Exhibit 99.2
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 1
STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
March 3, 2004
3:30 pm CT
Operator: Good afternoon ladies and gentlemen and welcome to the STAAR
Surgical Fourth Quarter of 2003 Earnings Conference Call.
At this time all participants are in a listen-only mode.
Following today's presentation, instructions will be given
for the question and answer session. If anyone needs
assistance at any time during the conference, please press
the star followed by the 0.
As a reminder, this conference is being recorded today,
Wednesday, March 3rd of 2004.
I would now like to turn the conference over to Mr. Doug
Sherk. Please go ahead sir.
Douglas Sherk: Thank you operator and good afternoon everyone. This is Doug
Sherk with the EVC group. Thank you for joining us this
afternoon for the STAAR Surgical Conference Call to review
the financial results for the fourth quarter and full year
that ended January 2, 2004.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 2
The news release reviewing the fourth quarter and full-year
results crossed the wire this afternoon shortly after the
market closed. If you haven't received a copy of the release
and would like one, please call our office at (415) 896-6820
and we'll get one to you immediately.
Additionally, we have arranged for a taped replay of this
call, which may be accessed by phone. The replay will take
effect approximately one hour after the call's conclusion
and remain in effect through 11:59 pm Pacific Time on
Friday, March 5th. The dial-in number to access the replay
is (800) 405-2236 or for international callers (303)
590-3000. And both numbers need a passcode of 568126 pound
sign.
This call is being broadcast live and an archived replay
also available. To access the web cast go to STAAR's web
site at www.staar.com. The web cast archive of the call will
be available until the Company releases its first quarter of
2004 results sometime in late April.
Before we get started - during the course of this conference
call the Company will make projections or other
forward-looking statements regarding future events including
statements about optimistic sales, the expected timing for
submission of a formal request for a reaudit of its
manufacturing facility, as well as the timing for an audit
of the Nidau plant in Switzerland, the expected timing of
the FDA approval for implantable contact lenses and the
Company's beliefs about its revenues and net earnings for
the full year ended December 31, 2004.
We wish to caution you that such statements are just
predictions and involve results and uncertainties. Actual
results may differ materially. Factors that may affect the
actual results are detailed in the Company's filings with
the SEC, including its most recent filing of the forms 10-Q
and 10-K.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 3
In addition, the factors underlying the Company's forecasts
are dynamic and subject to change and, therefore, the
forecasts are to be assumed to be realistic only as of the
date they are given. The Company doesn't undertake to update
them; however, they may choose to do so from time to time
and if they do so they will submit the updates to the
investing public.
Now I would like to turn the call over to David Bailey,
President and Chief Executive Officer of STAAR Surgical
Company.
David Bailey: Thanks a lot, Doug, and welcome to the call.
As you're all well aware, we received the expedited FDA
panel review for the VISIAN ICL mid-2003, which caused a
huge additional workload for the entire organization at
STAAR. This event alone made the fourth quarter very
challenging for us coming as it did toward the end of what
had been an eventful year for the Company.
During 2003, we have laid the foundations for our future
entry into the U.S. basic refractive implant market.
However, as we worked closely with the FDA following the
successful panel recommendation, we have painfully
discovered some shortcomings in our internal quality system
which we are working diligently to address.
As we have discussed with you previously, these issues will
need to be resolved before we can move to the next level of
bringing our innovative technology to the market. This is
obviously the key focus of current activity at STAAR.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 4
During the year we made significant progress on a number of
strategic objectives. The exciting steps we took to further
develop our VISIAN ICL, including the expedited review,
should not be allowed to wholly overshadow some of the other
operational milestones we have achieved this year.
During 2003, for example, we strengthened our ability to
focus solely on running the Company by resolving all
outstanding legacy litigation involving staff. We
strengthened our financial position by paying down $2.9
million in debt and by collecting all the material
outstanding loans due to the Company. We continue to push
strong international sales growth with the ICL. We launched
the world's first Preloaded IOL in Europe and we achieved
seven consecutive quarters of improving gross margins.
The fourth quarter results were in line with what we'd
communicated to you on January the 7th, with total product
sales in quarter four of '03 of $12.75 million. We achieved
$50.4 million in sales for the full year. The ICL and the
Toric ICL continued to grow during 2003, with 31% revenue
growth versus 2002.
We have seen a solid start to 2004, even without the benefit
of new approvals and the confusion which arose in
international markets as a result of the FDA warning letter.
We believe that in Europe we are beginning to see market
share gains at the expense of both the PRL and the Artisan
lens. This growth seems to be underpinned by the superiority
of our VISIAN toric lens.
Our U.S. trials for the VISIAN Toric lens continue to
progress well and we expect to achieve our target number of
implants by the end of March or very early in April,
depending upon patient scheduling. We now have 18 lenses
implanted and the full 125 implants scheduled. We already
have 35 patients with six months or more of follow-up in
this study and we will use this data to support and further
strengthen our submissions for approval of the VISIAN Toric
lens in Canada and Korea.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 5
In the U.S., sales declined a disappointing 5% versus the
fourth quarter of 2002. This decline was primarily due to
our base Silicone business. Unlike Europe, where we are
benefitting from sales of the superb new Preloaded Silicone
IOL system, coming out of our Japanese joint venture, the
U.S. has yet to benefit from the launch of this
state-of-the-art system.
Although our specialty Collamer lens sales increased, this
could not make up for the base silicon decline. It is clear
we face continuing challenges with this part of our
business.
Regarding AquaFlow, we had aimed to stop the decline we had
seen in the first half of the year. However, we did not
accomplish this objective and suffer the consequent
year-on-year decline of 19%. We would need to increase our
efforts in sales and marketing and explore some changes in
the product in order to reverse this decline. As you will
appreciate, this has taken a back seat to preparing the U.S.
VISIAN launch, including our audit interaction with the FDA.
It is clear that for our U.S. cataract business to offset
the Silicone decline, we need continued growth of our
specialty lenses, the Collamer one piece and the Silicone
Toric, along with the introduction of a Collamer three-piece
lens with injector.
We have dedicated significant R&D resource to the resolution
of this latter project and believe previously communicated
timelines of a launch in early quarter three will be met. In
the interim, we will use our increased sales capabilities
and coverage to grow auxiliary cataract products such as our
Viscoelastic and Phaco disposables.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 6
In our international cataract business, we're focused on the
Preloaded, where interest is high and sales are building.
Over the long term, as we carry out the technology transfer
from our Japanese joint venture, the Preloaded will have a
very positive impact on gross margins.
Our fourth quarter net loss per share was 19 cents and our
pro forma net loss per share for the full year was 43 cents.
Quarter four was impacted by the previously forecasted
increase in spending for the U.S. sales and marketing.
Approximately $1 million of the $1.5 million in total
increase was directly related to the pending ICL approval
and anticipated rollout.
The increased spending covered several initiatives
including: the recruitment and training of application
specialists to proctor physician training on the ICL; new
hires included a dedicated refractive team that will be
instrumental in the launch; and the appointment of a
Director of Education to manage all of the training courses
and the application specialists. We also created
standardized training materials, didactic presentations, and
course handout materials to be used for introducing surgeons
to the surgical technique and the product. This department
will be a crucial component of the VISIAN ICL launch in the
U.S. market.
We also established a new direct geographic region in the
U.S. that had not been targeted for some time. We added
seven direct reps to that region including four new
employees and three previously indirect reps who have now
joined the Company as direct employees. The new reps are now
trained, and combined with the experienced sales personnel
from former indirect territory, we expect to see rapidly
increasing presence in the newly expanded region.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 7
We are also active in developing marketing campaigns for our
patented Collamer lens material, both for the IOL and also
in anticipation of the introduction of the Collamer-based
VISIAN ICL in the U.S. During the AAO meeting, we introduced
our new Company logo as well as a new branding campaign that
we believe will successfully link the branding of the
Collamer IOL with the VISIAN ICL.
In addition, all of the marketing and patient education
materials for the physician practice implementation packages
that will promote the VISIAN ICL to patients post-launch
have been created.
We believe we are well positioned to continue to gain the
support of surgeons once the VISIAN ICL has been approved by
the FDA. In addition, we're also beginning to provide some
of these educational materials to the international markets
where they have been well received.
Interest in the lens remains high. Through February 21,
2004, a total of 360 physicians have been trained in the
VISIAN ICL technique. We expect to train an additional 380
physicians during 2004, bringing our year-end total to 740.
Of these 740, 680 will require proctoring from the
application specialists during their first procedures.
Demand continues to exceed our capacity for our courses. We
will be able to increase the number of courses we offer once
the device is approved. Until then, we are limited to
offering mini-fellowships for our clinical trial sites using
only enrolled study patients.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 8
Two weekends ago we had 26 physicians attend a live surgery
with Dr. Stephen Slade where he went through the
standardized didactic and the wet labs. Drs. Slade and
Dulaney will be teaching a course in Phoenix this upcoming
weekend with 47 physicians enrolled. When we get final FDA
approval, we will expand the venues to accommodate larger
numbers.
All of that said, I'd like to give you an update on the
progress that we've made to resolve the compliance issues
noted in the FDA's warning letter dated December 19. One
significant factor which we've become aware of last week is
an indication that the FDA will want to audit our
manufacturing facility in Nidau, Switzerland, before final
approval of the product. The last audit of the Nidau
facility took place in 2002 and the FDA audits are usually
carried out every two years. Although this is not yet been
officially confirmed, we strongly believe that this will now
need to take place during the next two months.
Working with the FDA both in LA and Washington has been very
productive for STAAR and will leave our Company all the
stronger in the long term. Extending FDA involvement in
Nidau should not therefore be viewed negatively. It will
however almost certainly extend the previous expectations
for the approval timeline that we discussed with you in
January. Even so, we do not believe that a later approval
date will have a material impact on the rollout and the
sales success with the product. As we have stated earlier,
interest in the ICL is very high and the technology is here
to stay.
Our clinical and end market results are outstanding and
based on our interpretation of the recent Ophtec AMO panel
meeting results, VISIAN is much superior to the nearest
competition. Since our panel approval in October, we've
gathered more patient data on four-year results from the
U.S. clinical trials. And this data continues to reinforce
both the safety and efficacy of the VISIAN ICL. We also
expect to bring the VISIAN ICL Toric lens to the U.S.
sometime next year. The long-term prospects for this overall
market segment remain exceptionally healthy.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 9
Since we spoke with you on January the 7th, here's what
we've accomplished towards our goal of implementing an
action plan that fully satisfies both ourselves and the FDA.
On February the 12th, we met with the local FDA district
before submitting our first formal progress report to all
departments, both central and local. The meeting lasted
approximately one hour during which we reviewed our progress
and gave our corrected action plan and updated them on the
structural changes we were making within the organization to
ensure more effective self regulation. The district
confirmed that they would work with us to accommodate an
expedited reaudit following an official request from the
Company.
Concurrently, we began planning preaudits by external
companies contracted by STAAR who specialize in these types
of audits. The preaudit of Nidau, Switzerland facility took
place during the week of February 23, and the Monrovia
preaudit is taking place this week. Once both audits are
successfully completed, any recommendations implemented and
STAAR's Board of Directors is confident we have a
fully-compliant Company, we will request reaudit by the FDA
local office. The emphasis is on a successful reaudit in a
timely manner rather than a premature reaudit.
At the same time we have also continued to hold productive
discussions with the ODE regarding labeling, as well as our
formal response that was submitted on January 14 to the
issues raised during the clinical ICL audit. They confirmed
we are still under expedited review.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 10
We've also made several internal organizational changes this
year. We hired a new head of R&D who will report directly to
myself. We have also appointed a new head of manufacturing
who will be responsible for all production within our
Southern California facilities. He will also report directly
to me, as will the head of production in Nidau, Switzerland.
We expect these changes to significantly strengthen our
ability to assure quality manufacturing on a global scale
and to maintain full future FDA compliance.
We upgraded our Complaints Departments in both Monrovia and
Switzerland by adding additional clinical employees who will
be responsible for handling the interaction with doctors. We
believe that we are now properly recording all issues as
required by the FDA.
We have also completed a root cause analysis of our Collamer
single-piece lens as required by the FDA's warning letter to
determine the origin of some of the complaints that we've
received. This analysis indicated that of more than 160,000
implants, there were 26 complaints indicating a poor
surgical refractive change but that this could be prevented
by making a minor modification to surgical technique,
indicating therefore that the complaints have nothing to do
with our Collamer material per se. As a result, we may work
with the FDA to supplement the labeling of this product. We
do not expect to have, nor has there been any product
returned to us as the result of this analysis and the letter
that we wrote to customers.
As you can see from the above, our response to the warning
letter has been broad based, far reaching and is ongoing. We
took the decision to reorganize and in some instance
strengthen certain key areas of the organization and we look
forward to reporting our continued progress. Concurrently,
we continue to build and fund the rest of the organization
in anticipation of the launch of the VISIAN ICL in the U.S.
market.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 11
Now I'd like to turn the call over the John for an overview
of our financial performance.
John Bily: Thank you David.
During the fourth quarter of 2003, the Company moved
aggressively forward, preparing for the launch of VISIAN ICL
in the U.S. market, working towards completion of the VISIAN
Toric ICL clinical submission, increasing the investment in
and organizational effectiveness of R&D and finalizing with
the SEC and our external auditors the accounting treatment
of loans to former officers and directors.
From a financial perspective, the fourth quarter has been a
busy investment period for STAAR, encompassing many
activities which Dave has previously summarized in his
presentation. I'd like to briefly go over the financial
results starting with net sales. I'll recap for Q4 and full
year 2003.
Net sales for the fourth quarter were $12,753,000, or
$402,000 or 3% below the prior year quarter of $13,156,000.
Excluding the impact of currency, sales were $1.3 million or
10% below prior year quarter.
On a product-line basis, ICL sales increased 20%. Silicone
IOL sales declined 30%. Toric IOL sales were flat. Collamer
IOL sales increased 18%. STAARVisc sales increased 8% and
AquaFlow sales declined 34%.
For the full year, net sales were $50.4 million, up 5.3%
versus 2002. U.S. sales declined 2.5% and international
sales increased 13.1%. Excluding the impact of currency, net
sales were $1.1 million or 2.4% below prior year results.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 12
On a product-line basis, ICL sales grew 31% for the year.
Silicone lens sales declined 19%. Toric IOL sales increased
3%. Collamer IOL sales increased 20%. STAARVisc sales
increased 17% and AquaFlow sales declined 19%.
Gross profits for the fourth quarter were $7.2 million or
56.6% of sales. This compares with prior year gross profit
of $6.7 million or 51.1%. The 5.5% gross margin improvement
is due to reduced cost structures resulting from better
yields, efficiencies, increased volume and better management
of excess and obsolete inventory along with the
reorganization of the phacoemulsification manufacturing and
repair organization.
Gross profit margins have improved for seven consecutive
quarters. Gross margins for the full year 2003 were 55.1%
versus the prior year 49.7% or a 5.4% improvement. Gross
profit for 2003 was $27.8 million, $4 million or a 17%
improvement over 2003 results.
For the quarter, G&A expenses increased $341,000 or 16%. G&A
expenses in the domestic entity were flat to prior year.
International G&A increased due to accounts receivable
reserves recorded in the quarter on distributor accounts
with which we ceased doing business. Additionally, there was
a network upgrade and installation in Nidau, Switzerland and
exchange rate caused a modest increase.
G&A expenses for 2003 increased $384,000 or 4% over 2003.
Again, domestic G&A is flat to prior year and the issues
noted in the quarter with the accounts receivable reserves
accounted for the full-year increase in G&A.
Promotion sales and marketing expenses increased $1.5
million or 16% over the fourth quarter of 2002. In the U.S.,
promotion sales and marketing increased $990,000, almost
entirely due to prelaunch activities for the ICL including
advertising agency fees, increased headcount and associated
recruiting costs.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 13
In international, promotion, sales and marketing expenses
increased $560,000 due to salary, trade show expenses and
exchange rates. Exchange rates in international accounted
for approximately half of that increase.
For the full year, promotion, sales and marketing increased
$2.7 million or 16% over the prior year. In the U.S.,
promotion, sales and marketing increased $1.4 million for
ICL prelaunch activities. As in the quarter, advertising
agency fees, headcount and associated recruiting costs were
the main drivers.
In the international business, promotion, sales and
marketing increased $1.1 million due primarily to the effect
of exchange rates.
R&D spending increased $286,000 or 30% over the fourth
quarter of 2002 and $1.1 million or 27% over the full year
2002. During 2003, the Company increased headcount and
reorganized the R&D area. Clinical and regulatory
successfully submitted the ICL to the FDA Ophthalmic Devices
panel.
Other charges - there were no other charges to operating
expenses in the fourth quarter of 2002 or, for that matter,
2003. For the year-to-date period, other charges were
$390,000 in 2003 which consisted of patent write-downs
offset by the reversal of reserves on notes to former
officers and directors, most of which were subsequently
collected. Other charges in 2002 were $1.5 million primarily
related to subsidiary closures.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 14
Other income and expense for the quarter - other expenses
for the quarter were $826,000 or increase of $719,000 over
prior year quarter. Reduced equity and earnings for the
CanonSTAAR joint venture of $250,000 primarily due to the
launch and rollout costs of the new Preloaded injector.
Additionally, the Company reserved for a note receivable for
$430,000 relating to a 1995 investment in a surgical center
in China. Total other expense for the year was $639,000, a
decrease of $147,000 over 2002.
Interest expense was favorable by a quarter of a million
dollars. Exchange losses declined $350,000, partially offset
by the note receivable reserve incurred in the fourth
quarter which I just described.
Net loss per share for the fourth quarter of 2003 was 19
cents per share compared to 58 cents per share in the fourth
quarter of 2002. Excluding the impact in the fourth quarter
2002 of the write-down of the Company's deferred tax asset,
the net loss per share would have been 6 cents per share.
Net loss per share for the year ended January 2, 2004 was 47
cents per share compared to a 98 cent loss per share for the
year ended January 3rd '03. Excluding the impact of other
charges in 2003, net loss per share would have been 45 cents
per share. Excluding the impact in 2002 of the write-down of
the deferred tax asset and subsidiary closures, the net loss
for 2002 would have been 43 cents per share.
Some quick balance sheet and cash flow highlights - During
the fourth quarter cash flow from operating activities was
$2,267,000 negative, driven primarily by the net operating
loss and an $800,000 increase in inventory. The increase in
inventory is primarily due to the anticipated launch of the
ICL.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 15
Cash used in investing activities was $629,000 negative and
largely the purchase property, plant and equipment. The net
decrease in cash for the quarter was $2,575,000. For the
year-to-date period, cash used in operating activities was
$4,242,000 negative due to operating loss and $1 million
increase in inventory.
Investing activities included a $1.3 million purchase of
property, plant and equipment and $3.27 million proceeds
from the collection of notes receivable, for total cash
generated of $2,151,000.
Financing activities included paying down the Wells Fargo
revolving line of credit for $2.9 million, net proceeds from
a private placement of $8,948,000 and proceeds from the
exercise of stock options of $1,649,000. The total cash
generated from financing activities was $7,685,000.
Cash increased $6,277,000 for the year, with cash and cash
equivalents of $7,286,000 as of January 2, 2004.
I'll spend just a brief minute on some guidance for 2004.
The guidance for 2004 excludes all U.S. ICL revenue
estimates which at this point in time are conditional upon a
number of variables which are uncertain. I think David
explained those variables clearly in his presentation. So
the guidance is going to be excluding any U.S. ICL revenue.
Without U.S. ICL revenue, the Company expects to achieve low
double digit revenue growth in 2004. Gross margins will
continue - are expected to continue to improve over 2003,
while sales and marketing and research and development will
have modest growth in spending but will improve as a percent
of sales.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 16
Based on these factors, the net loss for 2004 is anticipated
to be approximately 50% less than that was experienced in
2003.
Thank you. I'll turn it back over to David.
David Bailey: Thank you John.
I would like now to open up for questions, Operator.
Operator: Thank you sir.
Ladies and gentlemen, at this time we'll begin the question
and answer session. If you have a question, please press the
star followed by the 1 on your push-button phone. If you
would like to decline from the polling process, press the
star followed by the 2. If you are using speaker equipment,
you will need to lift the handset before pressing the
numbers.
One moment please for the first question. Our first question
comes from Ryan Rauch with SunTrust. Please go ahead.
Ryan Rauch: Good afternoon guys - just a couple quick questions. David,
can you just sort of provide us, at least qualitatively, how
you felt your Switzerland audit went from the sort of
third-party audit firm that you recently hired? Can you just
at least walk through? Did you feel like it went well, or
were there significant issues that you found or anything
that might take a long time to fix?
David Bailey: Yes, Ryan. I was actually in Switzerland for the audit
purposefully, along with some other people from over here.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 17
We hired an external firm that specializes in ex-FDA
inspectors. I was very pleased with the audit. You know,
you'll always find issues and that's the purpose. You know,
as I said in my preamble, the purpose of these is to dig out
any and all issues. And we certainly did that.
In terms of the issues that we have to deal with, you know,
there's some work to do. But I'm very confident that we can
address those and we're working on that immediately.
So, yes, I was very pleased. We preempted the fact that
there may be an audit which our sense of that is that there
will be, as I indicated in my text. And I think we're going
to be in good stead for that audit when it comes because of
the audit that we had last week and the work we'll do in the
interim.
So I'm very pleased that's behind us. We have some issues to
deal with. The issues can be dealt with and will be dealt
with. And we'll be in a good position for reaudit at the
right time.
Ryan Rauch: Okay and then, I mean, how are your discussions - if you can
give us any more detail with the ODE. I mean, are you still
feeling good about what their questions relate to with the
other part of the ICL approval?
David Bailey: Yes, I continue to believe as we've said previously that the
compliance issues will be the real determining step in the
approval process. Dialog with ODE continues and we're
feeling that the compliance - no change on the previous
comments that the compliance issues will probably be the
real determining step. And we're focusing very much on
those.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
03-03-04/3:30 pm CT
Confirmation #568126
Page 18
Ryan Rauch: Okay and then just a couple more quick ones - when will your
Preloaded IOL be approved in the U.S. And then, I mean, am I
correct to assume the sales trends - you're pleased with the
first couple of months of the first quarter?
David Bailey: Yes, as I said in the text we got off to a strong start this
year with the ICL in international. So I'm very pleased with
that. And despite the fact that, you know, we saw some
repercussions from the warning letter and yet we've had a
strong first two months. So I'm hopeful that that will
continue.
So, yes, I'm pretty pleased with that. We're looking for
nice growth with the ICL this year in international and, you
know, based on what we're seeing in the early weeks of the
year that's looking encouraging.
I do believe that we're now starting to take some market
share away from Artisan and the PRL. That's on the base ICL
but the Toric ICL is also helping us in that regard.
So, I'm, you know, we have a goal of getting over 50% market
share in Europe medium term and I'm looking forward to - if
the trend that we're seeing at the moment continues, we'll
be well on the way. So I'm very pleased with that.
Ryan Rauch: Okay and then finally...
David Bailey: Ryan, sorry. I missed part of your question. The Preloaded
in the U.S. - that's a little bit of a tricky regulatory
path because it's the first time we've got the combination.
So that's work in process. You will not see that this year.
And it's not - it's in the pipeline but it's not a major
priority at the moment. And the major priority on R&D is
helping with these compliance issues, doing the three-piece
Collamer with an injector and improving our injection
systems overall. So the Preloaded will come to the U.S., but
it will not be this year.
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STAAR SURGICAL COMPANY
Moderator: Douglas Sherk
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Ryan Rauch: Okay, and then finally how many direct sales people do you
now have and how many total proctors? And I apologize if you
gave it in your prepared remarks.
Nick Curtis: Ryan...
David Bailey: Let Nick answer that one.
Nick Curtis: Hi Ryan.
We've got six direct proctors that were hired plus the
Director of Education. And then in the one region we've gone
to seven directs, three of which had been previous indirects
that have become directs in that regard. And then we
actually have two other territories that I've been working
with the indirects and we've got sort of a hybrid where
we've assisted the indirects in bringing in some additional
hires to strengthen certain sales areas that they had
identified.
David Bailey: That's all part of our efforts to make it a more marketing
driven Company but we will still have a hybrid sales force,
high quality indirects, and then high quality directs.
Ryan Rauch: Okay, thanks a lot.
Operator: Our next question comes from Joanne Wuensch with Harris
Nesbitt. Please go ahead.
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Joanne Wuensch: Good afternoon everybody.
Man: Hey Joanne.
Joanne Wuensch: A couple of questions - how - where to begin - okay - it
takes two months to do the audit and you aren't going to
give guidance on what revenue may be with the ICL. What is
your thinking of the timing of the ICL?
David Bailey: Well, Joanne, let me just clarify on those one to two
months. It takes longer to plan an international audit by
the FDA because they have to liase with the Swiss
authorities. But that's why we're indicating a window of one
to two months. Okay? So that's a little bit out of our
control, as was their decision to actually do the audit
preapproval.
And this is the problem with exact dates because while some
things are in our control, many others are out of our
control. So, you know, given what's happened, exact dates I
would want to stay away from other than to say very firmly
that we are working at as hard as possible on the issues
that are within our control so that they don't hold up the
whole process.
Joanne Wuensch: What are you going to be doing with the six direct proctors,
one Director of Education and the other indirect individuals
to keep them, if you will, entertained until they have a
product to sell?
David Bailey: Well, Joanne, I have to say that nobody at STAAR is being
entertained at the moment. They're all working as hard as
possible.
Now with regards to the proctor force, the first thing I
would say is that they've been heavily engaged in following
up the interest in the ICL with the doctors who attended the
course at the AAO we had. And then they've also been
organizing the courses I referred to, the next one of which
is this weekend with 42 doctors attending.
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So that program along with pulling together all of the
materials that I talked about earlier which will be ready
for launch keeps them fairly busy. They've also,
incidentally, been helping us in-house in getting some of
our compliance issues resolved because all of them are very
experienced in the practice and have been helping with our
review of complaint files and pulling all of that together.
And then I think the last point is that there's a lot of
interest in the Collamer IOL and the Collamer material as a
result of the ICL. And so the proctors have been trained in
the other products and are actively visiting and helping
each of the regions with following up on that interest and
with seeing doctors and following up on their general
interest in the ICL and their interest on other products.
Joanne Wuensch: So in other words it's not a dedicated sales force for one
product that potentially could have low morale at this
stage. They're actively engaged.
David Bailey: They're very actively engaged, Joanne, yes. Nick, would you
want to add anything?
Nick Curtis: Yes. They've actually been working with the field sales
force - the indirect field sales force in further
identification of the key accounts that we're going to be
going to with the ICL and then getting folks trained in the
online ordering system, loading exercises with the ICL, you
know, things that are follow-ups to the training.
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Joanne Wuensch: Okay, considering your guidance for half of '03's net loss,
what is your opinion on your current cash position?
David Bailey: Joanne, before I answer that, you mentioned about John's
guidance not taking into account U.S. ICL. What I would
comment on is that we stay with previous comments that we've
made as it relates to the pricing and as it relates to the
estimates that are already out there, which range from
between 5000 to 7000 unit sales. That - I'm not
uncomfortable with that number but given the uncertainty and
timing, I would tend to err on the lower number as opposed
to the higher number. I'd give it a range that I was
comfortable with. I think the indication I would give at the
moment is comfortable with prior guidance on pricing. On the
units I would err towards the lower range that's out there.
Okay?
Joanne Wuensch: Thank you. And then, I had a question on cash.
David Bailey: Yes, sorry, I wanted to just cover that sort of point.
Joanne Wuensch: Appreciate that.
David Bailey: We realize that cash is, you know, obviously a critical
resource and we're carefully monitoring our expenses.
Obviously, as John indicated, the preparations for the
launch, both the ICL and the launch of the three-piece
Collamer in terms of this marketing campaign, have had a
huge impact on our cash flow.
During quarter four, we invested to build out the
infrastructure ahead of the U.S. approval. I think that was
the right decision but it's going to force us over the
coming months - we're already actually started this as of
January the 1st - to tighten up on expenditure in other
areas to offset that cash flow and those investment
decisions that we've made.
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Obviously, you know, this is been challenging because we've
got a need to invest a certain degree to address the quality
issues that we must resolve in order to get the ICL
approval. But the net-net is that we've tightened up in the
other areas and it's our goal to manage cash on a go-forward
basis so that we can launch both products using the reserves
we have today. If that changes, we'll indicate that.
Joanne Wuensch: Okay, thank you very much.
Operator: Our next question comes from John Calcagnini with CIBC World
Markets. Please go ahead.
Chad: Hi, good afternoon. This is Chad in for John. He's
traveling. A couple questions - in relation to the ICL in
your discussions with the FDA as far as labeling, have you -
can you give us any color as far as what kind of diopter
range you might be looking at yet? Or is it too early to
disclose that?
David Bailey: Helene, do you want to comment on that?
Helene Lamielle: Yes, the diopter range will be the one that has been agreed
by the panel which is minus 3 to minus 20.
Chad: Okay, and then John can you run through - you ran through
kind of quickly - on the quarter-over-quarter growth for the
fourth quarter in the different product lines. Could you
repeat the Silicone and the Toric percentage?
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John Bily: Sure, let's see, we had ICL sales growth 20%. Silicone IOL
sales declined 30%. Toric IOL sales were flat. Collamer IOL
sales increased 18%. STAARVisc was up 8% and AquaFlow sales
declined 34%.
Chad: Okay, and then last question - obviously Ophtec got, you
know, FDA panel recommendation for its phakic IOL. You know,
assuming that they get approval here fairly soon, can you
comment about - talk a little bit more about your guys'
strategy - if any change in strategy going forward upon
their approval?
David Bailey: Yes, I'd love to Chad. You know, just picking up on the
question you asked about the diopter range. As Helene said,
we're going for the minus 3 to minus 20. That was the panel
approval. The panel recommendation for the Artisan was minus
9 diopters to minus 20.
Chad: Right.
David Bailey: We actually view - or I view - the competitors' pending
approval but more importantly the narrower range of approval
as a very positive development for the phakic refractive
market. We would anticipate that AMO, who has the marketing
rights for the lens in the U.S., will put a fair amount of
marketing muscle behind this product. And we believe this
will have positive ramifications in the development of the
whole market.
They've indicated a market worth $200 million a year and I
wouldn't disagree with that and with them pushing it, that's
going to help. I think the narrower range is very
interesting. The reason that came about was that although
the Artisan investigators were allowed to implant the lens
in cases with as little as minus 5 diopters of myopia, they
chose to implant the lens in only three eyes with less than
or equal to minus 7 of myopia. And in terms of the implants,
they did only 33 eyes with less than or equal to minus 8.
Now that was out of a total of over 1000 implants.
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In comparison, our investigators were comfortable implanting
all but 20% of our series in myopes with less than or equal
to minus 7 and one-third of our series with less than or
equal to minus 8. And cases with as little as minus 3
diopters of myopia were included. And it was for those
reasons that the FDA panel had sufficient data to document
our safety and efficacy down to minus 3 with the ICL. And in
contrast, they ended up with a minus 9.
So I think it's very positive for the market overall. I
think the wider range for the ICL gives us a much bigger
market to go after. There's approximately eight times the
number of myopes - myopic eyes potentially to be treated in
the ICL approval range than the Artisan approval range. But
AMO's marketing muscle, I think, is only going to help
develop the overall market.
And as you can see from what we've indicated, we're in a
very good position in terms of the launch. We've got the
educators in place. We've got the marketing programs there.
We're not going to change from where we were going in that
regard.
Chad: Okay thanks.
Operator: Our next question comes from Kate Sharadin with Pacific
Growth Equities. Please go ahead.
Kate Sharadin: Hi everybody.
Man: Hi Kate.
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Kate Sharadin: I guess the first one is I think I might have missed
something when you were on Joanne's question on timing. You
had mentioned something about one to two months and I know
that the Swiss reaudit was in the next one to two months.
Correct? Were you talking about approval within the next one
to two months or...
David Bailey: No, I was just talking about the reaudit, Kate, and in that
one to two months. And I was steering away from giving an
absolute prediction on approval just simply because factors
such as that are out of our control.
Kate Sharadin: Okay, so one to two months plus whatever time FDA needs to
consider their audit?
David Bailey: Correct, yes.
Kate Sharadin: Okay, okay, is that Swiss plant audit based on their
flexibility or is it based on what you're expecting within,
you know, what you need to correct and then calling them for
the reaudit? Or is it just a time they've given you?
David Bailey: It's just a - that's the way the process goes.
Kate Sharadin: Okay.
David Bailey: Because they need to negotiate with the Swiss authorities to
go into the facility so it takes them time to set up.
Kate Sharadin: Okay. All right. And Dave, or maybe Nick I'm not sure, now
that you've got a lot of physicians through the training
process and that are still coming in, I'm assuming there's
been discussions with these people. Do you have a sense,
particularly with the ones that have been trained - what
kind of patients do they think that they can see? I've got
to think somebody's been having conversations about what
they think and what the expectation might be. I'm not asking
you to say specifically, but if we could - help us get a
feel for those people - you know, we've talked to a few that
are, you know, very optimistic. But what's the sense on, you
know, types of patients, numbers of patients, maybe on an
annual basis that they think that they can treat.
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Nick Curtis: That's interesting Kate. Most of the practices that we've
talked to have said that 7 to 12% of the patients that come
through their offices that are initially interested in Lasik
- and as a result of their marketing turn out to be
non-candidates for Lasik that they end up having to turn
away right now. A lot of the higher volume refractive
practices have actually been keeping a waiting list and I
know several practices that have, you know, a waiting list
of patients that might number as few as five patients and
might number as high in two instances of over 300 patients.
Kate Sharadin: Okay.
Nick Curtis: And so, you know, it really runs the gamut depending on the
size of the practice in that regard. Now, converting those
patients after the fact may or may not be that easy. But
nonetheless it's pretty encouraging to see practices that
have any, you know, have up to 300 patients or more where
they've got on a waiting list.
If 7 to 12% of the patients coming through are
non-candidates for Lasik, we've gone through in other
instances initially looked at those on a monthly basis and
said, "How many of those?" I looked at one practice where
200 patients had come through in the month that were
non-candidates for Lasik and 80 of those patients were
actually candidates for - this is one specific practice now
- and 80 of those candidates - of those folks were actually
candidates for the ICL. Now those are patients that they're
not capturing now at all.
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The other exciting for us is that getting the range of
approval that we're going to be expecting here is that, you
know, a lot of the practices are looking at possibly
converting approximately 10 to 15% of their existing volume
over because those candidates - or the patients that they're
working with right now on the Lasik side - perhaps require
high percentages of retreatments and more chair time and
they view the ICL as a good alternative for those.
David Bailey: Yes, and Kate, just to emphasize - we believe that to get
anywhere near that kind of conversion you need a
state-of-the-art technology with state-of-the-art surgery
with no induced astigmatism. And with the range of approval
we're looking at the ICL, that's why we believe we'll have
such a really good chance of getting an effective share of
that market.
And obviously that'll increase as you get a Toric approval.
Because as you go up the range of diopters, more and more
patients have that astigmatism that you can treat.
Kate Sharadin: Okay, how about - do you have a sense of within that same
physician group any discussion about, you know, candidates
that are eligible for both - I mean, a good Lasik candidate
that maybe some might believe would just simply be a better
procedure for - with an implant I guess. I can see the sort
of weeding out the ones that aren't good Lasik candidates
for a number of reasons, obviously diopter refractive range,
corneal thickness and stuff like that. But what about just,
"Yes, I've got patients that are eligible for both and I
really think that, you know, in this category patient I
would prefer to use an implant." Any of that kind of...
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Nick Curtis: Yes, Kate, I'm sorry if I wasn't clear on that. The last
statement I made was is that, you know, the average
practices are looking at probably 10 to 15% of their
existing, you know, volume to be really strong candidates
for this particular procedure.
Kate Sharadin: That would also be candidates for Lasik?
Nick Curtis: Yes.
Kate Sharadin: Okay.
Nick Curtis: Initially.
Kate Sharadin: Okay great.
Nick Curtis: Obviously, as surgeons get experience with the procedure and
feel comfortable with the results, you know, that has the
potential to expand because they can bring, you know, bring
the range that they're - the thing that's nice about our
extended range here is that they have the ability to offer
it to the lower diopter patients.
Kate Sharadin: All right. Okay.
David Bailey: Yes, I think the key is without an alternative, Kate, as
we've seen in Europe before they had the alternative, they
tend to push the limits of Lasik. So once they have an
alternative which is state of the art, then there will be a
certain conversion and then it will settle down as a
complementary technology and the doctor will choose which
one's better for that individual patient.
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Nick Curtis: Just one last comment too is that the average price charged
to the patient for Lasik has risen in the last quarter of
the year and continues to rise, which bodes well for us, you
know, with an alternative new technology that obviously is
going to, you know, have some costs to the patients. And
with the advent of custom cornea and intra-Lasik procedures,
the cost of Lasik to the patient has risen so there's less
of a barrier given this as an alternative.
Kate Sharadin: Okay thanks and Dave you mentioned - you talked about some
market share gains and is that just, you know, specific
centers over in Europe? Can you talk a little bit more about
maybe how many accounts you've won or where your market
share is? You said 50% would be an ideal target.
David Bailey: Yes, I mean, I'd like to get to a 50%. It'll take a little
while to do that, Kate, because we obviously have to
reposition ourselves in Europe and then we have the Toric
coming out, etc. But we're seeing some nice success in
individual accounts with high volume people in Europe. For
competitive reasons I don't want to give too much away. But
I was over there for the audit and obviously I visited
Germany at the same time because that represents a big chunk
of our business. And we're having some nice success. I'm
pleased.
One thing that's helping is that the AMO core markets, the
Artisan lens in Europe, was Ophtec. And so they're busy
stealing business away from one another and that leaves
fertile ground for us. And we're seeing some nice gains and
we're seeing good adoption of the Toric ICL in some high
volume practices and that product, the results are
outstanding as we saw at the winter ESCRS meeting which was
in Barcelona in January. We had some presentations there and
the results are just so good with our product.
And, you know, when you review the Ophtec panel, there was
quite a lot of induced astigmatism. And then over the three
years there was quite a lot of increasing astigmatism. And
some of the conversions we've had in Europe is because the
people who are using the Artisan in a high volume center
have to do a Lasik astigmatic procedure to correct that
astigmatism. That adds costs. It reduces profitability and
it increases hassle. So we go along and offer them a product
where they can do one surgery to correct the two disorders
and that becomes very attractive. So we've had some high
volume conversions because of that.
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Kate Sharadin: Okay, John, maybe you've got this. Your 20% increase in ICL
- I'm guessing that's revenue contribution. Do you have a
unit growth?
John Bily: I would say that would be roughly the same, David?
John Bily: I don't have units on my sheet.
Kate Sharadin: Okay, we would just expect it to be parallel.
David Bailey: The revenue for ICL for the full year grew 31%. It was the
Collamer sales that were up 20%.
Kate Sharadin: I'm sorry, yes.
David Bailey: So the units would have been up about the same.
Kate Sharadin: Okay.
John Bily: Yes, there is absolutely no currency in the ICL sales
numbers that I quote.
Kate Sharadin: Okay, that's kind of where I was going.
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David Bailey: So units up about the same and in the first two months we're
seeing a much higher figure rate of growth, Kate.
Kate Sharadin: Okay and just lastly just on Helene's comment on the minus 3
to minus 20 diopters, was that - I know that's what you're
going for and there was a question on sort of what you're
seeing. Is there a comfort there or just in the labeling
discussions do you have some visibility that that should
come through for you?
Helene Lamielle: The diopter range has not been questioned by the ODE, so we
have no concern with this regard.
Kate Sharadin: Okay. Thank you.
David Bailey: Thanks Kate.
Operator: Our next question comes from Jayson Bedford with Adams
Harkness & Hill. Please go ahead.
Jayson Bedford: Hi, good afternoon guys. Can you hear me?
David Bailey: Good afternoon Jayson. Yes, we can hear you fine.
Jayson Bedford: Okay, perfect. Just on the guidance - I know you haven't
assumed any impact from U.S. ICL sales but you've assumed,
you know, some ICL-related spending. I'm just wondering upon
approval what's the incremental spend to launch the product,
you know, beyond your current guidance? I'm just trying to
figure out the contribution margin upon approval.
David Bailey: Nick spent all the money he needed in quarter four. He's all
set to go, Jayson.
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John Bily: The lion's share let's say.
David Bailey: Yes, there's a lot of up-front costs which Nick absorbed in
quarter four. You know, we talk about the patient programs,
I mean, there is some additional variable but a lot of that
was up-front expense to get ready. So...
Nick Curtis: We spent probably two-thirds of what we need to spend in
that regard in the fourth quarter. A lot of this now is just
completion of the programs that we had already had well
underway and that we primarily funded already.
Jayson Bedford: Okay, so, pretty much anything - any ICL sales - float to
the bottom line just, you know, less the cost of goods.
Nick Curtis: We've got commission expense.
Jayson Bedford: Okay.
David Bailey: Yes, you've got a commission expense, Jayson.
Jayson Bedford: Okay, that's fair. And then you mentioned 740 physicians
performing the procedure by year-end. I think you mentioned
680 need to be proctored. Is that implying that the other 60
don't need to be - don't need to go through that
preceptorship process and can they start performing the
procedure immediately upon approval?
Nick Curtis: Yes, that's right Jayson. And we just wanted to clarify.
It's not 740 - it would be 740 trained at the end of the
year - 680 requiring proctoring. The other doctors would be
in a position to begin doing surgery immediately.
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Jayson Bedford: And what's the turnaround time in terms of approval? Can you
- can those guys start up the next week? Do you have any
inventory built?
David Bailey: The 60 - you know, the difference between the 740 and the
680 - they could start as soon as we got them inventory.
Man: Yes.
David Bailey: The 680 - the real determining step is how quick Nick can
get his proctors around with them to do two surgeries each.
Nick Curtis: We're going to have a proctoring requirement of, you know,
four to five eyes. And so they'll get the four to five eyes
and we'll get the proctors in there to proctor them on those
eyes.
David Bailey: Yes, thanks Nick.
Jayson Bedford: So those 60 will have to go through that process?
Nick Curtis: No, the 60 will be ready to roll.
Jayson Bedford: I'm sorry, okay.
Nick Curtis: They've already done; they're mostly investigators.
Jayson Bedford: Okay, sounds good. And then Nick, maybe you can answer this.
In terms of the average number of procedures for one of
those 60 physicians, you know, per quarter or per month.
What would you see kind of a run rate there?
Nick Curtis: That's a tough question, Jayson.
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David Bailey: It's so variable by the individual physician and the
practice.
Nick Curtis: Yes, I mean, to be honest a few of those 60 may only do a
couple. And several of those 60 more than likely are, you
know, some of these ones that have the waiting lists of
patients and they've got a fair experience with the product
right now and...
Jayson Bedford: Okay.
Nick Curtis: They would have a fair number to do.
Jayson Bedford: Okay, and then just switching gears. David, you mentioned
there's some confusion in the international market due to
the FDA warning letter. What's kind of been the reception
from your customers to the warning letter?
David Bailey: I think the confusion was caused by the interpretation -
some of the news wires picked it up this way and
unfortunately - that the warning letter was talking about
complications related to the ICL. And it wasn't. It was
talking about complications related to our IOLs. And that
was - for example, in Korea we immediately had a reaction
that said, "What's the problem with the ICLs?" And we had to
furnish, you know, explanation and information.
Canada, where we've been selling Toric ICLs under the waiver
system stopped allowing their doctors to order those Toric
ICLs - a relatively low volume but they stopped them doing
that for a little while. And in discussions with them,
Helene managed to allay their concerns and they've now
opened that up again.
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So we saw a little bit of interruption but we've managed to
deal with most of that. I mean, as a consequence we saw
Korea not decline in the first eight weeks of the year but
roughly stay flat with the first eight weeks of last year.
And we expect that to change now. And we saw a similar thing
with Canada as a result of the Toric.
So we've seen a little bit of an impact but once we get to
the people, we explain our situation and they realize that
it wasn't related to complications with the ICL, it tends to
move forward and open up again. So that's what I meant when
I said misunderstanding.
Jayson Bedford: Okay, so it seems pretty specific to the international
market.
David Bailey: Definitely and they're isolated incidents and we'll be able
to deal with it.
Jayson Bedford: Okay, that's great. Thanks guys.
Operator: Our next question comes from Larry Haimovitch with HMTC.
Please go ahead.
Larry Haimovitch: Good afternoon, gentlemen.
Man: Hi Larry.
Larry Haimovitch: Nick, I wanted to just clarify your sizing of the market. I
thought you said 7 to 12% - in talking to your doctors I
thought you said 7 to 12% of their current Lasik patients
could automatically be seen as phakic IOL patients because
they either have corneal pathologies which prevent them from
doing Lasik or they're above the ideal range for Lasik in
terms of the dioptric range. Was that correct?
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Nick Curtis: Excuse me, I actually said up to 7 to 12% of the patients as
a result of their marketing that are coming into the
practice they're presently having to turn away because they
can't do anything with. And I said that they were looking at
targeting 10% of their patients as patients of the existing
Lasik business patients that they will consider to be strong
candidates for this that they would be offering this right
away from the get-go.
Larry Haimovitch: Okay, so 7 to 10% of their patients who come in the door in
response to a marketing campaign are being turned away
because either their dioptric range is too high,
particularly for custom Lasik, or they have corneal
pathologies.
Nick Curtis: Yes, cornea's too thin, pupil's too large, you know.
Larry Haimovitch: And what was the second thing? Ten percent of...
Nick Curtis: Ten percent of their existing - of cases that they would
have traditionally done Lasik on that they could see
offering this right now as a very strong alternative.
Larry Haimovitch: Okay, so in other words these two numbers sort of correlate
pretty well then? They're turning away 7 to 10% and they can
see that 10% of their Lasik business could be phakic.
Nick Curtis: Well, a lot of it is just indicative of the attitude.
Larry Haimovitch: Yes, okay. David, question for you - I realize obviously
with dealing with FDA that it's such a difficult thing.
Qualitatively, can you kind of guide us a little bit on your
thinking about - you said - basically you're saying be very
conservative with the ICL in terms of what you put in your
models. Are you taking a particularly conservative viewpoint
here given that it's so uncertain that you'd rather people
not expect much and hopefully be pleasantly surprised
sometime toward the end of the year or maybe fourth quarter
or something like that? Is that kind of your stance - let's
take a very conservative view here and not plan for too
much? And in addition to that, you know, let's not budget
for too much ICLs because then we might spend more money
than we might otherwise do. Is that a fair way to
characterize your thinking?
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David Bailey: Not really Larry. My thinking is more - certain things are
out of our control even though other things we can deal with
and we can manage in terms of timelines. So it's very
difficult to put an absolute timeline. And the emphasis, as
I said in the text - in my opening remarks is on a
successful reaudit in a timely manner and we'll push that as
hard as we can rather than a premature audit.
So in terms of our modeling, you know, we've got sales
forecasts that ran out from January and February and March.
So I'm not particularly trying to be conservative on the
forecasting because we've got it set up on all of those
scenarios so that we can watch our expenditure carefully. It
really just is recognizing that some of these items are out
of our control and, therefore, timelines, despite our very,
very best efforts, are unpredictable at times.
Larry Haimovitch: What could you imagine is the best case scenario for you
time-wise? If everything fell into place just as you just
kind of hoped in your - if not your wildest dreams at least
some reasonable dreams, can you sort of bracket some times
about when you could get an approval?
David Bailey: Larry, I really don't want to go there because, you know,
it's so multi-factorial. We're really just focused - the
whole organization is focused both in Switzerland and here
on getting us in a very strong position for reaudit and
looking at every and all items within the Company. Because
investors should remember that reaudit can cover any area,
not just those areas that were covered in the original
inspections.
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So, you know, we're really just focused on that because
that's what we can control. And having had these audits,
I've very pleased we got the external people in. They've
given us excellent direction. We'd already completed a lot
of things. We can now finesse our plans and we'll do that
after this audit is complete this week. And I'm very pleased
with the way the organization has mobilized behind those
efforts. I'm very pleased with the focus we've got and I'm
very pleased with the way and the extent that people are
working to make sure that we get ready and that we can move
forward as quickly as possible. It's just that the absolute
date is very difficult.
Larry Haimovitch: Okay, let me try a question a little bit different then.
Between the international audit and the domestic reaudit,
where do you have more concerns? What area do you think is a
little scarier for you - a little riskier for you?
David Bailey: Well, the second audit here is underway as we speak, Larry,
so it would be premature of me to comment on that.
Larry Haimovitch: So are you saying you're right now in the midst of the
domestic reaudit? Did I understand that correctly?
David Bailey: No, not - yes, you understood it correctly. We are in the
midst of an audit. But it is by a private, external company
that we've engaged...
Larry Haimovitch: Sure.
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David Bailey: ...to help us prepare for the formal FDA reaudit.
Larry Haimovitch: It's your dry run before the FDA actually comes back in.
David Bailey: Yes, thanks Larry. I just wanted to make that very clear.
Larry Haimovitch: No, thank you for clarifying it. So...
David Bailey: We are in the middle of that, yes.
Larry Haimovitch: Right, so assuming that goes well, I would assume the next
step domestically, David, would be to call the FDA and say,
"Folks, we're ready when you are." Is that correct?
David Bailey: I think there's - as I said in my remarks, Larry, I'm not
trying to avoid your question...
Larry Haimovitch: No, that's okay.
David Bailey: ...I said we have done a lot of work. We then wanted these
external companies in to see what else we needed to address.
We need then to sit down and look at that and address it.
And then when, as a result of all that, we're comfortable
that we are in compliance, and that means to cover other
areas where we were audited by the FDA originally, then
we'll make that decision.
And we are pushing as hard as possible, and I think this one
needs to be my last words on the subject - we're pushing as
hard as possible internally to get to that point as quickly
and expeditiously as possible. But the emphasis is on a
successful reaudit in a timely manner rather than a
premature audit.
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Larry Haimovitch: No, I understand, but just to clarify. I'm sorry. I hope I'm
not beating this horse completely dead and making you
completely crazy. I'm not trying to do that. Just to
understand this, so while you do this the outside party
comes in, does the audit for you. You do your internal work.
At some point, you as an organization, with you at the top
David, will say, "Okay, folks, I think we're ready now for
the FDA to come back." A, is that correct? And, B, then
you'll pick up the phone and say, "Hello FDA, we're ready
for you when you're ready to come."
David Bailey: Absolutely right and we've got confirmation from the local
office of when we do that, they'll work with us to try to do
that reaudit in an expeditious manner.
Larry Haimovitch: Okay, assuming that reaudit goes well and assuming then that
the Switzerland audit goes well and assuming that Washington
is finishing all the labeling, at that point you can get an
approval.
David Bailey: Correct, yes.
Larry Haimovitch: Okay. I thought I understood it all, David, but you know the
FDA is very complicated. I just wanted to be sure 100% that
I understood it. Thanks for taking the time to walk us -
walk me through it.
David Bailey: No problem, Larry, and we're working hard to tick all of
those things off.
Larry Haimovitch: I know you are. Thanks again.
David Bailey: I'm very confident we can do it.
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Larry Haimovitch: Great, thank you.
Operator: Our next question comes from Tyson Halsey with Halsey
Advisory Management. Please go ahead.
Tyson Halsey: I've got a couple quick questions. First one has to do with
the pricing of Lasik and you just said that it seems to be
going up. And because there have been some conflicting
reports as to whether or not the $400 Lasik was perhaps a
problem and I've heard other things to suggest that Lasik's
really all in is around $1500-$1700. And I guess ultimately
- the second part of that question is what do you think the
per procedure profit might be for doctors who are
considering this and compared to, let's say, Lasik.
Nick Curtis: Okay, Tyson, you've asked a couple of questions on different
levels. I think to address the first - the second question
actually in terms of what the per profit. You know, the
different - we've targeted different groups of physicians -
those that own their own ambulatory surgery centers, those
that are accessing an ambulatory, somebody else's ambulatory
surgery center, and perhaps those that are choosing to do
this in an in-office suite or will convert their laser suite
to doing this. The profit obviously is directly related to
which of those scenarios they fit and what their costs are
involved in doing that and ultimately what are they going to
ultimately charge to the patient on that. But I think it
would be reasonable to say that on an average basis it
probably would be over $1000.
Tyson Halsey: There also is an argument that the ICL may not have a huge
market or a large market or has no market based upon the
assertion that it will be used repeatedly and that there's
cumulative endothelial cell loss. Is your expectation that
you put it in one time only and then perhaps down the road
there will be other procedures or modalities that will be
utilized?
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David Bailey: Tyson, nobody's ever hit me with that there's no market for
the ICL. The only debate is over how big the market is. And
as I've said on previous occasions, what everybody seems to
define as a niche is a nice market for STAAR Surgical. If
you work the numbers that Nick talked about, and Nick's very
close to it because he's seen these surgeons every day,
that's significantly more than a niche.
So, you know, from a market point of view, we're very
confident that there's a nice market in the U.S. We also
believe that it's good that a big player like AMO believes
that there's a market and their numbers are a value of $200
million. And that's very nice and I don't think it's a
niche.
So just to pick up your point, nobody - we haven't heard
anybody argue no market. The only argument over is how big.
And then, as Nick said, I think, you know, I don't think
there's any such thing as $400 Lasik. That's a bait and
switch. You know, get you in the door and they'll...
Nick Curtis: It's sort of the up-sell. It's more of the classical
consumer up-sell in that regard, Tyson. We see very few. In
fact, the market scope data and some of the other marketing
data that's out there looked at a Lasik price average of
just under $1800 per eye on conventional Lasik and an
additional $360 per eye on custom Lasik with Intralase. So -
which would give it, you know, over the $2000 per eye range
in that regard for custom Lasik.
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David Bailey: But Nick, if you went - I think it's fair to say it you went
to a representative sample of our ICL trial list who also do
Lasik or you took the large volume Lasik people that we've
talked to, their average price is more for Lasik. They
charge more than $2100 and they're tending to push that up
if you think about some of the larger volume guys.
Nick Curtis: Yes, definitely. I mean I think...
David Bailey: For an average it's $2100 but certain target population they
charge a lot more than that.
Nick Curtis: Right.
David Bailey: Tyson, does that answer your question? Or we...
Tyson Halsey: One last one and this is very complex for people like
myself. My understanding is that there's sort of a bell
curve distribution of myopia in the U.S. And when you talk
about minus 9 to minus 20 and minus 3 to minus 20, I
understand that there is a significant market differential.
All things being equal, not the other restrictions applied
to Ophtec, how large is that market differential - minus 3
to minus 20 versus minus 9 to minus 20?
David Bailey: It all depends on penetration but I think the answer to that
question is what I said earlier. Between those two approval
ranges, minus 3 to minus 20, minus 9 to minus 20, there's
eight times more patients in the minus 3 up to minus 9 than
there is in the minus 9 to minus 20 range.
As a rule of thumb, as you come down from minus 20, each
group of patients is equal to everything else above it. So
in minus 10, that's equivalent to the minus 11, 12, 13, 14
added up. So as you come down in myopia, each category on
that bell curve is equal to the sum of all of the categories
above it. But obviously then the key question becomes what's
the penetration? And as you go lower down, you know, clearly
surgeons will choose Lasik, so the penetration will be
lower. But there's a lot more patients. So there's two
factors there, Tyson.
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Tyson Halsey: Thank you both very much and good luck.
David Bailey: Thanks Tyson.
Operator: Ladies and gentlemen, if there are any additional questions,
please press the star followed by the 1 at this time. As a
reminder, if you are using speaker equipment you will need
to lift the handset before pressing the numbers.
Our next question comes from Kate Sharadin with Pacific
Growth Equities. Please go ahead.
Kate Sharadin: Hi, I know you guys want to probably wind up and I'm sorry
that I opened up this can of worms on this whole 7, 12, 10%
thing but I just wanted to ask - this is kind of a math
question - I'm looking at this as two distinct
opportunities. One is currently 7 to 12% are having to walk
away because there's no treatment for them.
Man: Correct.
Kate Sharadin: And then your second comment of we would be able to convert
10% of our patients that do have access to treatment,
correct?
Man: Yes.
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Kate Sharadin: So essentially you have - you can look at - would it be safe
to say we could look at the existing Lasik procedures and
assume they represent, you know - if this were sort of
standard across the board with everybody - 88 to 93%, we
would get 10% of that plus the folks that aren't being
treated?
Nick Curtis: Well, you know, that's assuming that the 7 to 12% are all
candidates for ICL, which I made an example of a customer
that I had talked to and about 40% of those patients in the
- that fell into that 7 to 12% range for that one month that
we looked at would have been candidates for an ICL.
Kate Sharadin: Okay.
Nick Curtis: So, you know, you're not going to capture 100% of that 7 to
12% of those patients because some of those patients are
going to fall out. I mean, there may be a patient that walks
in that thinks that they're a candidate for Lasik and they
find out they've got a cataract. So they're not a candidate
for the procedure - ICL or Lasik.
Kate Sharadin: Okay, so find the number that that represents and we take
40% of that.
Nick Curtis: Again, that was just one example, but, hey, if we could
capture - the point is actually is that if we could capture
25% of that, that would be a very significant number.
Kate Sharadin: Right.
Nick Curtis: Or cut it down even from that - that would be a very
significant number for us.
Kate Sharadin: Okay.
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David Bailey: It would also significantly improve the profitability of the
practice, Kate, because they've spent marketing dollars...
Nick Curtis: That's right.
David Bailey: ...to pull those patients in and then they don't have a
treatment for them.
Kate Sharadin: Okay, thanks very much you guys.
Operator: Mr. Bailey, there are no further questions. Please continue
with your concluding remarks.
David Bailey: Great, thank you very much. And we appreciate everybody's
input.
Overall, our goal is to build a strong and growing
refractive implant franchise based on the VISIAN implantable
contact lens. And we're looking to build a business with
revenues accounting for approximately 45% coming from that
lens within a three-year horizon.
The FDA approval is critical to that goal. It's the number
one activity at STAAR at the moment. But in the meantime
we'll also continue to build our cataract franchise by
building on the insertion technology that we have. That's
well underway in international where we'll be focusing on
the Preloaded. And as we are successful in the U.S. to bring
out the Collamer three-piece lens with its injection system,
that will allow us to start growing in the domestic market
again.
We've achieved a lot in '03. We believe that against those
objectives we can achieve a lot more in '04 and we look
forward to keeping you updated on progress.
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Thank you for attending the STAAR year-end call.
Operator: Ladies and gentlemen, this concludes the STAAR Surgical
Fourth Quarter of 2003 Earnings Conference Call. If you
would like to listen to a replay of today's conference, you
may dial 303-590-3000 or you may dial 1-800-405-2236 and
enter the access number of 568126.
Once again, if you would like to listen to a replay of
today's conference, you may dial 303-590-3000 or you may
dial 1-800-405-2236 and enter the access number of 568126.
Thank you for participating. You may now disconnect.
END