STAAR Surgical Company
Q4 2007 Earnings Call Transcript

Published: 7 Mar 2008

[Operator:]

Good afternoon ladies and gentlemen, thank you so much for standing for standing by and welcome to the STAAR Surgical Q4 '07 results call. (Operator Instructions) I'll now turn the conference over to Mr. Doug Sherk of the EVC group. Please go ahead sir.

[Doug Sherk:]

Thank you, operator, and good afternoon, everyone. This is Doug Sherk with the EVC Group, Thank you for joining us this afternoon for the STAAR Surgical conference call to review the financial results for the fourth quarter and yearend of 2007, which ended on December 28th. The news release announcing the fourth quarter and yearend results crossed the wire this afternoon, shortly after the market closed. If you haven't received the copy of the release and would like one, please call our office at 415-896-6820, and we will get one to you immediately. Additionally, we've 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 will 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 will require a pass code of 11110168 followed by the "#" sign. That's again its 11110168 followed by the "#" sign. The 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 other forward-looking statements regarding future events, including statements about sales and the company's beliefs about its revenues and net earnings for 2007 and that also for 2008. We wish to caution you that the statements that are not statements of historical facts that are forward-looking statements, include any projections of earnings, revenue, sales, cash or other financial statements, any statements of the plans, strategies and objectives of Management for future operations, any statements regarding the expectations for success of the ICL or other products in the US or international markets, any statements concerning proposed new products and government approval on new products, services or development, statements of expectations regarding pending transactions, any statements regarding future economic conditions or performance, statements of 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 tasks and uncertainties and risks, which could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties include our limited capital resources and limited access to financing, our ability to overcome negative publicity resulting from warning letters and other correspondence from the FDA Office of Compliance, the willingness of surgeons and patients to adopt to new products and procedure, and our ability to launch and market the ICL in the US while overcoming the foregoing challenges. Our ability to capitalize on the opportunity presented by the US ICL approval depends on our overall financial condition, which can be adversely affected by general economic conditions and other factors beyond our control, including those detailed from time to time in our reports filed with the Securities and Exchange Commission. 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, our President and Chief Executive Officer of STAAR Surgical.

[Barry Caldwell:]

Thanks, Doug, and good afternoon, everyone. Thank you for joining us today to review our fourth quarter and full year 2007 results. With me today is Deborah Andrews, our Chief Financial Officer. After my opening remarks, Deborah will cover the financial highlights of the fourth quarter and fiscal year, and then we will take your questions. It has been three months since we implemented the leadership transition here at STAAR Surgical. And I would like to focus my remarks today on the progress we have made over that timeframe. I would like to first thank Dave Bailey for his commitment to a smooth transition. We have worked well together, and as a team, we are determined to continue our international growth, ride this ship in the US, reduce our cash burn, and avoid potential future dilution to our shareholders. We have made progress on all fronts during the past months, and I would like to share with you some examples of that progress. First, overall cash burn is the top priority for the company. During 2007, several steps were taken that produced tangible results. In December, we began a process to very closely rationalize and evaluate our spending levels. Our evaluation had identified opportunities that we expect to yield approximately $3 million in cost savings during 2008. These initiatives include streamlining our US organization by reducing levels of spending in all areas so that we can right size our business, renegotiating or eliminating certain obligations, and eliminating all executive bonus opportunities until we generate consistent positive trends in the business. These initiatives began during the first quarter. We also are beginning a process which will generate manufacturing efficiencies by rationalizing product lines. In addition, we have established a task force, comprised of certain senior Management team members, to identify and implement an additional $2 million to $3 million in global cost reduction initiatives. Implementing these additional costs should be completed by beginning of second quarter. In total, this represents a reduction of $5 million to $6 million in spending from the 2007 level. We've already identified 90% of these reductions. Combined with the actions taken last year by Dave and the team, these additional savings, and a modest increase in our revenue trends, we believe we can significantly reduce our cash burn and position the company for profitability. The disruption generated from the distribution issues surrounding the change in management of our independent sales team in the US, in my view, certainly negatively impacted our sales throughout the year. The good news is that we seem to be making progress in this distribution channel and others. During the first 48 shipping days for 2008, our US refractive sales have increased by a double-digit percentage. Let me caution, this only represents 75% of the shipping days for the first quarter, and there is no guarantee this positive performance will continue. Our sales team needs to stay focused on the new strategy, and work hard to continue this positive trend. Our international sales grew 17% during 2007. And a key to building shareholder value will be to continue that strong growth from our international operations. With our transition in December, Dave Bailey is now focused on doing just that. The completion of the acquisition of all the other shareholders' interest in our Japanese joint-venture Canon Staar was achieved at year's end. At its current sales level, we expect that STAAR Japan will add in excess of $12 million of revenue to STAAR Surgical in 2008, as well as provide a boost to our gross margin. In addition, the acquisition gives STAAR exclusive control over the rights to use our patents and other proprietary technology in Japan, China, and worldwide, while strengthening our intellectual property position in areas such as preloaded injector systems. As Dave Bailey mentioned in the third quarter call, the Japanese market acts as a feared influence for the Asian market, including China. Because of this Dave has made growing STAAR's business in the Japanese market his number one objective for the year. We've made good progress so far, but we need to have a continued focus on this for the remainder of the year. We received an additional boost when the State Food and Drug Administration of China granted us approval to market the STAAR Visian Toric lens, as well as the STAAR Visian Hyperopic lens, which is an implantable Collamer lens to correct hyperopia or far-sightedness. I won't dwell on this important milestone, which we detailed in our news release last week. But suffice to say, we believe these approvals open new opportunities for us in China, which has already experienced excellent growth with the ICL product during its first year. Now let's turn to the US. Domestically, the US refractive business organization has been realigned. In early August, we outlined our strategy to create a separate direct refractive sales team in the US for our Visian ICL, comprised of applications specialists and practice development managers, both led by regionally based refractive sales managers. Our strategy has evolved to profiling and targeting key refractive surgeons who are committed to the Visian ICL technology, and then surrounding them with support. Last week, I happened to be traveling on the East Coast, and I met with four refractive surgeons, each of whom wants to do more Visian ICL procedures. So our goal, our objective, our regional team’s objective, will be to work with these surgeons, as well as other motivated surgeons, to build their Visian practice. Recently the Visian ICL has received some excellent media coverage, including a story by the ABC News team in San Francisco on a Visian procedure performed by Dr. Steven Chang on a professional surfer. And on this past Tuesday, Dr. Brian Boxer Wachler performed a live Visian procedure during the Today Show on an NBC Sports commentator. If you are interested in seeing the Today Show coverage, you can go to our press release, which has the website information for viewing. Some of you may have interest in an update on the Toric ICL approval process for the US. The independent third party audit firm approved by the FDA has completed their onsite audit of all seven clinical sites. They are now preparing their report to the FDA, and we await any comments that might arise from that audit. The FDA has further authorized the audit firm to begin the next step in the process, which is to audit the data and quality system here at STAAR in Monrovia. That audit is scheduled to begin in mid-March, and should last about four weeks. During 2007, cataracts sales declined steadily. Despite the issues associated with the recently expired Regional Manufacturers’ Representative contracts, a majority of the targeted independent territory representatives have agreed to stay with STAAR. This is a significant step in maintaining continued quality service for STAAR’s current US cataract customer base. We have now moved to a direct management structure with this independent sales team. We believe they will provide a more focused direction for the STAAR product offerings. During 2008, we are planning to introduce new delivery systems for our Collamer IOL products, mix of submissions, NTIOL status on three IOL products, and seek approval of the preloaded system in the US. One of our new delivery systems for the Collamer IOL is in pre-market release now. It is the nano point injector, which delivers the Collamer IOL through a 2.2 millimeter incision. The feedback from surgeons has been excellent, and this product will have a full release in the US during April. In summary, there are encouraging signs of progress resulting from hard work by our entire team. We've listened and understood from our shareholders, and agree that we want to avoid any further dilution of our shareholders. We sill got a lot to do so we can maintain the current positive momentum, and execute successfully the cash reduction activities we believe we can begin to build shareholder value. At this point in the call, I'd like to turn it over to Deborah Andrews, our Chief Financial Officer. Deborah?

[Deborah Andrews:]

Thanks, Barry. Good afternoon everybody. Our release this afternoon provides significant detail on the quarter's financial performance, as well as the full year, so my comments will be limited to specific highlights of the fourth quarter, as well as a brief discussion on the closing of the Canon Staar acquisition. Sales for the fourth quarter were 3% higher than Q4 2006. Once again, our international operations generated strong sales growth. International sales were up nearly 15%, as compared to the fourth quarter of 2006. Total refractive sales were $4.7 million, an increase of 26%, compared to $3.8 million reported for the same period of 2006. Refractive growth was driven by strong international sales, which grew 37% to $3.7 million. US refractive sales were $1.1 million, a decrease of 3% compared to the $1.1 million reported for the same period of 2006, and were essentially flat compared to the third quarter of 2007. During the fourth quarter of 2007 refractive sales represented 30% of total sales, compared to 24% last year. Overall fourth quarter cataracts product sales were $11 million, as compared to $11.5 million last year. In the US market cataracts sales were $3.6 million, a 19% decrease compared with the $4.5 million in the fourth quarter of last year. In international markets, cataract sales grew 5.7% to $7.4 million, compared with $7 million last year, due to the favorable effect of foreign exchange on sales. Gross profit margin continues to improve. For the fourth quarter, we achieved 50.1% gross profit margin, as compared to 42.1% for the fourth quarter of 2006, and 49.7% for the third quarter of 2007. The increase year-over-year is primarily due to reduction in inventory reserves, and higher average selling prices of IOLs and ICLs, partially offset by the effects of decreased IOL volume, and increase in other costs of sales. SG&A increased 4% to $11.6 million, due to increased G&A costs, resulting from increased legal fees, and non-cash costs associated with executive relocation, partially offset by decreased R&D costs. Marketing and selling expenses were flat, year-over-year, during the fourth quarter. We ended the quarter with $11 million in cash, down from $14 million at the end of the third quarter. During the fourth quarter, we saw increased cash usage over third quarter levels, primarily due to the effect on cash received of the continued decline in US cataracts sales. We also used $972,000 in cash to pay a note payable to the former minority shareholders of our Australian subsidiary, in connection with our acquisition of their 20% interest. As Barry mentioned, we announced the major milestone for the company, in the form of our acquisition of Canon's 50% interest in the Canon Staar joint-venture. In connection with the transaction, which closed on December 29th, 2007, we paid a total of $4 million in cash, and issued 1.7 million shares of Series A convertible preferred stock to Canon and Canon Marketing for their representative interest in the joint-venture. This transaction was financed through a $5 million note with Broadwood Partners, L.P. Beginning in 2008, this transaction should increase our international revenue, as well as our overall gross profit margin, excluding the effects of purchase accounting. Due to investments the Japanese company will need to make in establishing its direct distribution infrastructure, we expect the operations to break even in the first year. Based on the extensive US rationalization efforts that took place during the fourth quarter and early 2008, as Barry discussed, we expect a significant reduction in cash burn in the first half of 2008, versus the first half of 2007, and continued improvement during the second half of 2008. We’ve heard the concerns expressed by our investors, and believe we have plan that will reverse the negative trends of the US business, and will conserve cash in order to prevent additional dilution to investors. With that I would like to open -- as our operator.

[Operator:]

(Operator Instructions) Our first question is coming from Larry Haimovitch with HMTC. Please go ahead.

[Larry Haimovitch:]

Good afternoon, Barry. Hi, Deborah.

[Barry Caldwell:]

Hi, Larry.

[Larry Haimovitch:]

Several questions let me start with maybe a little housekeeping, Deborah, when you calculate fully dilutive common shares and include the Canon Staar series, how many fully diluted common shares should we be thinking about?

[Deborah Andrews:]

Yeah. Well, it would be 32 million.

[Larry Haimovitch:]

Roughly 32?

[Deborah Andrews:]

Yeah.

[Larry Haimovitch:]

Okay. And I would assume that the Canon's shares do get included in the fully diluted calculation.

[Deborah Andrews:]

Yeah.

[Larry Haimovitch:]

Okay. Second, well you and Barry talked quiet a bit about cash burn, and yes, we're all concerned about cash burn and we are delighted that you are listening to us, what is your sense, and I imagine there are several moving parts, either you or Barry can take a shot at this, what is your sense about what is the revenue breakeven point for cash, or P&L or both?

[Deborah Andrews:]

I think we have said in the past, and I got to take out the Japanese joint-venture.

[Larry Haimovitch:]

Right.

[Deborah Andrews:]

$75 million approximately.

[Larry Haimovitch:]

75. And although you didn't provide guidance, if you add 12 onto what you did, you are getting pretty closer to that, aren't you?

[Deborah Andrews:]

Yes.

[Larry Haimovitch:]

Okay. Barry, you mentioned good news on the first quarter refractive sales?

[Barry Caldwell:]

Yes.

[Larry Haimovitch:]

It's my understanding that STAAR does not consign refractive IOLs, but rather recognizes revenue on shipment. There were a couple of periods, before your time, where we saw some big bulges in growth followed by slums in growth because of inventory shifting. Are you confident that there is no inventory building going on and what you've seen so far is what accountants would probably not refer to, but I refer to with apples-to-apples?

[Barry Caldwell:]

Yeah. You raised a very good point, Larry. And we've spent quiet a bit of time here going through this, in terms of the value of bulk sales overall. And clearly as a business, we prefer to see single purchases rather than bulk. So far the first, whatever it is 8 weeks, 9 weeks, 9.5 weeks of the quarter we've seen insignificant bulk orders so far this quarter. There are certain customers that only buy in bulk, like the military service. But so far up to this quarter we haven't seen any of that. I might add that I think the growth that we've seen, so far, there was only a short period of time. I think it is encouraging in light of the fact that the number one share leader in laser based refractive procedures is now projecting at 10% decline for the year, based on what they've seen earlier in the year and obviously the ICL has seen different trends than that.

[Larry Haimovitch:]

Yeah.

[Barry Caldwell:]

And secondly in spite of what's going on in the US economy.

[Larry Haimovitch:]

Yeah, great. We've been waiting a long time for the preloaded injector to come to the US market, that's a product that you guys desperately need and frankly it's been disappointing that you haven't made the kind of progress I would have hoped. It sounds like you are moving there. Could you give us a little more color on where we are in the preloaded injector, Barry?

[Barry Caldwell:]

Yeah. First of all I think the major stumbling block in the past came from the joint-venture experience that we had in Japan, and getting that cleared up at end of the year, the team did a great job on completing successfully that acquisition. We've now got full access to those technologies, as matter of fact we have two members of the Monrovia R&D team in Japan all week this week going through and sharing core competency, so that's very important. Secondly, we developed what we think is a pretty good regulatory strategy for getting this approved in the US and while you always dealing with FDA and I don't want to make any projections on when the product maybe come available, but I think we probably feel as confident, it's not more confident than we ever had in our regulatory strategy to get approval in the US.

[Larry Haimovitch:]

Sometime, could you mix some sort of wild guess about when we might see that product in the US, Barry?

[Barry Caldwell:]

No, but I am encouraged by our strategy and when you are dealing with the FDA it is just that we need to work under their guidelines.

[Larry Haimovitch:]

Sure.

[Barry Caldwell:]

Follow their processes, so it is not fair to predict.

[Larry Haimovitch:]

Is it a PMA? Is it 510(k) with clinicals? Is it a PMA supplement? Just give us the idea of what the regulatory path is?

[Barry Caldwell:]

Our current strategy is a 510(k) with a real time supplement to follow.

[Larry Haimovitch:]

Okay. Great. And Deborah, one quick question for you and I will jump back in the queue. I don't want to be too pushy here about the time. On the fourth quarter or the year obviously the dollar has been very weak versus the euro. In particular you derive a lot of your foreign sales from Europe. How much did you benefit on the P&L just with pure cent translation as opposed to again the apples-to-apples of pure unit growth?

[Deborah Andrews:]

The effective exchange in the fourth quarter was $754, 000. And on the full year was $2.2 million.

[Larry Haimovitch:]

So, you benefited full year sales $2.2 million and roughly $0.75 million in Q4?

[Deborah Andrews:]

Yeah. Unidentified Analyst Okay. Great. Thanks very much. I will jump back in queue.

[Deborah Andrews:]

Okay.

[Barry Caldwell:]

Thank you, Larry.

[Operator:]

All right, thank you. Actually there are no further questions in queue at this point. (Operator Instructions). [Rich Dote] with Columbia Management. Please go ahead.

[Rich Dote:]

Yeah, just a couple of questions. In the prepared remarks, you outlined that you expect Canon to be at least, I think you said $12 million in revenue and contributed to margins. And then I think Deborah's comment later was, expect to be breakeven for this first year. What kind of revenue, are they're using $12 million as your revenue number to get to that breakeven status?

[Deborah Andrews:]

Yes.

[Rich Dote:]

Okay. And then, in answering the first gentlemen's question on breakeven revenues without Canon, you said $75 million; does that incorporate the cost saves that were announced today?

[Deborah Andrews:]

No.

[Rich Dote:]

So, theoretically it should be less than that, obviously, right?

[Deborah Andrews:]

Yeah.

[Rich Dote:]

Okay. What is the incremental, you've seen some; I guess early on this year that's on the cataracts out of the business, a little bit of positive data so far or results. What is the feeling on the new products and the timing of the new products and is there any kind of feedback from those independent reps?

[Barry Caldwell:]

Yeah, a good question, Rick. Again, let me reiterate, I am just really pleased that the independent reps have hung in there with STAAR. I did last week visit the entire East Coast, with our independent reps and we've got some really good folks out there. And, I think in the past there has been a big communication gap between the home office and that field force and maybe some of that was because of the management structure the way it is. I think we've change that now and I think we've made some positive steps in opening up some real good communication between our direct reps and home office. So, I think that's very helpful. I think they went through a lot of emotions last year not knowing if STAAR was going to continue to work with them and their manager was going through issues. So, I think having gotten through all of that and making some changes and getting some new products in their hand, like these new delivery systems, which we showed to them last week, I think that they are going to be very beneficial for us in making the changes in a positive fashion on the cataract side.

[Rich Dote:]

Any feedback from some of the recent media? It's probably too early to tell whether it's likely to pull any kind of new business through the doctors, but has there been any early feedback?

[Barry Caldwell:]

Yes we certainly got a lot of calls, that first new clip up in the Bay Area, a couple of weeks ago, that was early February, I think first week of February, that generated quite a few calls, as did the Today Show earlier this week. And that came from both patients and from physicians doing ICLs. And of course physicians would like to find their own ways to get some media attention to what they are doing and that's part of our new strategy, with our practice development managers, is to help them find ways to get this type of media around what they are doing in their local communities.

[Rich Dote:]

Okay. And then lastly, the $1 million or so in outside of the operating losses related to buying in -- forgive me for the not knowing the detail what was in there an Australian JV?

[Deborah Andrews:]

Right correct.

[Rich Dote:]

Okay. Is there any thing outside of operating burn that you are expecting this year? And is there anything on the horizon that -- okay?

[Deborah Andrews:]

The biggest thing that we are going to have are costs associated with the valuation -- fair valuation of the Japanese joint-venture. But that is still regardless, I still forecast our cash burn will be less than first half of this year versus, what it was last year. Because last year we had the Domilens investigation cost in the first half, which was pretty significant. So, but nothing other than that really.

[Rich Dote:]

So, when you say the value in the joint venture, that's using an outside professional firm and the fees associated with that, is that what you are referring to?

[Deborah Andrews:]

Yes, we have had to engage PwC to perform a fair valuation of all the intangibles and that kind of thing.

[Rich Dote:]

Okay. So, when are you scheduled to go on the Oprah Show, I guess that's the key thing here.

[Barry Caldwell:]

We will try to do our best to move that forward as quickly as we can Rich.

[Rich Dote:]

Okay. Alright, that's all I have, thanks again.

[Barry Caldwell:]

Thank you, Rick.

[Operator:]

Thank you. We have follow-up from Larry Haimovitch. Please go ahead.

[Larry Haimovitch:]

Deborah or Barry, could we drill down a little bit more on Japan, I want to make sure I understand. You've said there is going to be an extra $12 million in sales this year, but in '07 when you owned 50% of the joint-venture, didn't you take in consolidate half of the sales. So, is the $12 million over and above what you took in '07 or is it 100% of '08 sales?

[Barry Caldwell:]

It's 100%, Larry, because prior to the acquisition it was an unconsolidated affiliate. So, there was nothing recognized on the revenue line from them to STAAR.

[Larry Haimovitch:]

All right. So, if we look at the estimated or guesstimated 2008 Staar Japan, it's a $12 million revenue business and you are saying, given that you are developing your own infrastructure that we should expect cost of goods and operating expenses to roughly come to $12 million, thus it's a breakeven?

[Deborah Andrews:]

Right.

[Larry Haimovitch:]

And how do its operating expenses work relative to the cost of goods, Deborah? Is it a relatively low cost of goods as we see in a lot of IOL business, and a fairly high SG&A, R&D?

[Deborah Andrews:]

Yes. I would say so, yes.

[Larry Haimovitch:]

Okay. And then let's go beyond '08, Barry, do you have any thoughts on what we can do to grow that business in '09 and '10? Are there new products that could come in, is it better management, is it more reps, is it lower cost of goods, or what do you look at as initiatives beyond '08?

[Barry Caldwell:]

Well, I think first and foremost, and what's been exciting to us since the close of the acquisition, is that we know we have obviously some core competencies here in Monrovia, in terms of material and intraocular lens products. We also know, in Japan with the acquisition that there are some core competencies that we've acquired there, and that's why for example there are meetings going on in Japan all week this week, with Monrovia and Japan engineers to really find where the synergies are in those core competencies. We have some expectations, and our expectations are that combining the core competencies, we're going to come out better in some key areas in terms of IOL products, and key areas in terms of materials, and delivery systems, and maybe some new product ideas.

[Larry Haimovitch:]

Barry, when you look at the revenue base for Canon Staar, it's all entirely intraocular lenses of the cataract, or does it also include refractive lenses in that mix of sales?

[Barry Caldwell:]

There is a little bit of refractive sales in Japan. The ICL has not yet approved in Japan, we're making progress in the regulatory process there. And there are some expectations that we would get approval for the ICL in '09, but not this year.

[Larry Haimovitch:]

Okay. So, you have that potentially as a nice addition to the product line there?

[Barry Caldwell:]

Yes.

[Deborah Andrews:]

Yes.

[Larry Haimovitch:]

And then the other question is Barry for you and maybe Deborah can pipe in as well. You're cutting pretty significantly your operating costs, and that's a large number compared to your overall expense levels and your overall revenue level. How do you fine tune that you don't cut through the bone and end up with more cuts that are demoralizing and slow the organization to have?

[Barry Caldwell:]

Well, I think that's a great question except, from my past experiences I would say we have a lot of fat here.

[Larry Haimovitch:]

Yes.

[Barry Caldwell:]

So, we are not getting close to the bone.

[Larry Haimovitch:]

So, there have been plenty of opportunities here that don't suggest cutting too close, how about R&D, are you comfortable with the R&D spending level or would you hope overtime to be able to jag that up?

[Barry Caldwell:]

Well, I think we got to wait to see how these core competencies fit with what we deployed in Japan, because we'll now have an R&D department for cataract products in Monrovia and in Japan. So, we got to analyze that as we go through this year.

[Larry Haimovitch:]

Great, okay, thanks very much.

[Barry Caldwell:]

Thank you.

[Operator:]

Thank you. Our next question is from Jack Fraser Seamark Capital. Please go ahead.

[Jack Fraser:]

Hey guys, I just want to make sure I understand the progress of the nano point accurately. So if I understood you correctly Barry, you're thinking that the nano point delivery system could be fully released in the US in April of this year is that right?

[Barry Caldwell:]

That's correct. Yes, we are in pre-market release right now, and we're using it in cataract surgery everyday.

[Jack Fraser:]

Okay. And where are we in terms of the FDA review process of that injector?

[Barry Caldwell:]

That is approved.

[Jack Fraser:]

Okay. Could you share with us a little more about what your findings are in the IP side of the Canon STAAR JV with respect to injector technology? With just generally speaking, what aspects of what they have, are appealing to you and where might they be applicable.

[Barry Caldwell:]

Well first of all I think from our experience in the joint venture we realized that there is some very good intellectual property around injector systems and we think it provides us some protection not only in Japan, but worldwide. And so, that was very important to us in terms of this acquisition. So, I would say overall Jack, we feel like this put us in a unique and number one position in worldwide in terms of IP around injector technology.

[Jack Fraser:]

Okay, super. And I am just wondering and Deborah maybe you have a view on this. How would you like us to think of Q4 ICL volumes in Europe as compared to the prior year?

[Barry Caldwell:]

Q4?

[Jack Fraser:]

Yeah and that was last quarter, how was year-over-year ICL volumes in comparisons in Europe which is best strong market for you?

[Barry Caldwell:]

In just Europe?

[Deborah Andrews:]

I mean Q4 increased 37%.

[Barry Caldwell:]

Internationally.

[Deborah Andrews:]

Internationally versus Q4 2006.

[Jack Fraser:]

And but Korea has been growing relatively rapidly right and?

[Deborah Andrews:]

That is Korea and Spain, they both have been growing pretty rapidly.

[Jack Fraser:]

Okay, super. And as yet we are not yet marketing in India, is that right?

[Barry Caldwell:]

That is correct.

[Jack Fraser:]

Is there any thought as to when that might develop?

[Deborah Andrews:]

I think there are plans to.

[Barry Caldwell:]

Well we have made investments and we will be selling in India during '08. We do expect that we will have above average growth rate in India in '08. But that is above, I mean that is on a low base to start with.

[Jack Fraser:]

Okay, super. And just one last question, the SFDA approval in China was obviously fairly sleeping. Should we be thinking that there is a possible ramp in volumes that would be actually noticeable or material to results as the year wears on with respected volumes and the business levels coming out of China?

[Barry Caldwell:]

Well, we do know, Jack that the ICL in China was approved late in '06. And in its first year, China became our number four market in terms of ICL products and that was without the Toric. So, now with the Toric and Hyperopic ICL, and with the population and the demographics of China, we think that this will be a significant opportunity for us in '08, in terms of growth we can get from Toric. Generally, if you look across the world where the Toric is approved, the Toric represents about one-third of the total ICLs in that country.

[Jack Fraser:]

Super. Thanks very much guys. Congrats on the work.

[Barry Caldwell:]

Thank you, Jack.

[Operator:]

Thank you. Our next question is coming from Michael [Lines] a private investor. Please go ahead.

[Unidentified Analyst:]

Barry, Mike and I just wanted to try to understand the US market, the IOL US market and the problems you are having with that? The preloaded, if I'm not mistaken that's silicon and I thought we were going to be going in the direction of Collamer?

[Barry Caldwell:]

Yeah, good question Michael. You're right that the preloaded injector technology that we have today, that's the first preloaded technology that we'll move forward in the US, is with a silicon product. Recognizing you are right that the silicon percentage overall of the IOL market in the US is declining; I think its somewhere between 28% and 30% today and we'll continue to decline two or three points a year. But, even at 20% of the market that's still 600,000 procedures in the US where a silicon IOL product will be use. And we believe that silicon preloaded injector will give us an advantage in that market position. Secondly, the preloaded technology used outside of the US that we are selling includes an acrylic IOL, so outside the US preloaded is with acrylic intraocular lenses. And there is some hope not in '08, but as we move forward that STAAR would be able to offer an acrylic preloaded injector in the US. And then the next step would be, but this requires an invention. We don't have the answer to that today, as we to get our Collamer material which we certainly believe is the best material available on the market today into a preloaded product.

[Unidentified Analyst:]

I see. All right well thanks so much and I have been doing some cost averaging and going for the long term, so we'll see.

[Barry Caldwell:]

We are with you Michael.

[Unidentified Analyst:]

Thank you buddy.

[Barry Caldwell:]

Thank you.

[Operator:]

(Operator Instructions) And I am not registering any further questions. Please continue with any closing comments.

[Barry Caldwell:]

Okay. Michael. If there are no further questions what I would like to leave you with is maybe a way you can look at us in 2008 and measure our performance and what we're doing. So, I would like to give you some key metrics to watch in order to gauge what our progress is. I think the first metric that we're looking at is cash burn quarter-by-quarter. As Deborah reviewed we expect our cash burn to be higher in the first half of the year, as compared to the second half of the year, due to the acquisition cost and the audit fees etcetera. However, our cash burn in the first quarter should be dramatically lower than our cash burn during the first quarter of 2007 and that cash burn should continue to decline through the year. The second metric to look at is, is our continued gross margin improvement. We've said that Japan will help our gross margin and we think we will see the beginning of that impact in Q2 and Q3 and Q4 as we continue through the year. The third metric would be our international revenue growth. And we are expecting those growth rates to be comparable to or better than our '07 rates and that's without Japan. So, factor Japan out of that, because if you throw a $12 million plus in, obviously you're going to have some nice growth numbers. But excluding that, we are expecting the same type of growth rate. The fourth metric then would be Japan and we expect, as we've said those revenues to exceed $12 million. Then the fifth metric would be the domestic ICL growth rate, which we expect to be a growth rate in 2008 versus what happened in '07. So, we thank you very much for participating in the call this afternoon. And we might add that if you have any questions you'd like to follow-up with, please feel free to give Deborah or I a call if you are in Monrovia. Thank you very much. And have a nice evening.

[Operator:]

Thank you ladies and gentlemen. This does conclude the STAAR Surgical Q4 '07 results conference call. At this time you may disconnect. Have a very pleasant rest of the day. And we thank you for using the ACT Conferencing.