May 9, 2023 | 12:42 PM by Jay Kunstman | jkunstman@jaguaranalytics.com

STAAR Surgical (STAA) – A Snowball Effect

STAAR Surgical (STAA), specializing in refractive and cataract solutions, designs, develops, manufactures, and sells implantable lenses for the eye. Its products include implantable collamer lens (ICL) and intraocular lens (IOL). Sales for its ICL family of products accounted for approximately 95% of total sales in fiscal 2022.

Last week, the company reported its Q1 earnings that beat on both EPS and Revenue. Total Revenue came in at $73.5M, of which ICL sales were $70.6M, exceeding the Street’s $65.5M estimate — and this was helped by the rebound in China. Needham would add that the market in China appears to be normalizing in time for the seasonally strong summer months. Q2 ICL sales guidance came in at $93M, which was in-line with the Street’s prior estimates. As Stifel points out, this guidance number does imply Q/Q growth of a just over +30% which is slightly above historical seasonality (+28% average Q/Q growth in Q2 from 2018 to 2022, ex-2020). Meanwhile, FY23 ICL sales guidance was increased from $340M to now $345M. As for the U.S., management reiterated its expectations for $30M in FY23 ICL sales, which would imply more than a doubling of sales in 2H23 versus 1H23.

ASCRS 2023

Following earnings, the American Society of Cataract and Refractive Surgery Conference took place and there were a number of takeaways:

Regarding China Momentum….Stifel said they believe the strong China momentum exiting Q1 may have continued into Q2, with April potentially an even better month than March (which was better than February). The distributor ordering cycle is beginning now in May ahead of the busy summer period, so it arguably remains to be seen how Q2 and Q3 ultimately shake out. “Our/Street’s China ICL sales estimate of $55M/$54M implies Q/Q growth of approximately +54% to +56%.”

Regarding OBS…Stifel highlighted how the most prominent incremental theme in their meetings/discussions was the potential importance of office-based surgery, meaning performing EVO ICL in an in-office surgical suite instead of an ASC, or an ambulatory surgical center. This would greatly improve the economics of EVO given high-costs that accompany surgery at an ASC. “We learned that just ~25% of STAAR’s US EVO customers have OBS today and that among their top 30 customers, interestingly only 14 have OBS with the rest utilizing an ASC (although they would suspect they generally own/partially own their ASC, helping improve the economics). We believe expanding OBS in the US is a major area of focus for the company and can be a key intermediate- and long-term driver for improving utilization.”

Regarding Specific Doc Checks…Finally, Canaccord Genuity pointed out that from the surgeon panel they attended, all surgeons agreed that ICL is the better technology, allowing for the preservation of options down the road, including still being able to receive a multifocal IOL once you have cataracts. Additionally, all four surgeons on the panel commented that they expect EVO volumes to “snowball” over the next 12 months, especially as more patients become aware via STAA’s marketing and positive outcomes from EVO procedures create awareness via word-of-mouth. All the surgeons also noted the headwinds that LASIK is facing with the negative press regarding complications – which they all expect to benefit ICL.

More specifically, analyst William Plovanic asked Dr. Lin, the refractive-only surgeon, what percentage of his volumes today are EVO compared to laser, and where they expect that to go within the next 12 months. “He said that about 10% of his practice volume today is EVO – which represents significant growth from before EVO was approved. Prior to EVO gaining approval in March 2022, he used ICLs only on patients who had no alternative (2% of his patient volume) – given his fear about the potential that the lens could give a younger patient a cataract. Given the strong safety data for EVO that was published last year, which showed no cataracts, and the ease of the new lens compared to the older generation ICL that required a peripheral iridotomy, he now feels comfortable offering it to more patients. Initially, he started with more myopic patients, but given the success, he has come down the diopter curve (as a reminder, EVO is labeled for -3.0). Dr. Lin said that he expects 20% of his volumes next year to be EVO, and he is finding success with the company’s DTC efforts that are driving patients who are aware of EVO to his practice – making for an easier conversation.

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