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8-K - STAAR SURGICAL CO | v201396_8k.htm |
EX-99.1 - STAAR SURGICAL CO | v201396_ex99-1.htm |
Exhibit
99.2
STAAR
Surgical Company
Third
Quarter 2010 Financial Results Conference Call
November
2, 2010, 4:30 PM Eastern Daylight Time
Operator:
|
Thank
you for standing by. Welcome to the STAAR Surgical Third
Quarter 2010 Financial Results Conference Call. During today's
presentation, all parties will be in a listen-only
mode. Following the presentation, the conference will be open
for questions. If you have a question, please press the star,
followed by the one on your touch tone phone. If you'd like to
withdraw your question, please press the star, followed by the
two. If you're using speaker equipment, please lift the handset
before making your selection. This conference is being
recorded today, Tuesday, November 2nd,
2010.
|
|
I
would now like to turn the conference over to Mr. Doug
Sherk. Please go ahead,
sir.
|
Doug
Sherk:
|
Thank
you, Operator, and good afternoon everyone. Thank you for
joining us for the STAAR Surgical conference call to review the company's
financial results for the third quarter of 2010, which ended on October
1st, 2010. The news release announcing the third quarter
results crossed the wire about a half an hour ago, and is available at
STAAR's website at www.staar.com.
|
|
Additionally,
we have arranged for a taped replay of this call, which may be accessed by
phone. A replay will become available approximately one hour
after the call's conclusion, and will remain available for seven
days. In addition, today's call is being broadcast live, and
along with an archived replay, is available at the STAAR
website.
|
|
Before
we get started, during the course of this conference call the company will
make forward-looking statements. We caution you that any
statement that is not a statement of historical fact is a forward-looking
statement. This includes any projections of earnings, revenues,
sales, cash or other financial statements, any statements about plans,
strategies or objectives of management for future operations, any
statements concerning proposed new products, governmental approval of new
products or other future actions of the FDA or other regulators, any
statements regarding expectations for the success of our products in the
US and the international markets, the outcome of product research and the
development or any clinical study, any statements regarding future
economic conditions or performance, statements or beliefs, and any
statements of assumptions underlying any of the
foregoing. These statements are based on expectations and
assumptions as of the date of this conference call, and are subject to
numerous risks and uncertainties that could cause actual results to differ
materially from those described in the forward-looking
statements.
|
|
These
risks are described in the Safe Harbor Statement in today's press release,
and in the Risk Factor section of our Annual Report on Form 10-Q, filed
with the Commission on April 2, 2010. Investors or potential
investors should read these risks. STAAR assumes no obligation
to update these forward-looking statements to reflect future events or
actual outcomes, and does not intend to do
so.
|
|
Now,
I would like to turn the call over to Barry Caldwell, President and Chief
Executive Officer of STAAR
Surgical.
|
Barry
Caldwell:
|
Thank
you, Doug, and good afternoon everyone. Thank you for joining
us today to review our third quarter 2010
results.
|
|
We
had a very busy and quite productive quarter, while at the same time we
continue to focus on and to generate double-digit core product revenue
growth. We launched our expanded Visian ICL product line in
Europe; we participated in three key ophthalmic conferences held
throughout the world, in Europe, Asia and in the US; we had a number of
interactions of regulators reviewing our multiple new product submissions
and we put the finishing touches on a new direct-to-consumer marketing
campaign. More on those issues later. For now, let
me begin with updates regarding progress made on our five key operating
metrics that we'd set out at the beginning of the year; Deborah will then
address some of the factors behind the financial results for the quarter;
and finally, I'll return to provide some additional comments before
opening the call for questions.
|
|
We
met four of the five key metrics during the quarter. Not
perfect, but we are seeing consistent progress in most key areas and we
know we still have work to do. Our first metric is to generate
double-digit growth from our core ICL and IOL product
lines. This was achieved. Core product revenue
growth during the third quarter increased 10%, driven by a 21% increase in
revenue from the Visian ICL and a 2% increase in IOL
revenue. Growth in ICL sales were attributable to a very strong
34% growth in unit volume reflecting continuing market share gains over
LASIK. This was a record quarter for the ICL in both terms of
revenue and units. ICL growth was strong in Asia and the Middle
East. In the US ICL sales fell 9%, largely attributable to a
change in the buying patterns of one large customer. The US
military sales grew during the quarter. Overall in the US the
refractive market remains under pressure due to economic conditions, as
evidenced by continued reports of refractive procedure
decline. LCA-Vision reported same store procedures down 19% for
the quarter, and the two leading companies providing LASIK technology
reported what appear to be weak quarters. We're taking
additional steps to increase our market share growth with the ICL against
competing vision care correction technologies and I'll address those
strategies later in the call.
|
2
|
Turning
now to IOLs, there were some important highlights in that product's line
growth. It's been a tough road to recovery but IOL revenues in
the US grew for the first time in four years. Yes, IOLs, US,
grew. We can also see the trends that verify this will
continue. Growth of the NanoFLEX product line was a significant
contributor, increasing 27% in the US during the quarter. In
Japan, we shipped the 4,000 IOL units that were on backorder at the end of
the second quarter, which was reflected in the 8% growth in Japan IOL
revenues. The company currently has no additional outstanding
backorders to direct customers in Japan. The decline in IOL
revenues in Europe was primarily due to the third quarter 2009 launch of
the KS-X Preloaded technology, as distributors were ordering initial
inventories which makes that a comparable quarter—makes that a comparable
quarter which is tough. We expect to achieve double-digit core
product revenue growth again in the fourth quarter and for the
year.
|
|
Now
to our second metric, which is to generate gross profit margins in the low
to mid 60% range. We achieved this; though not at the level
which I would like to see. Our gross margins came in at 62.8%
for the quarter as compared to 60.3% in the prior year. Deborah
will address this topic in more detail during her comments, but without a
key materials related charge for our Collamer Lens, the gross margin would
have been 64%. That's more where I'd like to see
it.
|
|
Our
third metric is to make progress toward profitability during the quarter
and achieve profitability for the year. We did not achieve this
metric, in my mind, during the third quarter, largely due to investments
aimed at growing sales, such as increasing the number of sales and
marketing personnel and additional marketing expense that we incurred as
part of our strategy to spur the growth of our core product
line. During the fourth quarter I would expect our gross margin
to be higher and the expenses to be more in line with expectations given
that at least 300,000 of the expenses incurred in the third quarter were
of a one-time nature and the impact of currency may or may not be lessened
during fourth quarter.
|
|
The
fourth metric is to generate cash from operations. We achieved
this goal, generating $470,000 in cash from operating activities during
the third quarter. Our cash position increased to 8.6 million
at the end of the quarter, which was a $600,000 increase as compared to
the year ago period.
|
|
Finally,
our fifth metric was to improve our balance sheet. With the
repayment of debt and retirement of preferred shares last quarter, we
significantly strengthened the balance sheet. We are well
positioned from a capital standpoint to continue to pursue our current
growth initiatives. I think it's safe to say we've already
accomplished this metric for the full
year.
|
3
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In
summary, during the third quarter we achieved four of the five
metrics. Though, admittedly, I'm not satisfied with the gross
margin for that quarter. I expect to see improvements on each
of these metrics during the fourth
quarter.
|
|
Now,
I'd like to turn the call over to Deborah for a more in-depth review of
the quarter operational and financial
highlights. Deborah?
|
Deborah
Andrews:
|
Thanks,
Barry. Good afternoon,
everyone.
|
|
Given
the details provided in our news release this afternoon, I'd like to focus
my comments on the key financial highlights during the
quarter.
|
|
Revenues
are tracking as we expected with core product revenue up
10%. This increase was driven by a 21% increase in Visian ICL
sales to over $6 million. The highest reported level of ICL
sales ever and the fourth consecutive quarter of ICL sales
growth. Unit sales of ICLs grew 34% during the quarter; 88% of
the unit growth came from three countries: Korea, which grew 58%, China,
which grew 94% and India, which grew 74%. ICL unit sales in all
other international markets grew 14%. US ICL units declined
9%. Visian Toric ICL sales represented only 33% of ICL sales
during the quarter as compared to 35% during the third quarter of last
year. Our IOL sales grew 2% during the quarter to 6.6 million
driven by a 27% increase in NanoFLEX sales in the US and a 2% increase in
preloaded IOL sales in international markets. The increase in
higher margin IOL sales, driven by our strategic direction, was partially
offset by a decrease in low margin silicone IOL sales. As a
result, although IOL unit volume decreased 8% during the quarter, overall
IOL sales increased because ASPs increased 11%. Foreign
currency exchange favorably impacted our revenue by
$404,000. I'd like to refer you to our release for more
specifics on geographic sales development during the
quarter.
|
|
Our
gross margin for the quarter increased to 62.8% from 50.3% in Q3 2009, a
decrease from 63.6 in Q2 2010. The increase year-over-year was
primarily due to a higher mix of Visian ICLs to total sales, increased
average selling prices on IOLs, a decrease in royalty expense resulting
from the 2009 expiration of a patent licensed to STAAR, and improved
manufacturing cost. The decrease from Q2 was due to a charge
related to an issue with a Collamer raw material and reserves on V4B ICLs,
which combined represented a nearly 2 percentage point decline swing in
gross margin. The raw material problem has been resolved and we
do not expect the issue to reoccur in
Q4.
|
|
Our
SG&A expense increased by 9% or 800,000 over the year ago
period. The increase in SG&A was due to the 300,000
negative effect of foreign currency translation; the expansion of the US
sales and marketing team which increased sales and marketing expenses by
approximately 300,000, an increase in trade show expenses resulting from
participation at the APAO meeting in China which occurs every other year
and 150,000 in unanticipated legal fees related to the successful appeal
of a legal judgment which had awarded the company over $500,000, though
not recorded until its determined to be collectible. Loss from
continuing operations – a net loss was 1.2 million or $0.03 per
share. This compares with a loss from continuing operations in
the third quarter of last year of 1.8 million or $0.05 a
share.
|
4
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I
would like to repeat something Barry's already said, and that is our
balance sheet is as clean as it’s ever been in my 15 years with the
company. As a result, interest expense was nearly—has decreased
nearly $400,000 during the quarter. For those of you who might
be new to the company, over 70% of our sales are generated outside the
USA. Additionally, we have operations in Switzerland, Japan and
Australia; as such our results of operations can be significantly impacted
by fluctuations in exchange rates. In periods when the currency
is strong, we benefit from higher sales but also have higher
expenses. This has been increasingly the case this year, and if
current trends continue the fourth quarter will be similarly
affected. To illustrate, during the second quarter of this year
we realized exchange losses of 389,000, which was a swing of $603,000
compared with the prior year quarter, primarily due to a weaker
euro. During this quarter the euro strengthened considerably
and the losses of the second quarter more than reversed and we reported a
$445,000 exchange gain. The company has not historically
entered into hedging transactions. Our cash balance including
restricted cash on October 1 was 8.6 million as compared with 8 million at
the end of Q2 and 13.7 million at the end of 2009. We generated
470,000 in cash from operations in the
quarter.
|
|
Now,
I'll turn the call back over to Barry for some additional
comments.
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Barry
Caldwell:
|
Thank
you, Deborah. I'd like to update you on two key topics; first,
our new direct-to-consumer campaign, which actually launched yesterday;
and secondly, the flurry of regulatory activities during the quarter and
this month, and today. First, let me go to the
direct-to-consumer campaign.
|
|
We
are very excited to announce the first phase in our launch of the new
Visian ICL advertising campaign, which is targeted at
consumers. I want to say right up front that we'll be rolling
out the consumer campaign in a very conservative manner, and the overall
expenses of the company should be low and we will fund on a pay-as-you-go
basis.
|
|
First,
let me describe the campaign, then we'll actually play the audio from the
first released segment, and finally, I'll describe our roll out
plan.
|
|
The
campaign highlights the benefits of the Visian ICL over competing
technologies for vision correction, including LASIK, contact lenses and
glasses. It's designed to motivate potential patients to
schedule an appointment to see an ophthalmologist and ask specifically
about the ICL technology. The format is “I am an ICL,” and it’s
compared to competing technologies. The initial campaign
consists of seven humorous, at least we think so, one-minute videos that
highlight the benefits of the Visian ICL technology. The seven
benefits, each covered in one segment are: better visual acuity with the
ICL; two, less hassles with the ICL as compared to contact lenses; three
less hassles with the ICL as compared to glasses; four is the UV
protection you get with the ICL; four—I'm sorry, five, is no dry eyes
created by the ICL procedure; six no need to create a flap with the ICL;
and finally, the ICL technology can be removed. The ICL and
LASIK characters appear in all seven segments, and they are joined by
characters representing contact lenses and glasses in those two specific
segments. We believe the message can be effectively
communicated through television or radio, so let's give you a taste by
listening to the first segment now. This is the segment on
enhanced visual acuity or HD vision as described in the
dialogue.
|
5
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Let
me set it up for you to begin with. There are two characters,
as I described; one is a young vivacious woman who plays the ICL, as a
matter of fact, she has ICLs in her eyes; the other is a middle-age
gentleman, you might say somewhat bald, with a shirt that's buttoned
incorrectly. So with that, let me try to play the
audio.
|
(Audio
presentation)
|
Okay. Now,
again, this is the first of seven in a series. This segment was
released yesterday on several websites to begin our viral
campaign. You can view this video on our website:
www.visianinfo.com, or you can also preview the first, second and third in
this series by going to the link embedded in the press
release. The remaining six segments will be rolled out over the
next several weeks; the same music and set is used so the messages fit
together. All seven were shown to ophthalmologists and
refractive coordinators during the America Academy of Ophthalmology a few
weeks ago and some surgeons have tested with patient
groups. These will also be rolled out on several websites of
ophthalmologists and we will track the feedback
globally.
|
|
We're
also going to release these segments for more traditional
direct-to-consumer channels, including television and
radio. Two test markets have been identified with surgeons who
— have agreed to participate. We may add another four or five
sites before we make final decisions on a full release of each segment for
these purposes. The sites we're using are somewhat isolated so
that we can adequately judge with our customers the effectiveness of each
video before a full release. The cost to date has been the
expense and resources needed to create this video
campaign. These expenses were in our third quarter
spending. Of course the viral marketing campaign will not be
costly and we expect to see results from all the various sites in which
they appear. In the more traditional direct-to-consumer
channels, we would expect to be sharing with the physicians some of the
cost which will mainly be limited to some reduction in the cost of our
product and only for a specified period of time. This is very
similar to the program we rolled out in Korea in early 2009 when the
distributor made investments in their marketing—distributors in their
marketing, which as we know resulted in a doubling of our market share of
the Visian ICL in Korea.
|
6
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Finally,
I'd like to provide an update on the significant amount of regulatory
activities during the quarter. First in the United States,
concerning our submission for approval of the Visian Toric
ICL. We had a major response from the FDA, which was sent on
August 2nd. Between August 2nd and about two weeks ago, we had
an additional six questions, all of which we were able to respond within
24 hours, with one exception. And that took a few
days. However, in the last 10 working days, we have received 15
additional questions and most of those questions have come with a deadline
date for response. As of today, we only have three responses to
questions outstanding. One of those questions was received
yesterday and the other two today. Now, we don't know what this
means, if anything, but these are the first questions with deadlines we've
received during this interactive response process. Remember,
the FDA can make three potential responses, and that would be, approval of
the Toric ICL; possibly refer the submission to the ophthalmic panel; or
not approve the submission.
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Now,
turning to Japan, where we have responded to questions from PMDA, also
related to our submission for approval of the Visian Toric
ICL. And that response was submitted on August
20th. We're currently working on an additional request that
came in on September 28th, and we expect to respond early this
month.
|
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We
are making significant progress in several key areas. Though,
as illustrated by the third quarter, it doesn't always show up in the
results yet. The investments we are making today to grow our
business will begin to show even greater results in the near term,
specifically launching our recently expanded ICL product line in Europe,
driving our premium IOL sales in the US, responding in a timely fashion to
our numerous regulatory requests on submissions and releasing the new
direct-to-consumer marketing campaign, just to mention the principle
ones. We are focused on achieving all five of the key operating
metrics during the fourth quarter. We will be presenting at the
Stephens Healthcare Conference in New York City on November 17th, at 11:00
am Eastern Time. The presentation will be on our
website. In addition, we're delighted to have a new analyst,
Bruce Jackson of Morgan Joseph covering us. Welcome,
Bruce. And we're also very encouraged that we now have five
analysts covering the STAAR story.
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Operator,
we can now open the line for participant
questions.
|
7
Operator:
|
Thank
you. We will now begin the question-and-answer
session. As a reminder, if you have a question, please press
the star, followed by the one on your touch tone phone. If
you'd like to withdraw your question, please press the star, followed by
the two. If you're using speaker equipment, you will need to
lift the handset before making your
selection.
|
|
Our
first question comes from the line of Joe Munda with Sidoti &
Company. Please go
ahead.
|
Joseph
Munda:
|
Hey,
Barry. How are you?
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Barry
Caldwell:
|
Hi,
Joe. Good, how are you
doing?
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Joseph
Munda:
|
Good,
good. Hope to get to see you when you come to New York on the
17th.
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Barry
Caldwell:
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I
will plan for it.
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Joseph
Munda:
|
Definitely. I
just had a quick question, touching on the marketing
campaign. You're seeing explosive growth in Korea, China and
India, as you'd stated, and you had said that the distributor had put out
a marketing campaign on his own. Now, will you see—were there
marketing campaigns done in China and India as
well?
|
Barry
Caldwell:
|
Good
question, Joe. We did in early 2009, in conjunction with our
distributor in Korea, and he—they are a great distributor, by the way -
they're a great partner for us in that market. We did for the
first six months of '09 give them price concessions on ICLs and they took
that money and invested it in direct-to-consumer very targeted toward the
young population of Korea. They did, as a result, see their
market shares double. That did have some flow-over into areas
like Singapore and our reps did use some of those tactics in India and
China, but not to the degree that we had done in Korea in early
2009.
|
Joseph
Munda:
|
Okay. Well,
the reason I asked is, are you looking to replicate what you guys
did—what—I'm sorry, what your distributor did in Korea and put that forth
towards your marketing campaign here in the United States using the same
principles that keep—I guess, they put in
theirs?
|
Barry
Caldwell:
|
Yes,
Joe, and a couple of things to add to that. This campaign is
not just a US oriented campaign. You will see this, I would—I
didn't check this morning but I would guess it's already hit some of the
websites in Singapore that are physician related. Actually
while we were testing this, it ended up on a website in Singapore
incorrectly and we had to pull it back. But, we are using some
of the principles that we learned from the Korean model in 2009,
particularly in terms of our focus and in terms of the benefits we think
that are most likely to draw potential benefits in to make an appointment
with an ophthalmologist.
|
8
Joseph
Munda:
|
Okay. All
right. Thanks, Barry. I'll let somebody else jump
in.
|
Barry
Caldwell:
|
Thank
you, Joe.
|
Operator:
|
And
our next question comes from the line of Raymond Myers with Benchmark
Capital. Please go
ahead.
|
Raymond
Myers:
|
Thank
you. Good afternoon.
|
Barry
Caldwell:
|
Hi,
Ray.
|
Raymond
Myers:
|
Hi,
Barry. First question is related to the nature of these 15 more
questions you received in the last two weeks regarding the Toric approval
in the US. Can you tell us more about the nature of the
questions and why this flurry of questions so
recently?
|
Barry
Caldwell:
|
Well,
I can't tell you the reason for the flurry but it's definitely been a
flurry. You know, 15 questions in 10 days for our organization
is quite a bit to respond to and I really have to thank our employees
throughout multiple disciplines who have really jumped in giving our
regulatory folks a handle on these. Ray, most of these
questions would be considered efficacy-related questions and several of
the questions would be considered labeling-oriented
questions. I think that's probably a fair way to categorize
them.
|
Raymond
Myers:
|
And
how rapidly can you—have you been able to respond to these latest
15? The first—five out of six, the first batch you responded in
24 hours?
|
Barry
Caldwell:
|
Yes. The
questions—right after the Academy started coming in with, you know,
“within two days respond to this,” “by tomorrow respond to this,” “by the
end of next week respond to this question,” so the FDA has been kind of
guiding this through a timeline, and given us sufficient time to
respond. Most of the questions, the majority, do take less than
24 hours. There are some though that are, particularly
questions regarding astigmatism, that require outside analysis, so we have
on four different questions had to go to outside sources to help us to
answer, and of course that does add a little bit of time to
it. But I must say that the folks who we’re working with on the
outside have been extremely responsive and very helpful in the sense of
urgency to getting the questions back as quickly as
possible.
|
Raymond
Myers:
|
Okay. Do
these questions follow a train of thought? So if you—they want
an answer within 48 hours, you respond, and then there's a follow-up
question or are these totally
unrelated?
|
9
Barry
Caldwell:
|
But—that's
really a good question, Ray, and I'm glad you asked it because it's one
that I really neglect to get into - though our regulatory teams point this
out to me - is that, let's say of the 15 questions, I would say that half
of them are add-ons to the first seven or eight questions. So
it does show us that while they're asking us to respond quickly, they are
also analyzing the responses quite quickly and getting back to
us.
|
Raymond
Myers:
|
But
that's a change in the pattern that you had with the FDA over the past two
years, in my view. Is that correct? I mean they're
now—there's a bit of rapid back and forth happening here. What
do you make of that?
|
Barry
Caldwell:
|
Well,
you—first, let me go back. Remember, when we had back prior to
our August submission, we had been talking with the FDA and they mentioned
a face-to-face meeting, and then after we submitted that response on
August 2nd, they really moved towards, let's make this an interactive
response process. And that's what they called
it. So, I think this—it is a different way that they've been
looking at us from the last five years. We like it because it's
quick, our interaction with the FDA is very good, they're responsive,
we're trying to be responsive to them. I think the interaction
has been positive, it's been straightforward, it's been honest, so… If
—but that has been different than - just after the Academy is
when this started at the rate it's
hitting.
|
Raymond
Myers:
|
Okay,
great. I could go on with more questions. I'll get
back in the queue and let others.
|
Barry
Caldwell:
|
Thank
you, Ray.
|
Operator:
|
Our
next question comes from the line of Bruce Jackson with Morgan
Joseph. Please go ahead.
|
Bruce
Jackson:
|
Thank
you. Hi, guys.
|
Barry
Caldwell:
|
Hi,
Bruce.
|
Deborah
Andrews:
|
Hi.
|
Barry
Caldwell:
|
Welcome.
|
Bruce
Jackson:
|
I'm
good. The first question I have is about the ad
campaign. Where does the expense hit in the income statement
right now?
|
Barry
Caldwell:
|
It
hits in our sales and marketing expenses, and that's where the creation
costs hit during the third quarter.
|
Bruce
Jackson:
|
Okay. And
then going forward you said there might be some price adjustments to the
doctors who are participating, would that affect the gross margins at
all?
|
10
Barry
Caldwell:
|
It
will because it would affect average selling
price.
|
Bruce
Jackson:
|
Okay.
|
Barry
Caldwell:
|
But
I don't see it making any kind of significant swing. And
remember, we're going to roll this out in a conservative way for a lot of
different reasons.
|
Bruce
Jackson:
|
Okay,
and speaking of the roll out, just help us think about how this whole
program might roll out. You know, how many—so you're in two
markets right now, how long do you think you might run the campaign in
those two markets before you decide to roll out to additional markets and
what are some of the things you're going to be looking
for?
|
Barry
Caldwell:
|
Yes,
okay, good questions, Bruce. I think in those markets we're
probably looking at about a three-week time period to see what the
reaction is. And what we're going to be trying to gauge is—and
of course it will have to do with the frequency during that three-week
period, but what we're trying to gauge is potential patient response being
driven into the ophthalmologist’s office and then them proactively asking
about the ICL technology. So, these original four or five
launch sites will be specifically tied to an ophthalmologist and his
practice, so it will make it easier for us to retract—or to track
that. And then finally, the percent that actually convert from
being a potential patient that converts to the ICL
technology. Now, we recognize that some patients driven into an
ophthalmologist office for appointment may turn out to not be a suitable
candidate for the ICL. They may be for example less than minus
3.
|
Bruce
Jackson:
|
Mm-hmm.
|
Barry
Caldwell:
|
So
that could potentially be a LASIK patient but we do want to track whether
they have a procedure and which
procedure.
|
Bruce
Jackson:
|
Okay. Then
moving over to the FDA and the Toric lens. In terms of the
response that you have to come up with right now, are there—is there a
need for any additional data or are these fairly straightforward questions
to answer?
|
Barry
Caldwell:
|
There
generally, Bruce, is not a need for additional data; it's generally
clarification of data. Now, we have had to re-sort data based
upon questions, but it's not going out and acquiring any new
data.
|
Bruce
Jackson:
|
Okay,
great. And then, I apologize if you'd mentioned this earlier in
the call, but with the NanoFLEX in the US, what was the growth rate this
quarter?
|
Barry
Caldwell:
|
It
was—it increased 27% during the third quarter in the
US.
|
11
Bruce
Jackson:
|
Okay,
great. That's it for me. Thank
you.
|
Barry
Caldwell:
|
Thank
you, Bruce.
|
Operator:
|
And
our next question comes from the line of Joanne Wuensch with BMO Capital
Markets. Please go
ahead.
|
Robbie:
|
Good
afternoon. This is Robbie in for Joanne. She's on
the road today.
|
Barry
Caldwell:
|
Hi,
Robbie.
|
Robbie:
|
How
are you doing?
|
Barry
Caldwell:
|
Good.
|
Robbie:
|
So,
question is, you mentioned you were disappointed with the gross margins,
how they turned out this quarter, could you just give us some steps you
are taking to improve those going
forward?
|
Barry
Caldwell:
|
Well,
I think, you know, given the mix of our sales during third quarter, in my
mind, a 64, 65% gross margin would be more appropriate. Now, as
Deborah said there were some adjustments made in the quarter that probably
accounted for two percentage points. That happened; it doesn't
make me happy and it doesn't get us to where I think we should be, so in
my mind, 64, 65, is probably from a gross margin percentage perspective
where we should have been in the
quarter.
|
Robbie:
|
Okay,
thanks.
|
Operator:
|
And
our next question comes from the line of Rick Dauteuil with Columbia
Management. Please go
ahead.
|
Rick
Dauteuil:
|
Thanks. Good
afternoon.
|
Barry
Caldwell:
|
Hi,
Rick.
|
Rick
Dauteuil:
|
Just
to go back and review what we talked about were issues in the second
quarter, and you had hoped to recover some of the lost sales in this
quarter; one of them was a Korean distributor changing legal entities and
the other was I think a manufacturing consolidation. Can you go
back and give us a sense of what you actually recovered this quarter from
the Q2 problems?
|
Barry
Caldwell:
|
Okay. You
were—Rick, you were cutting out a little bit but let me try to answer what
I think you asked, and if not, please ask it again. There were
two issues in Q2 that we discussed on those results; one was the Korean
distributor that was opening up a new, really, division of their company
and a new location from which ICLs were going to be
shipped. And if we look at the results for the third quarter,
Korea's sales were up 59% for the quarter, reflecting that catch-up in the
sales from second quarter. Korea typically orders their
heaviest volume in the second quarter and the fourth quarter, as we talked
about in the call, but their second quarter was down because that order
didn't take place but they did make up for it in the third
quarter. The second issue we had in the second—during the
second quarter was related to the backlog of IOLs in
Japan. That was a backlog of about 4,000 units. We'd
made up all of those customer sales during the quarter and that's part of
the reason that Japan IOLs were up 8% for the quarter, part of that
make-up. And then there were—there are still some backorders
remaining; it's about 800—I'm sorry, about 1800, I believe, which is kind
of more of a typical backorder at the end of the quarter. Those
are not to direct customers; they are all either to our own subsidiary in
Switzerland or to distributors.
|
12
Rick
Dauteuil:
|
So,
can you hear me all right, Barry?
|
Barry
Caldwell:
|
Yes.
|
Rick
Dauteuil:
|
Okay. So,
if you were to go back and quantify what this quarter benefited from that
was originally anticipated to be second quarter revenues, I think the
Korean issue was a half million dollars, is that true
or?
|
Barry
Caldwell:
|
Well,
if I look at... oh, let me look for the right quarter. I was
looking at... here we go. No, this is third quarter
data. Okay, sorry. Korea sales for the third quarter
as compared to prior year was up
$627,000.
|
Rick
Dauteuil:
|
But
again, going back I think you quantified last quarter as a half million
issue on that—
|
Barry
Caldwell:
|
Looks
right, so what I—
|
Rick
Dauteuil:
|
So
now you think you can capture
that. So.
|
Barry
Caldwell:
|
Yes,
so that was more than recaptured in the third
quarter.
|
Rick
Dauteuil:
|
Well,
I mean I assume you would have had growth in the third quarter even
without the catch-up, right, in
Korea?
|
Barry
Caldwell:
|
Well,
their first quarter growth was not that strong, and as I said they
typically order in the second and fourth quarter, so typically their third
quarter is down. Year-to-date, their sales were up 18%, if that
helps put a box around it.
|
Rick
Dauteuil:
|
Okay. So,
and then the other issue was that $3- $4- $500,000 also that [talk
over].
|
13
Barry
Caldwell:
|
It—yes,
in Japan with the direct to customer orders in Japan that were on
backorder and Japan IOL sales increased by 8% in the
quarter.
|
Rick
Dauteuil:
|
Okay. So,
going back you said you were disappointed in the gross margin, there were
some one-time things related to the Collamer raw material
issue. Your core products were up 10% this quarter, your goal
was 10% or your goal was double-digit, but this quarter certainly
benefited from spill-over from Q2. Did you in fact hit your
internal budgets for revenue this quarter because you were short of the
Street, so I'm just trying to get a sense of where you guys drew the
line?
|
Barry
Caldwell:
|
Well,
though we don't talk about what our internal budgets is, I guess I can
talk about my own internal expectations. I would have expected
our revenues to be a bit higher than they were third
quarter.
|
Rick
Dauteuil:
|
Okay,
that's where I think the Street was and probably where my thinking was
too. Okay. Separate thing. On the
consumer marketing campaign, I mean just conceptually, if somebody is
exposed to your campaign and decides to take it to their eye care
physician, isn't it true that you're likely to go to your routine eye care
physician, right, first, and wouldn't that be an optometrist or an
ophthalmologist but not likely to be a surgeon,
right?
|
Barry
Caldwell:
|
Well,
we will certainly learn more of that as—but the ads as they go in the
traditional direct-to-consumer routes, they will be specifically tied to
an ophthalmologist, so, a doctor X in X location, his name will appear on
these ads.
|
Rick
Dauteuil:
|
Okay.
|
Barry
Caldwell:
|
And
his phone number and how to set up an appointment in his
office.
|
Rick
Dauteuil:
|
So
you're going to try to redirect them from their normal eye physician to
somebody that is familiar with your
procedure.
|
Barry
Caldwell:
|
Yes,
I think that's a fair way to say it, Rick. We're going to try
to direct patients to ophthalmologist to offer the ICL
technology.
|
Rick
Dauteuil:
|
Okay. Okay,
that clarifies that. Thank
you.
|
Barry
Caldwell:
|
Thank
you.
|
Operator:
|
And
our next question comes from the line of Chris Cooley with Stephens
Incorporated. Please
continue.
|
Chris
Cooley:
|
Thank
you, everyone. Can you hear me
okay?
|
Barry
Caldwell:
|
Yes,
Chris.
|
14
Chris
Cooley:
|
Just,
if I may, two quick kind of qualification questions. You
mentioned in your prepared comments that you saw a rebound in the military
orders here in the United States that had been an issue in the prior
quarter but there was another issue which led to the
decline. Could you maybe provide some color around both of
those? And then secondly, when you look at - this is my quick
follow-up - when you look at your growth in ICL sales, a very impressive
21% top line growth there on 34% growth in units, can you just remind us
if there was any incremental kind of promotion during the quarter, maybe
in association with the Asian markets that caused that spread to widen a
little bit between units and actual reported sales? Thank
you.
|
Barry
Caldwell:
|
Okay. Good
questions, Chris. First of all, in terms of the US related
issue which basically drove our revenues down 9% for the quarter, which I
think was about $120,000, something to that nature. It really
relate—if you look at the total results it relates to one customer; it's a
fairly large customer; it's a civilian customer; not a military account
and it's a customer who has gone from carrying their own inventory of
product to instead buying it on a 'as patient comes in basis', so they've
actually lowered their cost of doing business. So we're
carrying the inventory for them, so to speak. And it's
something that's been going on all year, but it affected us more third
quarter because they did make a big inventory purchase in the US third
quarter of last year.
|
Chris
Cooley:
|
Okay. So
it's not—so basically this is something that you'll work through, it
sounds like. It's not a structural change in demand; this is
just an issue you've got to work
through—
|
Barry
Caldwell:
|
Right,
correct.
|
Chris
Cooley:
|
[talk
over] at some
point. Okay.
|
Barry
Caldwell:
|
Correct. And
this is the first quarter we'd really seen the biggest impact during the
quarter; though this customer started purchasing this way earlier in the
year.
|
Chris
Cooley:
|
Understood. Thank
you.
|
Barry
Caldwell:
|
So,
secondly, regarding the growth, the 21% in dollars versus the 34% in
units, first of all, the biggest reason for the delta between those two is
mix related; meaning the mix between Toric ICLs and the regular myopic
ICLs. Now, remember that, you know, the Toric in most markets
represent about a $200 delta in average selling price, so we had a much,
you know, our—the number of regular ICLs that were sold during the quarter
grew at a rate of... Deborah, do you have
that?
|
Deborah
Andrews:
|
Yes,
it's 25%.
|
15
Barry
Caldwell:
|
And
Toric ICLs grew to a rate of?
|
Deborah
|
13.
|
Barry
Caldwell:
|
13. So,
Toric grew at only 13% while the lower priced ICLs grew at a rate of
25%. Now, if you'll combine that, Chris, with exactly where
you're pointing to that the even more accelerated growth came from China,
India, Korea. Those tend to be overall a bit lower priced
markets anyway, and of course we're selling too at a distributor price and
not an end customer price. So I think basically all of those
combined were the factors that led to the difference. The 34%
unit increase is quite impressive to me, and as we—as we've been—started
looking at our units more on ICLs it is really a nice story in terms of
the unit growth which really does reflect an enhanced market share growth
worldwide that we're seeing with the Visian
ICL.
|
Chris
Cooley:
|
Super. If
I might just have one other quick question and I'll get back in
queue. Any additional updates on CAST II post the Academy
meeting? And, thanks for the great
quarter.
|
Barry
Caldwell:
|
Right. No,
Chris, and during the America Academy we said we're in the process of
responding to some questions on the clinical protocol for CAST
II. And I must admit though, that since the Academy with this
great flurry of questions on Toric, that we really haven't made any
progress on that since the Academy.
|
Chris
Cooley:
|
Understood. Congratulations.
|
Barry
Caldwell:
|
Thank
you, Chris.
|
Operator:
|
And
our next question comes from the line of Jack Fraser with Seamark
Capital. Please go
ahead.
|
Jack
Fraser:
|
Hi,
everybody.
|
Speakers:
|
Hey,
Jack.
|
Jack
Fraser:
|
A
few questions. First, maybe you'd said this and if I missed it,
I apologize. Do we know in Korea what unit growth year-to-date
was?
|
Barry
Caldwell:
|
I
can tell you... Year-to-date unit growth
is...
|
Deborah
Andrews:
|
It's
7%.
|
Barry
Caldwell:
|
No. Unit
growth is 12%, dollar growth is
18%.
|
Jack
Fraser:
|
And
is that gap between unit growth and dollar growth due to FX rates or is
there a mix change in there as well, ICL or the
TICL?
|
16
Barry
Caldwell:
|
Uh...
|
Jack
Fraser:
|
And
if you don't know, we can get together offline. I just was kind
of curious to understand. I mean the point being that, you
know, we're seeing substantial unit growth and it's not all about Korea,
so I'm just trying to size up what Korea's contribution was as they're one
of the strongest performing international
markets.
|
Barry
Caldwell:
|
Okay. Now,
we have to go through it. It'd probably be easier to take
offline.
|
Jack
Fraser:
|
Okay,
that's fine. Secondly, Deborah, I was wondering if you could
share a little more with us about the Collamer raw material
charges? Can you give us a little bit about what happened and
what the background was forcing the
charge?
|
Deborah
Andrews:
|
Okay. Well
it's complicated; it's basically a
chemistry—
|
Jack
Fraser:
|
Yes.
|
Deborah
Andrews:
|
—
issue more than anything but there was a specification that wasn't
identified in either by the supplier or by the company in terms of the
chemical—certain aspects of the chemical make-up of the Collamer
material. And when we received it it was at the high range of
the specification and we didn't understand the effect of
that.
|
Jack
Fraser:
|
Uh-huh.
|
Deborah
Andrews:
|
When
we manufactured lenses with this material all of a sudden the lenses
weren't dimensionally correct and we were rejecting them, to like, 100%
rejection rate. And so we figured out that it was this material
issue that caused it and had to make the appropriate corrections with the
supplier.
|
Jack
Fraser:
|
Understood.
|
Deborah
Andrews:
|
So,
you know, and it's not something that we can necessarily recoup from the
supplier because, you know, neither of us really understood the effect of
this.
|
Barry
Caldwell:
|
Here's
the way I understand it, Jack, in simple terms for me. We had a
spec for this material that it had to be at least 95% or above
pure. We got some of the very highest purity of this material
during the quarter; it was like 99% pure. One of the things we
didn't realize when it became that pure it actually took out some other
key elements that were needed for the overall Collamer chemistry material,
so that's really what threw us off. The spec should have been
more like 95% to 98% pure, and it was 95 to 100%
pure.
|
17
Jack
Fraser:
|
So,
and just following up on that, Barry. So, can we say at this
point that we have learned something about the chemistry dynamics of the
Collamer material that allows us to sort of re-spec the components beneath
that? Not just purity but the actual other, you know, items of
content?
|
Barry
Caldwell:
|
Yes,
we have. And I'll say this, Jack, because we did last year, not
the same issue, but last year we did have, and I think it was second
quarter of last year, we had a Collamer material related issue, then we
took a hit on gross margins. We'd developed a task team for all
of next year, and we think it's a full year project, since Collamer is our
future, we want to understand Collamer better than we do today so that
issues like this do not arise in the near term or long term. So
we're taking a real hard look at this in terms of understanding the
chemistry, the material, and the processes even better than we do
today.
|
Jack
Fraser:
|
Sure. Well,
I mean it's important to note that it's a manufacturing issue not a
product in the marketplace issue. But that's very helpful,
thank you.
|
Barry
Caldwell:
|
On
Korea, let me try to answer real quickly for you. The units
were up 12%; dollars were up 18% and that's because in Korea Toric have
actually grown faster than ICLs. Torics have grown 31%
year-to-date, whereas ICLs have grown
14%.
|
Jack
Fraser:
|
Okay,
super. One last quick follow-up on the Collamer charge
issue. Did the raw material charge include the adverse variance
of manufacturing cost that were then
lost?
|
Barry
Caldwell:
|
Could
you repeat that?
|
Jack
Fraser:
|
Did
your Collamer material—you took a charge for Collamer material that you
can no longer utilize, did that include the manufacturing cost
or—
|
Barry
Caldwell:
|
Yes.
|
Jack
Fraser:
|
It
did, okay.
|
Barry
Caldwell:
|
Yes. Yes,
some of these were already in the
process.
|
Jack
Fraser:
|
Okay.
|
Barry
Caldwell:
|
And...
yes.
|
Jack
Fraser:
|
Going
back to the TICL, you know, great lead-in from the Korean
thing. In the past, Barry, I think there's been experiences
where upon TICL approval end markets that there's been an inflection of
growth in that market as doctors now have a more comprehensive solution to
present to incoming patients. In the US, you know, given the
sort of more intense dialogue now occurring between you and the US FDA, if
in the event that actually led to the FDA approving the TICL, do you sense
a similar kind of an inflection in front of
us?
|
18
Barry
Caldwell:
|
Well,
first of all, my son would be very happy because as you know he's waiting
for this technology. But Robin and his group have tracked
pretty well those countries—and Korea is a good example. Korea
had the ICL three years before they actually got Toric, and you can see
the ramp up, not just of Toric, but the increased—the enhanced increased
rate of growth of ICLs once Toric is approved, you're exactly
right.
|
Jack
Fraser:
|
Mm-hmm. Okay. And
then just lastly, and forgive the length of my questions. In
the third quarter—I mean historically going back in the company's history,
third quarter has had some seasonality in it, and I was just wondering if
I could ask you and Deborah to sort of just comment from your gut about,
when you think of third quarter revenues this year, what piece of third
quarter revenue performance was some of the traditional seasonality we've
seen in some of the markets, such as Europe, that has occurred in the
past? And what piece of it has, you know, maybe fallen short of
your aspiration for revenue progress and where would that be if you had a
gut instinct about where that—what pocket that came
from?
|
Deborah
Andrews:
|
Let
me answer the question about seasonality. Yes, I actually had a
question about this just last week, and we know that seasonality was a
factor for STAAR a number of years ago and—but it had appeared that it was
becoming, you know, less of a factor
recently.
|
Jack
Fraser:
|
Mm-hmm.
|
Deborah
Andrews:
|
So
I actually went back and I looked at every quarter going back 10 years and
what I found was—is, yes, in fact that the third quarter was becoming less
of an issue for the company. And you can kind of see with the
kind of growth rate on ICL that we
had—
|
Jack
Fraser:
|
Mm-hmm.
|
Deborah
Andrews:
|
In
the third quarter this year compared to last year, and with the sequential
growth in the ICL that we had so far this year, that obviously the summer
issue hasn't been a factor for us this year and in fact haven't been for
several years. About, I don't know, 58% of the—you know, if you
look at the lowest quarters of the year, 58% landed in the third quarter
and then the rest landed in other quarters, so—and that's been—that was
more in the early part of, you know, of 2000 than in the later
part.
|
Barry
Caldwell:
|
And,
Jack, let me take the second part of that in terms of where we're looking
to see more growth or haven't been happy with where growth has come from
in the past. I think that is reflected in the organizational
changes we announced earlier in the year and that is that Don Todd is
heading up Asia-Pacific and Hans Blickensdoerfer, whom is very experienced
and has really initiated the growth in the Far East, he is now focused on
just Europe and the Middle East. Because we do see more
potential for us in European countries like France, Spain, UK and Germany,
and by having Hans focused in those areas I think it's really going to
help to move the growth more in line with the expectations we have in
those European countries.
|
19
Jack
Fraser:
|
Okay,
great. Thanks for your patience in taking my questions and
congrats on all the product progress you've been
making.
|
Barry
Caldwell:
|
Thank
you, Jack.
|
Operator:
|
And
as a reminder, ladies and gentlemen, if there are any additional
questions, please press the star, followed by the one at this
time. If you're using speaker equipment, you will need to lift
the handset before making your
selection.
|
|
Our
next question comes from the line of Larry Haimovitch with Haimovitch
Medical Technology Consultants. Please go
ahead.
|
Larry
Haimovitch:
|
Good
afternoon. Let me just get off my speakerphone here, if I can
do this. Are you there?
|
Barry
Caldwell:
|
Hi,
Larry.
|
Larry
Haimovitch:
|
I
can't get off my speakerphone, I apologize. I'm not smart
enough.
|
Barry
Caldwell:
|
Well,
congratulations on the Giants win.
|
Larry
Haimovitch:
|
Oh
boy, that was so fantastic, Barry. I mean the city is just so
thrilled. It's been so long. You know, they haven't
won a championship since 1954, and they just played so
brilliantly. I mean I was trading emails with a friend and he
was saying, 'never seen such great pitching,' and I said, 'well I've seen
dominant pitchers but not dominant pitching like they had.' So
it was great.
|
Barry
Caldwell:
|
[talk
over] congratulations.
|
Larry
Haimovitch:
|
You've
had a phenomenal call; all these great questions. I think I've
got one that no one's asked though. Hmm. At the AAO
meeting, Dr. Lipstock talked a little bit about the MAST program, the
monofocal accommodating study team. Give us some
feedback. I didn't get a chance to talk to you much at the
Academy about this, how important do you view the MAST study,
Barry?
|
20
Barry
Caldwell:
|
Well,
you know, that's a very good question, because what you see developing in
the US more and more, and I just visited last week with a local surgeon in
the LA area, there's what's called this mid-premium IOL
segment. Now, just to help explain what I mean by that, you
know, premium IOLs are pretty well defined to some degree as being the
accommodating types, the multi-focal types, the Torics. Well
there is developing this mid-premium range where physicians are using
products like the NanoFLEX. Now, Dr. Lipstock uses this with a
blended vision approach, one eye at a different level than the other eye,
and that way he thinks he gets great intermediate, great distance and
enhanced near vision results, and in this mid-premium range physicians are
finding ways, they're actually able to charge patients a little bit more
for these better results. Now, a little bit more can be
anywhere I've heard from $800 to $2000 compared to these premium segment
IOLs that can go for 4 or $5000 an eye. So we do see this
segment evolving and we do believe it's going to be very important in the
next two or three years, particularly in the US
market.
|
Larry
Haimovitch:
|
Okay. So
this would be an extra benefit over and above what you're getting in CAST
because this is using in the Collamer Lens,
correct?
|
Barry
Caldwell:
|
That's
correct, using the NanoFLEX.
|
Larry
Haimovitch:
|
Do
you anticipate doing some sort of clinical trial? I would
assume you would need to have some sort of clinical data to make a good
case on this.
|
Barry
Caldwell:
|
Yes,
we will, but we will also likely do some what I would call more marketing
oriented clinicals too, similar to what we initially did with CAST so that
at least we can create a podium for this message to be delivered
from.
|
Larry
Haimovitch:
|
Okay. Great. Thank
you, Barry.
|
Barry
Caldwell:
|
Thank
you, Larry.
|
Operator:
|
And
our next question is a follow-up question from the line of Raymond Myers
with Benchmark Capital. Please go
ahead.
|
Raymond
Myers:
|
Yes. Thank
you for the follow-up. I don't think we've touched on the
operating expenses. Q2, previous sequential quarter had a
$700,000 one-time charge, if you take that out our operating expenses
increased by roughly the same 700,000, however this time it appears to be
in recurring items. Can you explain what operating expense
trend should we be seeing in the
future?
|
Barry
Caldwell:
|
Okay. Just,
first, Ray, let me try to take an explanation on the 700 and then I'm
going to let Deborah add to my comments. Of the 700,000
increase from second quarter I believe about 300,000 of that is related to
currency exchange, about 150,000 is related to this one-time legal charge
and then there's at least another 100,000, 250,000 that is related to the
meeting in China which only occurs every other year. It's a
pretty heavily expensed meeting for us; it's a rather large meeting and we
feel like we're very productive at the meeting. But, that's
550,000 of the 700 there, and I think the remaining is the increased
headcount that we have in the sales and marketing
areas.
|
21
Raymond
Myers:
|
Now,
the FX would not be truly one-time, unless the dollar suddenly
strengthens, right?
|
Barry
Caldwell:
|
That's
correct. So I think that's why I said—I think I said in some of
my comments that 300,000 of that, around 300,000 should have been a
one-time charge and not reoccurring but then the currency's going to be
whatever the currency is.
|
Raymond
Myers:
|
So,
what is this $500,000 win that, the legal win, are we going to get a
windfall here in the fourth
quarter?
|
Deborah
Andrews:
|
Well,
that remains to be seen. We have to determine whether or not
it's collectible.
|
Raymond
Myers:
|
All
right. So, now what should we think about in terms of marketing
spend? You're talking about a lot of exciting programs but I
would assume that we are going to have some increase in marketing and
selling expense in the fourth quarter,
no?
|
Barry
Caldwell:
|
Well,
I think we have through the increased headcount that we've created in the
US, and then also, which I should have responded in Jack's answer, we have
just recently hired someone in the UK area to help our resurgence in
Europe, so, you know, I think those headcount expenses are probably
150-200,000 a quarter, Deborah?
|
Deborah
Andrews:
|
In
the US?
|
Barry
Caldwell:
|
In
the US and this additional head in
Europe.
|
Deborah
Andrews:
|
It's
probably at least 250,000.
|
Raymond
Myers:
|
Okay,
so 250 per quarter. Additionally in Q4 relative to
Q3?
|
Deborah
Andrews:
|
No,
no, no.
|
Barry
Caldwell:
|
No.
|
Deborah
Andrews:
|
No.
|
22
Barry
Caldwell:
|
No,
they're pretty much all-in in Q3 with the exception of this one headcount
in Europe, in the UK.
|
Raymond
Myers:
|
Well
we're really just trying to parse out how much increase from this point
forward.
|
Deborah
Andrews:
|
No,
I think that our Q4 expenses, you know, they ran at about nine point, you
know, 9.5 million, so I expect they come down at, you know, at least
400,000, for about 400,000, and that would be a... We also
have—remember we had ASCRS in the fourth quarter, so whenever we have a
trade show hit in the quarter our expenses are usually a little
higher.
|
Raymond
Myers:
|
You
mean in the third quarter.
|
Deborah
Andrews:
|
In
the third quarter, yes—no, fourth quarter. ASCRS was in the
fourth quarter.
|
Barry
Caldwell:
|
Academy.
|
Deborah
Andrews:
|
Academy,
I'm sorry.
|
Raymond
Myers:
|
Oh,
okay. Yes. Okay, great. How many direct
and indirect sales people did you have ending the
quarter?
|
Barry
Caldwell:
|
Ray,
I believe we had - this is in the US - we had 16 direct and 12
independent.
|
Raymond
Myers:
|
Is
that a decline in the number of
independents?
|
Barry
Caldwell:
|
Well,
over some period of time it is, not—I don't believe we've had any change
in the—well, basically it's been the same all year on the indirect
side.
|
Raymond
Myers:
|
Okay. Have
we gotten any early market reaction to the expanded low diopter ICL ranges
in Europe that were launched in, roughly,
September?
|
Barry
Caldwell:
|
Well,
of course—you know, I think you saw at the American Academy of
Ophthalmology Dr. Eric Merten's presentation and what he thinks it will
mean in his practice. We just, almost the last day of the
quarter, last day of September, were the first shipments of the lower
diopter lenses going out, so we're just starting to get a sense for what
that can look like.
|
Raymond
Myers:
|
Okay,
good. And then what happened with the preloaded silicone 510(k)
application? I know that's kind of a small thing but we're
hoping for that soon.
|
Barry
Caldwell:
|
Yes. You
know, it's not—I wouldn't call it a small thing. I think it's a
very interesting product for us and hopefully the first of trying to get
to a totally preloaded IOL offering and also ICL, by the
way. But we have—what kind of really smelled like the last
question just prior to the Academy, we responded to them and we were just
told last week that they have one other question but we'd not yet received
it.
|
23
Raymond
Myers:
|
So
one more question. All right. So, [inaudible]
then.
|
Barry
Caldwell:
|
I
keep checking everyday and we don't have that question
yet.
|
Raymond
Myers:
|
Yes,
all right. And then, you mentioned in the press release
something very intriguing about Aaren Scientific and potentially some
license revenue as well as potentially marketing their
product. What's that all
about?
|
Barry
Caldwell:
|
Now,
Ray, that's interesting. I was wondering if anybody would pick
that up from the release because I think this thing is kind of flown below
the radar level for the last several years. But back in 2004,
STAAR had its own proprietary hydrophobic acrylic IOL material, and the
decision of the company at that time was not to invest in moving forward
and instead developed a relationship with a company called OII, which is
now Aaren Scientific, and so they have developed the material to the next
levels; they're currently marketing it in Europe; we are getting some
royalty income from them currently. But the significant thing
that happened is that last week they just got approval in the US through
the FDA for this product. Now, so that will mean some enhanced
royalties we'll get, but it also mean we have co- marketing rights to that
product and we're currently evaluating when and how to enter the US
market. Now, the significance of a hydrophobic IOL material is
that's the majority of IOLs in the US market. It's about 70% of
the IOLs. So this would be a product that could compete
head-to-head with Alcon's AcrySof material or the other major competitors
that have a hydrophobic IOL material. And it has some benefits
over those materials.
|
Raymond
Myers:
|
And,
do they have a marketing force to market this or is the idea that you will
market this?
|
Barry
Caldwell:
|
Well
that's a good question too. To our knowledge they do not, but
we have been told they intend to set up a distribution in the
US. Whether that's direct or indirect we're not sure, but we do
know that, you know, we have the right to buy product from them and we're
evaluating our entrance in the US
market.
|
Raymond
Myers:
|
Okay,
sounds interesting. Thank
you.
|
Barry
Caldwell:
|
Thank
you, Ray.
|
Operator:
|
And
our next question comes from the line of Wayne Schroeter, a Private
Investor. Please go
ahead.
|
24
Wayne
Schroeter:
|
Hi,
Barry. Hi, Deborah.
|
Barry
Caldwell:
|
Hi,
Wayne.
|
Wayne
Schroeter:
|
A
question on, you said the military sales had increased. Could
you elaborate a little bit?
|
Barry
Caldwell:
|
Yes,
they have.
|
Wayne
Schroeter:
|
When
you say that are you saying that individuals who are in the military
basically are making the decision to have ICLs implanted as opposed to DOD
ordering for them?
|
Barry
Caldwell:
|
Well
I think, Wayne, here's a good way to describe the process. As
Dr. Scott Barnes or Dr. Gregory Parkhurst from Fort Bragg and Fort Hood
have described it to me, is that, they offer the—both LASIK and ICL or PRK
to soldiers and they educate them on all three options and the soldier
basically chooses. Now, the DOA does carry an inventory of both
cards for Excimer machines and also ICLs so that they can, you know fairly
quickly implant these in patients. But it is driven by the
soldier. Now the surgeons may push harder one technology to
another but ultimately they do let the patients
decide.
|
Wayne
Schroeter:
|
Okay,
excellent answer. Thank you very
much.
|
Barry
Caldwell:
|
Thank
you, Wayne.
|
Operator:
|
And
our final question comes from the line of Mark Malcolm, Private
Investor. Please go
ahead.
|
Mark
Malcolm:
|
Thank
you very much. Barry, it's been a truly transparent
conference. I greatly appreciate the answers you've been
giving. Actually I did have a follow on to the Aaren Scientific
information in. I've asked you several times over the years
regarding the preloaded IOLs that you've been marketing from Japan and in
Europe since about 2005. The Aaren Scientific solution is a
little bit better than the KSNI that you've been doing with the Nidek
acrylic. But what has occurred is over the last two years you
haven't really addressed, when you intend to bring the preloaded into the
US, since Hoya with its iSert has gotten FDA approval and elsewhere in the
world I'm aware of Visiogen Synchrony. But with this you
addressed some of your sales having grown, particularly with the acrylic
IOLs in your preloaded, in what you had in the third quarter financial
highlights. Do you want to address your plans moving
forward?
|
25
Barry
Caldwell:
|
Sure. Yes,
thank you, Mark, I appreciate your comments about the
transparency. The—you know, the reason for STAAR deciding
several years ago not to go down the route of getting a new material
approved in the US is that it's a quite expensive endeavour to go out and
do, and I think the company's not had the financial ability to do that,
that's why this arrangement with OII, now Aaren, was put in
place. So, you know, I think the possibility of taking the
Nidek material, as you'd suggested, which we use in Japan and Europe, is
really not something the company would have embarked upon doing knowing
that we intentionally decided not to do it with our proprietary material,
but now it is approved in the US, we're evaluating from a marketing
perspective how to position this with potentially the preloaded silicone
in the US, with our new NanoFLEX, which we, you know, we hope to have it
preloaded at some point in time and then a hydrophobic IOL. So
we're just working through—it was actually a little bit of a surprise to
us that the approval came this quickly. We've been in
discussions with them for the last couple of years but we're excited they
have approval and, you know, it means upside to the company down the road
in royalties and the potential to market in the US another new
product.
|
Mark
Malcolm:
|
Given
that, is the move toward a preloaded in the US, a 2012—a 2011 goal or a
2012 or later goal?
|
Barry
Caldwell:
|
For
hydrophobic?
|
Mark
Malcolm:
|
For
bringing any preloaded to market.
|
Barry
Caldwell:
|
Well,
preloaded —
|
Mark
Malcolm:
|
In
the US.
|
Barry
Caldwell:
|
The
preloaded silicone is, you know, directly in our hairs, at target range,
as we were discussing earlier, the 510(k) process for that. But
we will have to evaluate—that's part of what we'll be looking at
evaluating this Aaren material along with our preloaded technology to see
if there's a match or what type changes may or may not need to be made,
but at the same time our highest priority R&D project within Japan is
to get a Collamer preload to market, and that would be for both the ICL
and for the NanoFLEX IOL.
|
Mark
Malcolm:
|
And
basically the Afinity seems to have dropped from your discussion regarding
that Collamer Aspheric, is that still being marketed or is it not being
accepted in the marketplace?
|
Barry
Caldwell:
|
No,
the Affinity is being marketed; that's the three piece Collamer IOL in the
US. I think it's, Mark, just because of the focus that's been
had on NanoFLEX and the great results we've had with that and the podium
presence with physicians speaking, that it's probably taken a, you know, a
front-of-the-bus location in terms of what we've been
marketing. So, as we look to preload things, number one would
be, at least Collamer, would be ICL followed by NanoFLEX and then the
three-piece finally.
|
26
Mark
Malcolm:
|
Thank
you. And the final question deals with the expansion or your
expected growth rate in Japan regarding the ICL. I don't recall
that you addressed that in your remarks
earlier.
|
Barry
Caldwell:
|
No,
we didn't, and that's a good question, Mark. You know, I think
I've said in our last call we've not been happy with the start we've had
in Japan with the ICL and just we got approval for the ICL during the
first quarter of this year. It's been a slow process in terms
of getting through the mechanics required by Japan for certification of
surgeons. But we've made real good progress
there. As a matter of fact, this month should be our highest
month since we got approval through—we still have a week to go for that
comparison and we're basically where we have been in previous
months. So, you know, having Don Todd over there I think has
been real helpful and we've really focused very hard on our sales and
marketing activities related to the ICL in Japan and also some potential
with some very large customers in Japan and the Visian
ICL.
|
Mark
Malcolm:
|
Again,
appreciate your responses. When LASIK first came to Japan it
was also had extremely slow acceptance; I believe that was in the 2002
time frame. Again, thank you for your
answers.
|
Barry
Caldwell:
|
Thank
you, Mark.
|
Operator:
|
And
I—one moment please. Our next question comes from the line of
Jack Fraser with Seamark Capital. Please go
ahead.
|
Barry
Caldwell:
|
Jack,
are you still there?
|
Jack
Fraser:
|
Yes,
I'm still here. Do you hear
me?
|
Barry
Caldwell:
|
I
hear you now.
|
Jack
Fraser:
|
Okay. I
can't avoid the temptation since you brought it up. Given how
strong and really superior material Collamer is for lenses, can you give
us a little bit of an update on Collamer injector development
efforts?
|
Barry
Caldwell:
|
Well,
it's—yes, Jack. As I told Mark and even during the Academy
meeting with the engineers that were present there from Japan, we
reinforced with them: our number one priority out of our
R&D group in Japan is to get Collamer into a preloaded
fashion. And, again, the priority is, number one, to get our
ICLs preloaded, which we think would make - much more convenient for our
surgeons; and number two, the NanoFLEX followed by three—the Afinity,
which is the three piece Collamer
IOL.
|
Jack
Fraser:
|
So,
is it—you know, if zero is the beginning point and 10 is completion or
achievement of it, would you handicap somewhere on that scale of
development?
|
27
Barry
Caldwell:
|
Yes,
I would, but at the same—but I would have to preface it with, in terms of
R&D this is still on the 'R' side and not the 'D'
side.
|
Jack
Fraser:
|
Understood. Okay.
|
Barry
Caldwell:
|
So
on the 'R' side the range is a lot more. We've learned a lot
but I'd say on a scale of zero to 10 we're somewhere between a five and a
six.
|
Jack
Fraser:
|
Okay,
thank you.
|
Barry
Caldwell:
|
Thank
you, Jack.
|
Operator:
|
And
I show no further questions in queue at this time. Please
continue.
|
Barry
Caldwell:
|
Great. Thank
you all for your excellent questions today and for participating in our
call. We hope to see many of you in New York at the Stephens
Healthcare Conference November 17th. I'll also be in Boston at
the first of the month. Thank you again and don't forget to
vote, and we'll talk to you when we report fourth
quarter. Thank you.
|
Operator:
|
Ladies
and gentlemen, this concludes the STAAR Surgical third quarter 2010
financial results conference call. If you'd like to listen to a
replay of today's conference, please dial 1-800-406-7325, and enter the
access code of 4375246. ACT would like thank you for your
participation. You may now
disconnect.
|
END
28