the clinical director of the Manhattan center of

TLC Laser Eye Centers

(TLCV)

, the largest chain of laser-surgery centers in the world. TLC was using Visx's laser (and had paid Visx $24 million in royalties for the past year). However he said TLC was testing another company's new laser and was planning to switch to this machine, which was more precise than Visx's laser and carried no royalty fees.

Not surprisingly, many readers wanted to know which company made the new laser. The answer is (drumroll please):

LaserSight

(LASE)

.

Once again, however, it's worth taking a hard look at the company before investing.

LaserSight

According to a company press release last November, LaserSight's primary product, the LaserScan LSX excimer laser system, "features a high-resolution 1mm-diameter scanning laser together with the fastest pulse repetition rate laser currently available in the U.S." The company has been selling its lasers overseas since 1994, and it has more than 300 installed in over 30 countries.

The LaserScan LSX was approved by the

FDA

in November for PRK (an older laser eye-surgery procedure similar to Lasik corrective surgery) to treat low to moderate myopia (nearsightedness). The company is seeking approval to treat myopia with astigmatism, and expects to seek approval shortly for hyperopia (farsightedness) with or without astigmatism. Despite the FDA's initial approval, a patent dispute with Visx kept LaserSight from selling its machine in the U.S. until this month.

LaserScan LSX's advantages include its narrow beam, which allows the greater precision noted by the doctor above, and an active eye-tracking system (not yet approved by the FDA) similar to the one on

Summit's

(BEAM)

LadarVision laser, which I described in

Thursday's column.

Risks

Before rushing to buy the stock, you should consider the following risks:

    Contrary to what the doctor told me, LaserSight is planning to charge a royalty of $130 per procedure, which is a premium to the $100 charged by Visx and Summit after they lowered their prices from $250 this week. (Incidentally, I think all the manufacturers will be forced to eliminate this charge in the near future because customers hate being charged a per-procedure fee -- it would be as if Ford (F) - Get Report sold you a car and then charged you a penny per mile to drive it.) The doctor who raved about LaserSight's machine, Jeffery Machat, is the co-founder of TLC Laser Eye Centers, which invested $20 million in LaserSight. TLC is participating in a study to test the LaserScan LSX, and LaserSight recently announced that it is suing Visx for violating a patent on technology developed by Machat. Due to this close relationship -- as well as the fact that my information is dated and from only one doctor -- I'd suggest doing more research into how LaserSight's machine compares to others. The LaserScan LSX only has FDA approval for PRK to treat low to moderate myopia. Summit had this level of approval for its machine in 1995, and both Summit and Visx have significantly higher levels of FDA approval now (which LaserSight is, of course, seeking as well). While LaserSight has developed and is successfully using overseas an active eye-tracking device, it has not yet been approved for use in the U.S. Summit's LadarVision System, which has an active eye tracker built into it, has already received FDA approval. There is no guarantee that LaserSight will be able to successfully market the LaserScan LSX in this country, though its relationship with TLC certainly improves its chances. Since the end of 1995, LaserSight has never had a profitable quarter -- in fact, its losses have widened, due to the high costs of developing the LaserScan LSX, getting it approved, ramping up manufacturing and beginning the rollout. Thus, LaserSight has an enormous amount riding on the success of this one machine (though it does have other products).

Considering all of that, I think LaserSight is a very risky investment. While it appears to have a good laser, it lags in FDA approvals, there are many competitors, a price war is under way and there's not much of a safety net for the company if the LaserScan LSX doesn't do well.

Check this space next week for a look at other companies in this hotly competitive sector.

Whitney Tilson is managing partner of Tilson Capital Partners, a New York-based money-management firm. At the time of publication, neither Tilson nor Tilson Capital Partners held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback at TilsonW@Tilsonfunds.com. Read his other writings at www.tilsonfunds.com.