STAAR Surgical Company
STAAR Surgical Company
Sales: $48.3 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: STAA
NAIC: 339115 Ophthalmic Goods Manufacturing
STAAR Surgical Company (Staar) develops and markets medical devices for use in refractive, cataract, and glaucoma surgery. Staar’s principal products include foldable intraocular lenses and implantable contact lenses. The company’s lenses are implanted in the eye through minimally invasive surgery, generally requiring an incision measuring less than three millimeters. Staar sells its ophthalmic products on a global basis.
Staar Surgical began as a partnership between Tom Waggoner and Dr. Thomas Mazzocco. Waggoner, in his early 30s at the time, was determined to bring Mazzocco’s idea to market with his own company, a difficult route to take in the medical technology field. Generally, those who wished to bring an idea to market affiliated themselves with a larger company, a company better equipped to bear the costs and risks involved in gaining the approval of the Food & Drug Administration (FDA). For Waggoner, independence meant he faced the arduous chore of obtaining the financing to fuel Staar Surgical’s research and development efforts. The fledgling company’s survival depended on his success as a fund-raider. The alternative—pitching Mazzocco’s idea to a well-established, wellheeled medical technology company—was dismissed by both Waggoner and Mazzocco. “We both knew that if we went to a larger company,” Waggoner explained in a June 1985 interview with Inc., “it would end up in research and development for eight years.” Accordingly, the partners chose independence, endeavoring to bring Mazzocco’s idea, a foldable intraocular lens for cataract patients, to market by themselves.
Although Staar Surgical later delved into other markets, the company initially focused its resources on entering the market for cataract surgery. Roughly 50 percent of the U.S. population between the ages of 65 and 75 suffered from cataracts, an ophthalmic condition affecting the eye’s lens, turning the transparency of the lens opaque. Mazzocco’s idea centered on replacing the cataractous lens with a soft intraocular lens (IOL), which was implanted in the eye through a small incision. The procedure was minimally invasive, promising to capture a bulk of the market occupied by conventional, “hard,” intraocular lens products.
In early 1982, Waggoner and Mazzocco invested $250,000 to bring Staar Surgical’s IOL to market, beginning the lengthy and risky process of FDA approval. As expected, the next several years were difficult, a period in which the company generated no revenues and incurred mounting overhead costs. It was the research and development phase of a new company trying to enter the medical technology market, a time of scarce capital and uncertain prospects. Waggoner, continually pressed to funnel cash into the company’s operations, raised another $150,000 through a research and development partnership, but the supply of cash was soon exhausted. By early 1983, one year after starting out, Staar Surgical found itself saddled with $250,000 of debt, prompting Waggoner to seek out interest from venture capitalists. The interest was there, but far from the intensity hoped for by Waggoner—“there was a wide gulf between my want and their offer,” he remembered in his June 1985 interview with Inc.
Waggoner’s financing options were evaporating, leaving Staar Surgical in the precarious position often occupied by young, independent, medical technology concerns. With his choices dwindling, Waggoner turned to public ownership as a fund-raising option, raising $4 million from the company’s initial public offering (IPO) of stock in July 1983. The proceeds from the IPO provided some relief, but more cash would be needed. For the first two-and-a-half years of its existence, Staar Surgical was strictly a research and development venture, unable to collect any revenues because the company did not have a product on the market. In 1983, the company lost $1.5 million. During the first six months of 1984, the company lost another $1 million, but it did enjoy the first trickle of revenue into its coffers. Staar Surgical had received approval to implant IOLs on a limited basis while investigations concerning their safety continued. Preliminary FDA approval enabled the company to collect $328,000 in sales during the first half of 1984, but the sum was meager. With full FDA approval not expected until 1987 and monthly expenses averaging $250,000, a consistent stream of revenue was needed to tide the company over until Mazzocco’s IOLs completed the FDA approval process.
Research and Development Activities in the Mid-1980s
Inspiration struck Waggoner and his management team during discussions about the progress of the foldable IOLs. Waggoner and his four head managers met periodically to discuss developments on the IOL. During one of these meetings, according to Waggoner in his June 1985 interview with Inc., “We looked around at our operations and realized that with all our overhead, why not produce conventional cataract lenses as well?” From this epiphany, a new way of thinking developed, evolving into what Waggoner called a “delegate” system of management. Within Waggoner’s system, managers were encouraged to develop their own revenue-producing ideas, creating a decentralized and autonomous organizational structure that was intended to create subsidiary sources of revenue. Once managers developed ideas for new products, they were given the time and the space to get their side projects up and running. Managers set up the financing for their projects through research and development partnerships with outside investors or through internal sources, and shepherded the product to market. Once sales from the side venture reached a certain point, royalties were added to the manager’s earnings.
The inculcation of an enterprising corporate culture spawned numerous research and development ventures within Staar Surgical, giving the company a research and development capacity that belied its small stature. By the end of 1984, the company had collected $650,000 from sales of its conventional surgical lenses, which it was able to manufacture with its existing equipment. Other successes created within the delegate system added meaningfully to the company’s financial health. By delving into the manufacture of surgical equipment for ophthalmologists, the company grossed $650,000. Staar Tool & Die, a subsidiary created to make precision tools for optical molding, promised to broaden the company’s financial footing. Within a year of its creation, the delegate system was responsible for as many as seven start-up ventures underway at one time.
Despite early indications that a multifaceted research and development strategy was working, Staar Surgical began to suffer from profound financial problems. The flurry of activity was partly to blame, as the investment in fields unrelated to minimally invasive ophthalmic surgery contributed to financial losses. The company’s acquisition of Frigitronics, Inc., a manufacturer of cryosurgical equipment and diagnostic and surgical instruments, represented one such wayward move. Also to blame were delays in securing FDA approvals to fully market foldable IOLs within the United States, which severely hamstrung the company’s ability to generate sufficient sales to offset research and development costs. Staar Surgical’s financial condition began to sour in 1987, as losses mounted. By 1989, the company was suffering from an $8 million capital deficiency, a dire situation that demanded wholesale changes. Late in the year, new senior management took control of the company, inaugurating a new era of existence for the beleaguered Staar Surgical.
Recovery in the 1990s
The company’s new management succeeded in effecting a turnaround. The executive team implemented a number of measures to give the company a sturdy foundation for the 1990s. Staar Surgical’s strategic focus was sharpened, directing the company toward its original emphasis on ophthalmic products used in minimally invasive ophthalmic surgery. Capital was raised to eliminate the company’s capital deficiency, and a domestic and international sales and marketing network was established. Perhaps most important, Staar Surgical received FDA approval to fully market its foldable IOLs within the United States in September 1991, at last giving the company the opportunity to achieve its potential.
In the years following the final approval by the FDA, Staar Surgical’s organizational structure swelled as its annual revenue climbed upward vigorously. In a two-stage deal, Staar Surgical acquired the worldwide distribution and license rights to proprietary products owned by Intersectoral Research and Technology Complex Eye Microsurgery (IRTC), a Moscow, Russia-based concern. The transaction involved IRTC’s biocompatible glaucoma devices and its biocompatible materials for IOLs. The distribution rights were acquired in March 1993, followed by the acquisition of the license rights in 1995. The first half of the 1990s also saw the company expand its operations internationally through the establishment of more than a half-dozen subsidiaries, none more important than Staar Surgical A.G. Based in Berne, Switzerland, Staar Surgical A.G. was formed in 1993 to conduct manufacturing and research and development activities, becoming the hub of the company’s international business. The other subsidiaries served exclusively as sales companies, the agents through which Staar Surgical penetrated foreign markets including France, Austria, Germany, and South Africa.
STAAR Surgical is regarded as a technology leader in the industry. As STAAR continues to grow, creativity remains an important tool in technology, marketing and in building new financial strength. The company is headquartered in Monrovia, California, and has operations in various countries around the world.
With its financial position steadied and expansion occurring at a consistent rate, Staar Surgical began to record encouraging growth during the first half of the 1990s. The company generated $4.2 million in sales in 1991, the year it received FDA approval to fully market foldable IOLs in the United States. Within four years, the company’s sales volume increased eightfold, eclipsing $34 million by 1995. Equally as impressive, the company ended the historical pattern of losing money and emerged as a profitable enterprise. Staar Surgical lost more than $11 million in 1991 and another $5 million in 1992, but recorded a profit for the next three years, posting more than $18 million in net income during the period.
While the rousing financial figures were being posted, Staar Surgical employees were working on the next generation of the company’s products, endeavoring to add significantly to the company’s revenue-generating might. Research and development work was underway on several new products that would enable the company to enter the glaucoma surgery market and the refractive surgery market. The material and design assets acquired from IRTC helped propel the company’s development of its own glaucoma medical devices. The IRTC deal also aided the company in the development of what promised to be its most lucrative medical device, an implantable contact lens (ICL) for the refractive surgery market. Although it would be years before any measure of the potential of ICLs could be taken, the paucity of tangible evidence did little to temper the excitement at company headquarters in Monrovia, California.
Staar Surgical’s proprietary ICLs offered the hope of correcting vision in patients suffering from refractive conditions such as myopia (nearsightedness), hyperopia (farsightedness), and astigmatism (an irregularly shaped cornea)—vision problems affecting more than 50 percent of the world’s population. As with the company’s IOLs, the market success of ICLs and Staar Surgical’s products intended for the glaucoma surgery market depended on FDA approval. Another long wait loomed, but the promise of entering the refractive surgery market in particular buoyed hopes that a period of unprecedented growth awaited the company. Staar Surgical expanded its marketing activities beyond the cataract surgery market in 1998, but the company did not receive FDA approval for either its glaucoma surgery products or its refractive surgery products until several years later.
While the company labored through the approval process for its glaucoma and refractive surgery devices, another sweeping change in management gave Staar Surgical a new leader for the future. In May 2000, the company’s president and chief executive officer was fired, followed by the resignation of the company’s chief operating officer, William Huddleston, in October 2000. In December 2000, David Bailey was appointed president and chief executive officer. In January 2001, when Andrew Pollet, Staar Surgical’s chairman, passed away, Bailey was selected to the additional post of chairman.
Looking ahead, much of Staar Surgical’s potential depended on its success in the glaucoma and refractive surgery market. In July 2000, the company received FDA approval for its glaucoma device, the AquaFlow Collagen Glaucoma Drainage Device, which was implanted in the eye to reduce intraocular pressure. As the company celebrated its 20th anniversary, however, it continued to rely heavily on its involvement in the cataract surgery market, which accounted for 95 percent of sales in 2002. In early 2003, the company’s ICL device received favorable publicity in the May 2003 edition of Cornea, The Journal of Cornea and External Disease. The journal published findings of a study comparing the results of laser assisted in situ keratomileusis (Lasik) surgery and ICLs. According to the study, ICLs were concluded to be safer and more effective than Lasik surgery. At the time of the publication of the findings, Staar Surgical’s ICLs were in the midst of clinical trials conducted by the FDA. FDA approval was expected in early 2004, at which point the true measure of Staar Surgical’s strength could be measured.
Staar Surgical A.G.
Alcon, Inc.; Bausch & Lomb Incorporated; Novartis AG.
- STAAR Surgical (Staar) is formed as a partnership between Tom Waggoner and Dr. Thomas Mazzocco.
- Staar completes its initial public offering of stock.
- Staar receives FDA approval to market its foldable intraocular lenses.
- Marketing efforts begin to bring the company into the glaucoma and refractive surgery markets.
- Staar receives FDA approval for its glaucoma surgery device.
Critser, Greg, “Optical Illusion,” Inc., June 1985, p. 97.
Rees, David, “Staar Bright: Intraocular Lens Firm Shines in the Over the-Counter Market,” Los Angeles Business Journal, February 11, 1985, p. 2.
“Study Concludes Staar’s ICL Is Safer and More Effective Than Lasik,” Asia Africa Intelligence Wire, May 15, 2003, p. 6.
White, Ronald D., “California; Staar’s Stock Climbs After Lens Study,” Los Angeles Times, May 16, 2003, p. C2.
“Why All Eyes Are on Staar Surgical,” Business Week, May 12, 2003, p. 110.
—Jeffrey L. Covell