STAAR Surgical Company

1
STAAR Surgical Company

• Leading The Way In Visual Implants

2
The Product Portfolio
3
Product Portfolio
Silicone Collamer Acrylic
Silicone
4
Market Characteristics

• Cataract
• Mature low growth
• Downward price pressure
• Overcapacity
• Consolidation
• High cost to serve H/C professionals
• Quality outcomes/Predictable results

• Refractive
• Elective procedure
• Procedure growth 40 PA
• Innovation at a premium
• New entrants merging
• education at a premium
• Consumer susceptible - Direct marketing

5
Refractive Market

• LASIK accounts for 90 -95 of current LVC
  procedures
• 45 million eligible patients-90 million eyes
• Current penetration rate of LASIK is 1

6
Implantable Contact Lens

• Current Size of Lasik Correction Market

• Still only 1 penetration but concerns mounting
  on-
• Quality of vision issues
• Lasik complications in general
• Declining prices reduced patient profitability

7
LASIK s Weak Points

• Glare halos (night driving difficult)
• Negative asphericity
• Iatrogenic keratoconus (corneal thinning/corneal
  bulging) 2 _at_ -6 D
• Dry eye
• Procedure not reversible (however 15-30 of
  patients need a second procedure)
• Hyperopic correction weak

8
ICL Strengths

• Better visual acuity in all situations
• 20/10 by 2010
• Potential increase in visual acuity
• No dry eye
• Reversible

9
The Canadian Opportunity

• Approval gained (in part) utilizing US trial data
• 4 months to approval
• Wide ranging approval
• Myopia 6 to 20 D
• Hyperopia 3 to 20 D

10
Canadian Launch Strategy

• Controlled release focused on centers of
  excellence and positive outcomes
• Allow surgeons to-
• Increase patient profitability with a return to
  higher fees
• Improve patient outcomes
• Increase refractive market penetration

• Priced at a US sales price of US750

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Conclusions

• Refractive Surgery will overtake Cataract
  extraction as the most common surgical procedure
  in the USA by 2002.
• By 2003, there will be 2.4 million patients in
  the US who have had LASIK dissatisfaction will
  drive the alternatives
• Reducing patient profitabilty will accelerate the
  doctors adoption of new technologies
• Quality of vision will be better with an implant
• Estimated 1 million implants by 2010

12
Aquaflow The Market

• Treatment for open angle glaucoma, croma disease
  second leading cause of blindness, 8 million
  people worldwide. Half in the USA
• Worldwide market for drugs 1.4 billion, 600,000
  surgeries (trabeculectomy, trabeculoplasties)
  each year
• Invasive procedures with high complication rates
  trabeculectomy
• Aquaflow creates a less invasive drainage channel
  with fewer complications and lower cost

13
Aquaflow Looking Forward

• The Benefits
• Lower long term costs for payers (fewer drugs)
• More profitable for surgeons
• Fewer complications
• Safer surgery (no antimetabolites)
• Marketing
• FDA Approval now received, post marketing
  comparative trial with traditional surgeons in
  glaucoma centres
• ASC reimbursement in the range US460 US550,
  hospital pass through budgeted for 2002
• Upsides
• Pan European Reimbursement
• Partnership with major player

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Change in US Derived From Lines Of Business
39 New Technology
95 Cataract
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Executive Summary The First Six Months

• Achievements
• Sales on Track
• Reduced cash burn
• Q1 2.6 million
• Q2 1.2 million
• Completion of strategic review
• Two significant approvals obtained
• Aquaflow in US
• ICL in Canada

• Concerns
• Multiple operating issues
• Q2 YTD loss 522k
• Level of Q1 cash outflow leading to heightened
  action on cash and the driving of the strategic
  review

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Critical Statistics

• Positive cash flow from ongoing operations -
• Positive from Q3 2001
• Generates
• US 5 million in 2002
• US10 million in 2003

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Core Assumptions

• Implantable Contact Lens (ICL) FDA filing in Q1
  02 with an approval in Q3 2003
• No deals in plan but realistic prospects exist
• No use of core technologies in other
  areas-(Costs budgeted with no upside)
• Collamer biocompatability / cardiovascular
• Sonic low heat / liposuction / cancer removal
• No positive resolution to CanonSTAAR

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Strategic Review Goals

• Drive positive cash flow in Q4 2001
• Drive positive profit in 2002
• Successfully commercialize recent Aquaflow and
  ICL approvals
• Free resources into Marketing and RD

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Enablers

• Clear organization driving individual
  accountability
• Freeing of resources from redundant activities
• Leveraging third party organizations to build
  global sales
• Focusing Marketing and R D into next generation
  products

20
The Geography
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Geography

• Issues
• Critical mass only in
• Continental USA
• Germany/ Austria
• Canon STAAR in Japan
• Distributors managed in a haphazard manner
• Need to focus affiliates to generate
  organizations with critical mass

• Proposed Actions
• Close or reposition affiliates without critical
  mass
• Continue arbitration and negotiations
• Establish professional distributor management
  organization in Switzerland

22
Change in US Derived From Geographies
23
Operational Strategy
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R D

• Issues
• Leadership
• Project Management
• Priorities
• Consolidated Organization
• Location

• Proposed Actions
• Hire R D Head
• Project list clear priorities
• Driven by commercial needs
• Consolidated organization moving into a single
  location

25
Regulatory

• Concerns
• Lack of clear priorities
• Backlog on critical issues
• Lack of compliance on key issues
• Lack of clinical support
• Poor procedures

• Actions
• Revised organization
• Clinical split from regulatory
• European resource
• Extra consultancy support
• Project list
• Clinical support for complaints

26
Quality Assurance

• Issues
• Very high cost of quality (3.6 million charged
  in June 2001)
• Compliance issues leading to recalls
• Lack of up to date quality manual
• Lack of quality awareness
• Globally disfunctional

• Solutions
• Separate quality organization and run globally
• Build up quality auditing in both QA and
  operational departments
• Reactivate CAPA system
• Ensure top management sponsorship of quality
  function

27
Manufacturing

• Issues
• Limited volume over two sites
• Too much capacity in Silicone product line
• High cost of quality
• High lens costs

• Solutions
• Establish raison dêtre for each site
• Rationalize Silicone Capacity, implement new
  moulding
• Quality must be Built into the culture
• Reduce cost, release head count and space, new
  moulding

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Critical Enablers

• New manufacturing organization in both Monrovia
  and Switzerland
• Focus activities within production sites
• Exit excess physical plant to reduce overhead
  burden
• Write off excess assets
• Implement new moulding process

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Cost Impact

• Reduced manufacturing cost for both silicone and
  Collamer IOLs by 30 in 2002

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Summary of Changes

• Focus Lines Of Business
• Improve Cost, therefore profitability of mature
  products
• Invest in RD and Marketing
• Return to roots and heritage of high margin
  visual implants
• Focus Geography
• Close 4 affiliates
• Build Swiss distribution operation
• Reduce headcount
• 76 heads globally (25 reduction)
• Add back 12 heads

31
Summary of Changes

• Rationalize facilities
• Saves US 593k
• Reduce Manufacturing Costs
• Silicone and Collamer IOLs by 30
• Drive R D Regulatory
• Project list
• Integrated R D team
• Rising R D Spend

32
Summary of Changes

• Address Cost Of Quality
• Establish Global QA Policy / Approach
• Train key staff in quality auditing
• Reinvigorate CAPA system
• Effectively Manage Working Capital
• Focus demand and inventory planning into a
  specialist group using Demand Solutions planning
  tool
• Integrate this team to product launch activities
• Use this team to drive worldwide distribution

33
Restructuring Items

• Quarter 2 - 5.6 million (Cost of previous
  mistakes)
• Cost of Quality 3,600k
• Recalled Collamer 2,300k
• Recalled Silicone 1,300k
• Excess and obsolete Inventory US 2.0 Million
• Quarter 3 (2.5 million)
• Separation Costs other employee costs 450k
  drives lower payroll costs, Payback 6 months
• Collamer Production Changes 2,050k drives
  lower Collamer unit costs by focusing production
  sites
• Quarter 4 (3.8 million)
• Affiliates 1,000k 11 month payback
• Silicone Manufacturing 2,800k drives lower
  Silicone unit costs by changing process, Payback
  within 15 months