For investors, Staar Surgical Co. has been one of the worst kinds of frustrations.
The Monrovia company manufactures a surgically implanted lens for severe nearsightedness that has been enthusiastically received by doctors and patients alike.
But its innovative products over the years have been undermined by management missteps, outright fraud and now a muddled U.S. sales effort for its new implantable lens all reflected in its poor financial and stock performance.
BMO Capital Markets analyst Joanne Wuensch in a note to clients last week called Staar's second quarter "a disaster" in the U.S., citing anemic 1.4 percent total product sales growth to $14.9 million that was $1 million below even her own modest expectations. Moreover, international growth of 13.3 percent was offset by a 15.6 percent decline domestically.
Yet some analysts and a few key investors believe the Monrovia optical products company is finally getting its act together, and are giving management a chance for recently announced changes to bear fruit.
Needham & Co. LLC analyst Clay Wilson called Staar a "turnaround story that remains largely unrecognized" when he began covering the company in April, even as the company's stock was in the midst of a 60 percent downward slide. That decline began in November after the U.S. regulators demanded more data before they would approve a new product.
Shares were trading at $3.35 last week, down by more than 50 percent a year ago.
"The company is doing the right things, but it could take six months to a year or more," said Wilson. He noted that the company's second quarter losses widened to 16 cents per share from 13 cents a year ago.
The big problem now is making the most out of its Myopic Visian ICL lens, which correct nearsightedness by replacing a patient's natural lens through a surgical procedure that allows an incision 50 percent smaller than competing products. The lens won U.S. Food and Drug Administration approval in late 2005 and refractive surgeons who specialize in such procedures have been pleased with how easy the lens is to implant and how quickly patients recover.
The company has more than 400 U.S. surgeons trained to implant the lens, but after an initial surge last year, growth has faltered. Robin Hughes, the company's new vice president of marketing, said two problems became clear to him after he came on board in June.
Prior to the ICL, Staar was best known for its line of lenses implanted in patients with cataracts, a disease that clouds the eye's natural lens and severely limits vision. However, the cataract lens market is mature, far smaller and highly competitive.
Hughes found that the company's inside and outside sales force was spending too much time trying to sell the ICL lens to existing doctor clients who specialize in cataract surgery, rather than focusing on potential customers who specialize in far more popular refractive procedures such as laser eye treatments for nearsightedness.
In addition, the company found that once surgeons had implanted the ICL in all their eligible patients with very poor vision, they often weren't considering the lens for patients with slightly better eyesight. Surgical options for those patients include photorefractive keratectomy, or PRK, another type of treatment in which the cornea is reshaped with a laser but unlike standard Lasik procedures is typically very uncomfortable for patients.
Hughes response has been to create three-person sales teams comprised of both sales people and medically trained staff. "Our goal is to reposition the ICL as the alternative to the 'patient referral killing' technology of PRK," Hughes said. The company also did not renew contracts with its remaining outside sales groups.
Chief Executive David Bailey, who has been with the company since 2000, has made other hires to shore up the company's other weak spots. Rob Lally was hired last October as vice president for quality assurance and regulatory affairs. Craig Felberg, who like Hughes is a veteran of Bausch & Lomb's refractive product division, also came on board in June as vice president of research development and clinical.
Amid all this, the company said in March that it had suspended the president of its German subsidiary, who was accused of diverting $1 million in company property for his own benefit. A PricewatershouseCooper audit cited poor internal controls over financial reporting, which the company said it has corrected.
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