Medical Device Daily

Analysts at Canaccord Genuity are saying that Staar Surgical (Monrovia, California) could be poised for tremendous growth in the med-tech sector throughout the next few years.

Medical Device Daily spoke briefly with Canaccord Genuity analyst Jason Mills regarding the company – which could be on tap to become a strong contender in the market for intraocular lenses for very high myopes and astigmats with its Visian ICL family of phakic lenses.

“We project Staar Surgical to be one of a very few med-tech companies in the next couple of years to generate topline growth of at least 15%,“ Mills told MDD. “We expect the company to make further inroads into the global refractive surgery market with the Visian ICL market, which we approximate at $1 billion.“

Staar Surgical was founded in 1982 and has about 280 employees worldwide. The company competes in the global ophthalmology sector and plays primarily in two primary segments; phakic intraocular lenses (PIOL) used to treat refractive errors such as myopia and astigmatism, and intraocular lenses (IOL) used to treat cataracts.

To that end the company has developed and uses a proprietary material called “Collamer“ that it employs in some of its most important, high-end lenses – namely the Visian Implantable Collamer Lens (ICL), which competes against LASIK in the refractive segment and has FDA approval. This unique hydrophilic Collamer material produces superior quality of vision, according to the company, through its high water content (40%) and reduces common complications associated with LASIK – namely glare and halos.

“Staar competes basically against the LASIK procedure on the refractive side,“ Mills said. “That's the most important business for them. On the cataract side of their business they compete against Alcon (Fort Worth, Texas) and Abbott (Abbott Park, Illinois).“

He added, “with a market defined primarily by LASIK procedures, we expect that market overall worldwide to grow in the high single digits. We think Staar will grow faster than that and therefore gain share of the worldwide market for laser/refractive procedures.“

Larry Haimovitch, president of Haimovitch Medical Technology Consultants (Mill Valley, California) and a regular contributor to MDD, agreed with Mills assessments and touted the firm's leadership as the major contributor of its success.

“They have shown some very nice growth over the last few years particularly under [Starr president/CEO] Barry Caldwell's watch,“ Haimovitch told MDD.

Caldwell took the helm of the company back in 2007 (Medical Device Daily, Nov. 29, 2007).

Haimovitch added that LASIK probably would never completely be overcome by ICL.

“They've grown at rates both domestically and internationally that have been much faster than LASIK,“ he said. “I don't see ICL eliminating or gobbling up major market share, but right now it can pick up a point or two every year, and for a company Staar's size, it can really have a tremendous impact on their sales line and profitability.“

MDD reached out for comment from Staar, but as of press time representatives from the company were not available.

In research notes Mills wrote that more 50% of Staar's sales – namely the Visian ICL franchise targeting refractive surgery – are not subject to reimbursement pressures, which makes the company attractive to potential investors.

Mills wrote, “we expect Staar to deliver 17% revenue CAGR from 2012 through 2014, driven primarily by strong expected uptake of the ICL (+27% CAGR). We also project the company will achieve the $100 million revenue milestone in 2014. The company's Visian ICL has a gross margin over 80%, which we believe will continue to expand going forward. What's more, the company expects to increase IOL gross margins going forward via favorable product mix shift to the premium IOL segment. Therefore, we anticipate strong corporate gross margin expansion as the ICL continues to gain share of the large, global refractive surgery market and becomes a higher percentage of the company's total revenue base, and margins within the IOL portfolio improve via mix shift and manufacturing improvements.“

Analysts noted that Staar is consolidating its four global manufacturing facilities into one facility in the US, with a projected completion date by the end of 2013. This consolidation is expected to reduce manufacturing costs as well as tax obligations, which should allow the company to use its massive NOL tax asset ($128M million or $3.50/share) in 2014.

Mills wrote, “in sum, we expect gross margin expansion, operating expense leverage via strong sales growth, and the aforementioned manufacturing consolidation could allow the company to deliver compound earnings growth over 90% from 2012 through 2014.“

A few years ago, Staar's story wasn't always so positive and the outlook wasn't as bright. Litigation regarding distribution of its IOL products significantly crippled the firm for a time. There had been some concern that failure to resolve this situation might have forced the company to file for bankruptcy.

But once the firm resolved the litigation things started turning around. Another positive event was the divestiture of its German distribution subsidiary, Domilens in the last few years, for about $14.3 million in cash. Although generating about one-third of Staar's annual revenue, Domilens had poor profit margins and did not fit strategically with Staar's focus on high margin, value added IOLs.

Historically, Staar had been cash poor, the result of its chronic operating losses. With this cash injection and after final payment for the litigation settlement and various other obligations, Staar was able to store $10 million cash in the bank (MDD April 22, 2010).

“This is an iconic case of where good management or great management has made a monumental difference to a company. I think you have to give credit to Barry Caldwell and his team enormous credit for what they've done,“ Haimovitch said. “This is a perfect example of a company that was floundering, brings in a new CEO and that CEO has a dramatically positive effect on the company.“

Published: March 2, 2012