STAAR Surgical Co (STAA) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the STAAR Surgical first quarter 2006 conference call. [OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to Doug Sherk with the EVC Group.

Thank you, operator, and good afternoon, everyone. This is Doug Sherk with the EVC Group. Thank you for joining us for the STAAR Surgical conference call to review the financial results for the first quarter of 2006, which ended on March 31. The news release announcing the first quarter 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 tape replay of this call which may be accessed by phone. The replay will become available approximately one hour after the call's conclusion and remain available for seven days. The dial-in number to access the replay is 800-405-2236, or for international callers, 303-590-3000. Both numbers need a passcode of 11058661, followed by the pound sign. This call is being broadcast live, and an archived replay will also be available. To access the webcast go to STAAR's website at www.staar.com.

Before we get started, during the course of this conference call the Company will make projections or forward-looking statements regarding future events, including statements about sales and the Company's beliefs about its revenues and net earnings for 2006. We wish to caution that such statements are just forecasts and involve risks and uncertainties. Actual results may differ materially. These risks and uncertainties include the Company's ability to successfully launch the VISIAN ICL in the U.S., our ability to overcome negative publicity from warning letters and other correspondence with the FDA, the ability to energize sales of cataract products, ability to maintain product sales and gross profit margin and reduce compliance expenditures, the need to obtain regulatory approval for new products, the acceptance of new products by medical practitioners and consumers, a rapid pace of technological change in the ophthalmic industry, general domestic and international economic conditions, negotiation of final agreements for the Wells Fargo Bank line of credit, and the access to financing and other factors beyond the control of STAAR Surgical Company, including those detailed from time-to-time in STAAR's reports with the SEC.

In addition is the factors underlying the Company's forecast are dynamic and subject to change, these forward-looking statements are assumed to be realistic only as of the date they are given. The Company doesn't undertake to update its forward-looking statements and has no intention to do so.

Now I'd like to turn the call over to David Bailey, President and Chief Executive Officer of STAAR Surgical Company.

Thanks, Doug, and good afternoon, everyone. Thanks for joining us. For my prepared remarks I'm going to focus my comments in five areas. First I'll update you on the progress in launching the ICL here in the U.S. I'll also provide you with an update on international ICL sales. Our Toric VISIAN ICL supplement for PMA that was submitted to FDA last week and the outlook for any additional regulatory approvals. Finally, I'll provide you some comments on cataract sales, both in the U.S. and abroad.

For Q1, overall ICL/TICL revenues were up 73% versus Q1 last year and up 86% sequentially, representing 18% of total sales for Q1 versus 10% of total sales in Q4 in 2005. That's quite an impact after less than two months of U.S. launch. In the U.S. we trained and certified 57 surgeons during the quarter. We took another 86 through Phase I training, giving a total of approximately 950 that have now completed the Phase I course.

Proctoring commenced the first week in February, after certification of our proctoring force of direct employees. We also held two Phase I certification courses during the first quarter; one in San Francisco, coincident with the ASCRS meeting, one in Los Angeles in January. Together these courses added a total of 86 doctors to the list of 860 that have already passed through Phase I training. We also held a CME event at ASCRS with 312 doctors attending at 6:00 a.m. on a Sunday morning. Interest in the ICL technology remains very high, with surgeons keen to use our technology.

Of the 57 surgeons proctored during the quarter, 90% have reordered lenses. As we have fully expected, the reorder rate to date is higher than those proctored in February than those proctored later in the quarter. Overall, our controlled rollout is delivering a quality experience for the doctor, a significant WOW factor for the patient, and extremely good outcomes. To date 50% of the implants in the U.S. have been at or below minus 10 diopters of correction. As previously indicated, the technology is not being segmented to simply the highest myops. At this early stage, this is very encouraging, although in line with our previous experience and expectations. Also during the quarter we added to and certified our proctoring force, giving us to date a total of seven proctors.

This quarter, we began the rollout of the marketing materials, with an e-mail blast followed by direct mail patient education pieces to over 1,500 doctors, including all doctors who had completed Phase I training. The patient education starter kits went out on March the 5th to all certified doctors. This was a first -- this was the first of a total of two turnkey marketing packages containing items that will roll out to support our doctors' marketing efforts.

We recognized revenue of almost $700,000 in the U.S. for the ICL during the quarter, which was in line with internal estimates. We continue to require five cases for the initial proctoring, and only relinquish this requirement in exceptional situations. As a result, we have had some scheduled proctoring deferred because of our insistence on meeting this five-case requirement. We are working with practices to build case volume, both before and after proctoring, as a critical activity going forward. We will add specified resource in this area, as well as training the entire sales force on this activity during Q2.

Let me reiterate our philosophy behind the controlled rollout. We are focused on quality outcomes and a positive experience for the doctor and the patient. It's quality versus quantity. In the early stages of a product launch, bad outcomes can set back a product's eventual potential or affect its adoption curve. The learning curve for the ICL is short, but steep. Five cases will get the targeted surgeon up that curve. Then the test is the reorder rate for proctored doctors, and our whole program is based around a good early experience leading to adoption of the technology.

In this regard, proctoring resource, practiced development resource, marketing materials, and the sales force come together to insure success. Overall, we are pleased with the rollout. In particular, outcomes, patient satisfaction and surgeon profitability are, we believe, where, they need to be to build this new category.

On the international front, VISIAN ICL and TICL continue to increase over fourth quarter levels and all their prior year periods, driven by significant commercial promotion in the form of training events in multiple geographies. Many of these events have involved live surgery in centers of excellence who have developed in key countries and then generated significant interest. The VISIAN Toric ICL, in particular, continues to gain significant traction. Refractive in Q1 now represents 67% of total distributor sales, with the VISIAN Toric ICL representing 29% of total refractive sales. We are seeing a positive impact of U.S. FDA approval in some markets, particularly in Asia.

On the back of FDA approval, our Korean distributor, for example, recently launched a direct consumer marketing campaign in Lifestyle magazines. Based on current run rates, we estimate our market penetration as a percentage of Lasik volume will be 2.8% in Korea by the end of this year, up from 1.5% in 2005. To drive penetration rates further, we are adding modest resource in the areas of practice development, medical support and sales over the course of Q2.

This increased investment, combined with new approvals, will ensure progress against our stated goal of maintaining growth rates and increasing market penetration as a percentage of Lasik in all countries. As a reminder, our highest penetration rate by market is Switzerland, which is a little under 4%. At this point, we believe we have lots of opportunity.

As announced, we have now submitted the Toric ICL file to the U.S. FDA and await their acceptance of the document. Our next step involves the submission of the detailed manufacturing module. We will seek a meeting with ODE in due course to discuss their views on the regulated repathway for the file. I would caution investors that current FDA submissions are tending to take longer to process than in the past, and so it's difficult to predict a time line for approval for the VISIAN Toric ICL. We hope for Q1 '07, but this could change significantly.

We are clearly very disappointed with the delays in approval for the ICL and the Toric ICL in China, and would like to provide with you details of our current activities in this area. Since our last conference call, we have had significant exchanges with the authorities and have answered many new questions promptly. In an effort to move the whole process forward, we invited four delegates from the agency in Beijing to visit our facility in Switzerland, following their attendance at the recent ISO meeting in Zurich. This meeting occurred on Monday of last week.

As a result of that meeting, we have a revised time line for the approvals and would expect VISIAN ICL approval ahead of the Toric ICL approval. It was clear to us during the meeting that the VISIAN TICL would need to be de-coupled from the ICL in the approval process, and would be delayed due to the nuances involved with the agency's in-house testing of this very complex optic. We believe the meeting went a long way towards moving the whole process forward.

Despite the delays, our plans for commercial rollout in China stay generally on track. We held the first official VISIAN ICL training course and inauguration of our VISIAN ICL training center in April with 22 surgeons attending. Four patients had bilateral VISIAN ICL surgery with outstanding results. Proctoring of the surgeon attendees will occur immediately after approval of the ICL. Interest in that market is very high.

Looking out to cataract, sales were up in distributor markets in Q1 versus prior year period, driven by a 29% increase in preloaded product sales. We expect the recent aspheric preloaded approval to drive sales growth going forward. Unfortunately, the difficult market conditions we are facing in Germany, plus the negative effects of currency, resulted in our resulted in our international cataract sales declining by 11.7% overall.

Despite the problems in Germany, however, where procedure volumes contracted, we actually increased unit sales of IOLs in Germany versus the prior year period. While our focus in international is clearly refractive going forward, we do not expect the size of decrease in Q1 in cataract. The launch of the aspheric and the easing of continue current adverse marketing conditions in Germany make us optimistic we can improve this business from Q1 levels going forward.

In the domestic cataract market, we saw the first sequential growth in this segment since Q2 last year. Although we saw a decline versus prior year period of 13%, we saw some encouraging trends that give us a good start towards achieving our goal of reversing the decline of this business going forward. With the compliance issues behind us and the ICL launched, our reps have a much easier selling environment. The surgeons are more receptive to visits by STAAR Surgical reps and to demonstrations of our products. In addition, the commission link we have established, which requires the rep to grow the base cataract business in order to maximize their VISIAN ICL commission, is gaining us more selling time and more focus from the independent sales force.

We saw the first results of this in Q1, with an overall growth of 3% versus prior year period and believe the focus will build going forward. This focus is definitively having an impact on new product selling time in sales. The [Affinity] three-piece collamer lens was up 30% sequentially versus Q4, and we see the trend continuing in April. The critical launch of new cataract products later this year and next year will further enhance our ability to gain growth in this strategic market.

Overall, Q1 was a great quarter, as we quickly shifted from being in defensive mode to aggressive focus on execution of our core go-to-market strategies. Our business increased over Q4, our refractive business rose to 18% of total sales in the quarter, with gross margins improving as a result of favorable product and geographic mix changes. I look forward to providing you with reports of our progress at the annual meeting, and on the second quarter conference call.

I'd now like to hand over to Deb for more details on the financials.

Thanks, Dave. During the first quarter, we've seen a turn-around in our overall sales picture. On a sequential basis our first quarter net sales of $13.3 million were up 10% from fourth quarter sales of $12.1 million. While sales for the quarter were down 3% as compared to last year's first quarter level of $13.7 million, excluding fluctuations in currency sales were actually up 1% compared with last year's first quarter.

During the first quarter our VISIAN ICL sales were $2.4 million, an increase of 73% compared with the same period of 2005, and an increase of 86% compared with the fourth quarter of 2005. The increase in VISIAN ICL sales is due to launch of the product in the U.S., coupled with a 23% increase in international VISIAN ICL sales over the first quarter of 2005.

International ICL sales grew 33% over fourth quarter of 2005. For the first quarter of 2006, ICL sales represented 18% of total sales compared with 10% of total sales in the first and fourth quarters of 2005. The difference between ICL sales and refractive sales reporting in our -- reported in our press release table is a result of sales of instruments and other complementary refractive product the Company offers.

Overall, cataract product sales were $10.7 million, up 1% compared with the fourth quarter of 2005 and down, as we expected, 12% as compared with the first quarter of 2005. Compared with the fourth quarter of 2005, U.S. cataract product sales grew 3%, as sales of Collamer three-piece IOLs more than offset the decline of silicone and Collamer one-piece IOLs.

Internationally cataract product sales decreased 12%, due to the negative impact of changes in currency and strikes by doctors in Germany, as David mentioned. Partially offsetting the decline was a 29% increase in preloaded IOL sales. Compared with fourth quarter of 2005, preloaded IOL sales grew 6.3% and represented 18% of total IOL sales in the first quarter of 2006 compared with 17% in the fourth quarter 2005 and 12% in the first quarter of 2005.

Excluding the impact of launch of the ICL in the U.S., sales in all product categories, which include cataract, refractive glaucoma, were up sequentially for the second consecutive quarter. U.S. net sales for the first quarter were $5.2 million, an increase of 4% compared with the $5 million reported for the same period of 2005 and an increase of 21% compared with the $4.3 million reported for the fourth quarter of 2005.

International net sales for the first quarter were $8.2 million, a decrease of 6% compared with $8.7 million reported for the same period of 2005, and an increase of 5% compared with the $7.8 million reported for the fourth quarter of 2005. Excluding the impact of changes in currency, first quarter 2006 international net sales were $8.7 million, down slightly, 0.4%, compared with the first quarter 2005.

Gross profit margin was 48% for the first quarter of 2006 compared with 47% for the same quarter last year and 46% reported for the fourth quarter of 2005. The increase in gross profit margin is due to increased volume and average selling prices of high-margin ICLs, as a result of our approval to market the product in the U.S. We continue to expect gross profit margin to gradually improve in 2006 over 2005 levels, as the ICL rolls out in the U.S.

Selling, general, administrative expense for the first quarter of 2006 increased $1.1 million or 13% over the first quarter of 2005. This increase was due in part to the adoption of FAS 123(R), which accounted for 35% of the increase, or $391,000. Excluding the impact of FAS 123(R), which is a noncash charge, SG&A increased 9%, or $733,000.

Net loss for the first quarter of 2006 was $3.4 million, or $0.14 a share compared with a net loss of $2.3 million or $0.11 a share for the same period last year. The impact of the adoption of FAS 123(R) was approximately $0.02 per share. During the first quarter, we used approximately $3.1 million in cash for operating activities, which is 21% higher than the $2.6 million used in the first quarter of 2005.

As mentioned in the fourth quarter conference call, we anticipate using more cash in the first and second quarters of 2006 than we did in the first and second quarter of 2005. This is due primarily to planned investments in marketing for the ICL, development activities for our cataract product line, and costs associated with the Toric ICL submission. These expenses are partially offset by cost cutting initiatives taken in 2005 that we continue to realize the benefits of from a cash standpoint.

Our bank debt at the end of the quarter was essentially unchanged from fiscal 2005 at $1.7 million. We exited the first quarter with $9.7 million in cash. In addition, as we announced today, we entered into a commitment with Wells Fargo Bank for a $3 million line of credit that can be used for working capital needs, and are also in the process of finalizing a lease line of credit for approximately $1 million that can be used to finance capital expenditures. These lines of credit will enhance our ability to execute our operating objectives for 2006.

We have continued to prudently manage cash and have successfully identified ways of generating cash as we execute our U.S. ICL launch, including prepaid financing arrangements with certain of our customers, whereby they prepay for products in exchange for a discount on the purchase price of the product. As we discussed last quarter, revenue from prepaid purchases is deferred until the product is shipped and the customer must commit to purchase 25 or more ICLs in order to qualify for this deal. To date, we've received $342,000 from prepaid ICL arrangements.

We are now reiterating our key assumptions for our 2006 operating plan, which we discussed with you during the Q4 '05 conference call. First, we must continue to successfully launch the VISIAN ICL in the U.S. Second, we must grow our international business. Third, we must focus R&D efforts on projects to deliver improvements to our cataract product line in late 2006 and 2007. And finally, we must continue to obtain new regulatory approval with a focus on the TICL.

We believe these objectives are achievable, and successful execution of our strategy will position us for profitability and cash flows in 2007. However, we do not expect to see an immediate impact from the ICL rollout to earnings and cash flow during the first half of 2006, as we proctor physicians and execute on our marketing, R&D, and regulatory objectives. All of these programs will require investment early in the year, and as a result, we do not expect to significantly improve our cash position and earnings for full year 2006 compared with 2005.

We'd like to now take your questions.

Thank you. If we could open up for questions.

[OPERATOR INSTRUCTIONS] Our first question, Kate Saradin with Pacific Growth Equities. Please go ahead.

Hi, and congratulations, everybody.

Hi, Kate. Good afternoon.

Hi, Kate.

Good afternoon. First of all, Deborah, just curious on your comments on your currency adjustments for the quarter when you're comparing it to Q1 '05. Are you -- is it a constant currency so adjustments were made on the '05 numbers?

It's made to the '06 numbers. So (multiple speakers) the same currency as was used in the Q1 '05.

Okay, so it's a total constant currency comparison?

Yes.

That's helpful, thanks. And Dave, you mentioned the 57 proctored surgeons in the quarter. Can you give us a to-date number at the end of, maybe April?

Yes, I can, Kate. I purposely focused on the Q1 in the opening remarks. To date we're at 105, in total. So, we proctored and certified 32 doctors in April. We had 60 who were qualified at the beginning, and that adds to the Q1 number of 57. So 105 as of, I think, today.

Okay.

We hit the 100 number earlier in the week.

Right. Okay. And you made a comment about the reorder rate for those folks that were proctored in February versus ones later in the quarter. Is that just a timing issue or are you talking about those were the sort of busier surgeons or what did that comment mean?

We always believed that surgeons would do their proctored cases, and then they would wait and see the patients post-operatively next and then probably a few more times before they would get comfortable with the technology and identify additional patients and do their second implants. So the comment was two-fold. One, it was to emphasize that we felt that there would be a delay between proctoring and reordering, and that was highlighted by the February number, where you saw a very high reorder rate in the people proctored in February.

We would expect a similar kind of level for people proctored in March, probably as we get into the May time frame. So there's a little bit of a lag between when they get proctored and their reorder rate, and the February number tells me that the lag is perfectly normal, but having gone through successful surgeries and had a good experience, the reorder rate at 90% is very high. And as we said, one of our priorities going forward is to focus the marketing resource, the practice development resource, the sales force and the proctoring force around the practice that's being proctored in order to ensure that high level of reorder rate and increasing penetration going forward. The focus is quality, not quantity.

Okay.

Does that explain?

Yes, that's helpful. Are you kind of seeing -- is there a major deviation between sort of the different volumes of doctors -- or volumes of procedures that doctors are doing or is it fairly constant? But I'm guessing, presumably, you get -- if some are reordering at a much higher rate and some are perhaps maybe doing fewer, certainly geographically it's going to change. But I was just wondering if you could give us some color on that?

Yes, we're seeing a variability. Some are ordering less than we assumed, some are ordering significantly more than we assumed, on average. So I think I would refer -- so there is some variability, but I would point out that we hit our internal forecast for the Q1. So on average, although we had some below the assumption and some above, we were pretty well on with where we wanted to be. And we kind of expect a similar thing going forward.

We always felt that it would be very difficult to predict exact user rates, but on balance, we're getting some below, some above, and we're pretty much on where we wanted to be as an average reuse rate after proctoring. And all that resource I just talked about is focused on ensuring that that continues going forward and we try and get above that assumed rate.

Okay, helpful. And then just, finally, on the TICL, is there any difference in the training or is there any different practices on the proctoring? Is it -- I know it's a little ways out, but as we look into if it does come to market in the first quarter, anything different or is it pretty similar to the training and the proctoring of the myopia?

Well, the first thing is we would want somebody to be pretty versed in using ICLs routinely before they move to the Toric ICL. In terms of the procedure, it's very, very similar. There's just one nuance, which is positioning the Toric ICL in the correct orientation. So there's a slight nuance to the technique, which is relatively easy to teach, but we would want somebody to have -- be a good solid ICL user before they move to the Toric ICL. But the technique is pretty similar.

Okay, would those -- would you have a proctor go out to those folks or would you just -- how would that work?

No, we would probably send a proctor, but we haven't found that out yet.

Okay.

But, yes, most probably. That's what we tend to do in international. Particularly with regard to the calculation. Now, what I think people underestimate is the fact in that, in Q1 we launched STAAR VISIAN, and I know some people have looked at that website. Staarvision.com is an advanced ICL calculation site that provides the physician with a way to optimize the ICL power and lens determinations, as well as an ability to manage their own postoperative data and outcomes. And the site is -- also includes an ability to reorder the lenses on-line.

Now, at the moment the site is geared towards the VISIAN ICL, when we launch the TICL, that site will -- the plan is for that site to incorporate the Toric ICL, and there's a nuance to the calculation which, will be incorporated into that site. So, to answer your question, Kate, the surgical technique is a little different, but easily manageable from a surgeon who has grasped the ICL technique. We'd have to teach them on the calculator, which becomes part of STAAR VISIAN. So a proctoring visit would almost certainly be the case.

Okay, and actually -- sorry, I did have one more for Deborah. You were asked on the call last time about your financing needs and you kind of, I guess, sort of geared us towards looking at the debt, that route. Is the credit line -- is that the debt or is there something else you're still pursuing?

We're also looking at lease financing, a lease line of credit.

So the $1 million plus the credit line would wrap things up for you?

Well, it -- currently.

Okay. Alright, thanks.

Thanks, Kate.

Our next question comes from Joanne Wuensch of Harris Nesbitt. Please go ahead.

Thanks. Could you explain to us what's happening in Germany, please?

The cataract market conditions in Germany are difficult for all ophthalmic companies. Essentially two things have happened and I visited Germany last week as part of a trip to Switzerland. The government has reduced the amount of cataract surgeries that the state working surgeons can perform, based on 2004 volumes. So they have asked that there's a 20% reduction from those 2004 volumes. Now, this was indicated awhile ago, but nobody ever anticipated that they were actually going to implement as strongly as they have. So the hospitals reduced their surgery volumes in line with that mandated change from the government.

Secondly, the insurance companies that reimburse private cataract patients, or self-insured people, have taken the reimbursement for the procedure for the doctor down, and that's put pressure on pricing and put pressure on volumes. And one of the ways that the doctors have reacted is to actually have these ad hoc and unpredictable strikes where they've just stopped doing surgery.

The current situation is that insurance companies have increased their offer of the reimbursements, somewhat, and some of those doctors have started to do more surgery because they're under great -- a significant amount of financial pressure. But those two factors have put a lot of pressure both on pricing and on surgical volumes. And it's been a moving target, and it's been very, very difficult to predict, but in essence that's driven our business down, both in terms of pricing and volume. Although, critically, Joanne, as I said on the call, we've actually increased our IOL sales in Q1 versus Q1 last year, so we've grown a little bit of market share in what is definitely, by consensus, going to be a down market in Germany.

Okay. Thank you. You spoke about 50% of the procedures are being done at or below ten diopters of myopia. Not to slice it too thinly, are the majority -- of that 50%, are the majority between seven and ten diopters? I'm trying to figure out how low and how many are being done at minus three, minus four, minus five.

Overall, we've had down to minus four U's, and -- hang on a second, Joanne. I'm just going to try and get some color on that, because I've got somebody with me. Joanne we've gone down to minus three, so we've seen usage across the full range. I couldn't split it out for you but, certainly, seven, eight, nine will be higher than the lower range.

Okay. And then the final question is, is your guidance for first quarter '07 Toric ICL including a panel?

Well, the first caution I would give is we're hoping for Q1 '07, and in our initial thinking, that would incorporate a panel. But as said in my opening remarks, I'm hearing from many ophthalmic companies that time lines are getting extended and -- so that could slip, so I just want to caution on that. But the early '07 number was assuming a panel.

Thank you very much.

Thank you.

And our next question comes from [Larry Hemlergerts] with HMTC. Please go ahead.

Hey, Deborah, this is a question for you. Right at the very end of your remarks I didn't catch your comments on the guidance. Could you reiterate them, number one? And number two, is that a change from the guidance you gave on the last call?

No. I believe this is consistent with what I said in the fourth quarter conference call. Basically, we don't expect to see an immediate impact from the ICL rollout to earnings and cash flow during the first half of 2006, as we proctor physicians and execute on our marketing, R&D and regulatory objectives.

Right.

All of these programs will require investment early in the year and as a result, we don't expect to significantly improve our cash position and earnings for full year 2006 compared with 2005. I think that's pretty consistent with what I said previously.

So to follow up on that, specifically the cash position. You burned it think it was about $3 million roughly in Q1? Is that about --

Correct.

Presumably as the ICL grows that burn would decline?

Second quarter, you're going to see similar cash burn situation, and then it should start declining as the ICL really ramps up.

Should start declining or --

Cash burn should be declining in the second half of the year.

So, you'll exit the first half with roughly $6 million, give or take a few hundred thousand?

Roughly.

Okay, and then continue to burn cash in Q3 and Q4?

Yes.

Yes.

How much cash are you likely to burn in the second half?

You know, it's going to be similar -- full year it's going to be similar to 2005, which was $10 million -- well, yes, something like that.

So you began the year at roughly $12 million, you burn ten this year, give or take whatever. So you end up with $2, $3 million in cash for end of this fiscal year. Is that a reasonably decent way to look at the cash situation?

Yes, the math sounds right.

Okay. So, as the CFO, where do you start feeling you're losing sleep at night because the cash position is getting tight? Yes, you have a line of credit, which I'm sure you makes you sleep a whole lot better at night. That's always a good thing. But is $2 million really enough to run this business? Particularly because, obviously you're going to draw. We all know that. That's a given considering the ICL and TICL. You're going to have more in receivables and more in inventories. Is it conceivable that you'll need to raise more money in the next 12 months?

Obviously we need to -- we have to leave all of our options open. We have to monitor the launch very carefully. We have other sources of cash, for example, stock options, which garnered us approximately $500,000 in the first quarter. That number will increase during the year, as the stock rises and we have a number of option grants that expire this year. So we'll have a source of income from that. We also have officers' notes that we need to collect on and should be collecting on.

So, you know, we have other opportunities, and we need to monitor the progress of the ICL very carefully. Cash has been difficult situation for us, as you know, for a while. I'm used to monitoring that on a daily basis, so the fact that I have $10 million in the bank hasn't made me sleep more, you know, as I'm thinking long range.

Deborah, are you like the CFO that I know that sleeps like a baby, she cries all night?

[LAUGHTER] Exactly. Exactly.

David, question for you. You made a comment during your prepared remarks, I believe, about the commission structure to try to make sure that the salesmen don't ignore the cataract business at the expense of spending all their time on the ICL. Did I understand that correctly?

Yes.

Okay. So my concern about that is that, of course, you don't want people just to ignore your cataract business, because that's the bread and butter still, but I'm wondering, given that the ICL has got to be tremendously profitable for the reps and it's got to be very exciting for the reps, and the cataract business has got to be relatively uninteresting for them, because it's older and doesn't have the benefit of the new product, is that really feasible to be able to get them to defocus -- or not defocus, but spend less time on the base business -- you know what I'm trying to say. I'll stop my question. I'm just going to confuse myself and you.

Yes. We have twin goals. We need to successfully launch the ICL in the U.S., and we needed to stop that cataract decline in the U.S., and a critical component of that, which we identified, was to revamp the cataract products and you're seeing us investing in that activity in Q1. R&D expenditure is up significantly in order to deliver those cataract enhancements.

But at the same time, we needed to get more selling time back in this new environment from the independent sales force. And I think they have acknowledged that the environment is now very different. They have a more receptive audience because of the ICL and because of the compliance issues being behind us. But nevertheless, they have significant selling opportunity for the current cataract products.

And I mentioned in my remarks around the Affinity three-piece Collamer lens. We know we're getting more selling time, as a result of the changed environment. Maybe is a portion as a result of the linked commission, which -- independents, Larry, you know them as well as I. They'll tell you they'll go where the money is and the linked commission I think keeps them focused on two aspects. One is the ICL. One is the base cataract business.

Thirdly, if I look at the Affinity three-piece, where we've enhanced the injection system. We've brought out the Collamer story, we intend to enhance the injection system still further. We are definitely getting more selling time on that. I think it's a combination of factors but, regardless, it is delivering and that's what we've needed to do. So I'm very pleased with the way they've responded.

They're also very, very keen to get involved in refractive, as you rightly point out and we'll be investing significant this quarter in training them around some of the nuances of refractive that will allow them to optimize their ICL commission still further. But critically, and quite frankly, the Company cannot afford them to drop cataract. We need their selling time on cataract and ICL. We've linked the two together. It's working. We are getting more selling time on cataract, and in the first quarter we hit our internal ICL number.

So I'm optimistic that the program, while it's difficult to implement, has been implemented well and is delivering, and I think it's a real win win. The fact is that the way we structured it, they can do extremely well out of refractive if it's on track, provided they help us stop the cataract decline. Our commitment to that is to revamp the products. That's going to happen in the medium term. Their commitment in the short term need to be to step up to give us more selling time, and I have to thank them because they are doing that.

So it sounds like it's working? It sounds like the programs working well.

It's early days but it's certainly working in the way we would want it. We're seeing some very encouraging signs. But as with all of this, Larry, in the U.S., it's early days. It's difficult to discern exact trends. We're going to see it over the course of time, but I'm very pleased at the moment and so is the whole group.

And then one final question for you and I will jump back in the queue. On the TICL you've announced you have filed, the agency, I think, has -- is it six months to respond with questions or three months? I can't recall.

It's the shorter of those two, I believe.

Okay. And then presumably there'll be a panel meeting or there will be an approval at some point later without a panel meeting.

We cannot predict whether there will or will not be a panel. It really depends on the position the agency take. There are, as you know, astigmatic lenses approved, and there are phakic lenses approved. So they could combine the two and say this is not the first of a kind, or they could take the view this is the first of a kind, because it's the first astigmatic phakic implant. We don't know. We'll let them review. We'll ask for a meeting and we'll talk that through with them with our experts.

Great, thank you very much.

Thanks, Larry.

Bye, Larry.

Thanks, Deborah.

Thank you. Our next question comes from [Mark Malcome], private investor. Please go ahead.

Hi, Mark.

With this you've done quite well. Do you have any projections over the next several months on your proctoring rates? You gave it before with what you expected through April. Do you have for, say, the next three months what you project?

We're projecting to do 500 for the year. We're at 105 now. We feel comfortable with the resource we have and the bookings we have that the 500 is a realistic number that we'll achieve.

I have to obviously accept that. What are your steps on setting up for proctoring in China? You indicated that you're operating from basically a center, a training center --

Yes.

-- initially. Where is that located?

Just south of Beijing. It's a state-of-the-art center where we've trained the surgeon and where they have the ability to implant preapproval, which is where we did the first training course. And those 20-something surgeons who attended that training course would then adopt a train-the-trainer approach, so the distributor would use them -- their centers to proctor. After they've been proctored, they would branch out from there. So we were very pleased with that training course.

The center of excellence is set up. We're really just very keen to get the ICL approval. I was very pleased to get the four people from the authorities at the factory last week. It showed us very clearly that we needed to explain to them how we measure the Toric ICL in terms of optical dimensions. It's a difficult process. It's one we needed to take them through, and having done that, we hope to have removed the frustration in terms of time lines for approval. So I think we're well set up there, Mark.

Where you set up providing the certified list of physicians in the U.S. side, do you have an intention to do that also on the international side?

I guess so, it's not a priority. It tends not to be so much of a priority internationally, but we can certainly look at that.

Also, you addressed some things toward increasing consumer awareness of the product. Do you have any more of a time line toward that? I've forgotten exactly what you said on the -- you had the basic information that went to the doctors for -- it will be some time, given your cash flow, before you would consider any kind of larger marketing campaign that's directly targeted to consumers.

Yes. Mark, what we have said in the past, and I'll reiterate it now, is it's not how a job is accompanied. Certainly at this stage or for the foreseeable future to do any kind of consumer advertising. The reference I gave in the pre-prepared text was that our Korean distributor, having seen the U.S. approval for the ICL, had the confidence himself to launch a consumer marketing program in Lifestyle magazines in Korea, and he's seeing good success from that. He is making that investment, not STAAR Surgical.

In the U.S., our only foray with consumer advertising will be to provide, through these two sets of programs that I referenced, the doctor with the tools for him to advertise to his consumer and his patient. In our belief, he is the best salesman, and we will provide him with the tools to do that. They will be very professional tools. They're already starting to roll out to them. They're starting to use those to draw patients in. That is the only form of commercial advertising we will be doing, providing those tools to the doctor.

Thank you. [OPERATOR INSTRUCTIONS] At this time we have no further questions. I'd like to turn conference back to management for concluding comments. Please go ahead.

Excellent. Thank you. I just want to reiterate that it was a good quarter for us. We met our U.S. sales objective. We exceeded our international VISIAN ICL sales objective internally. We saw signs of a slow down in the rate of decline of U.S. cataract, and overall, we actually got sales growth in the U.S. with the sequential cataract growth. We're very proved with those matrices. We'll watch them carefully. And we're very focused on execution to add shareholder value. Thank you all very much for listening this afternoon.

Ladies and gentlemen, that does conclude the STAAR Surgical first quarter 2006 conference. If you would like to listen to a replay of today's conference, you may dial 1-800-405-2236 or 303-590-3000, using passcode 11058661 pound to access the conference. Thank you again for your participation, and you may now disconnect.