Hall of Shame

Health Care

STAAR Surgical Company (STAA US)

Year: 2020

STAAR Surgical Company, together with its subsidiaries, designs, develops, manufactures, markets, and sells implantable lenses for the eye, and delivery systems to deliver the lenses into the eye. The company provides Visian implantable collamer lenses (ICLs) to treat visual disorders, such as myopia, hyperopia, astigmatism, and presbyopia; and Hyperopic ICL, which treats far-sightedness. It also offers intraocular lenses (IOLs), including collamer material and silicone foldable IOLs, and nanoFLEX IOL that produces a clearer image, as well as preloaded injectors for use in cataract surgery. In addition, the company sells injector parts and other related instruments and devices. It markets its products to health care providers, including ophthalmic surgeons, vision centers, surgical centers, hospitals, government facilities, and distributors primarily under the STAAR, EVO Visian ICL, Evolution in Visual Freedom, Visian, Collamer, CentraFLOW, AquaPORT, nanoFLEX, nanoPOINT, and Afinity trademarks. The company sells its products directly through its sales representatives in the United States, Japan, Spain, Germany, Canada, the United Kingdom, and Singapore, as well as through independent distributors in China, Korea, India, and internationally. STAAR Surgical Company was founded in 1982 and is based in Monrovia, California.

July 1983 STAAR began trading on the NASDAQ raising US$4 million from the company's IPO. Additional share offerings raised US$18M in April 2007 and US$78M in August 2018.

August 11, 2020 J-Capital Research issued a report "STAAR Surgical (STAA) - Less Than Meets the Eye". J-Capital believed that STAAR Surgical had overstated sales in China by approx. US$21.6M. That would mean that all of the company’s 2019 reported profit of US$14M was fake and that the company made a loss in 2019; not a profit. The main points raised within the report included:

  • A single Chinese distributor accounted for 43% of STAAR’s total sales and 71% of its growth in 2019 and over half in Q2 2020. In the 2019 10K, STAAR reports: “One customer, Shanghai Langsheng, a China distributor who sells in to China and Hong Kong, accounted for more than 43% of our consolidated net sales during fiscal 2019.”
  • The largest Chinese client, Aier Eye Hospital was about half of Staar's China sales and 25% of total sales. Financial statements indicated that those clinics bought only about half as many lenses as STAAR’s distributor claimed.
  • Public data showed that the value of lenses exported from Switzerland, the source of all product STAAR sold in China, is far lower than the reported sales.
  • In interviews with J-Capitals researchers, Lansheng’s Tier 2 distributors told them how many lenses they sold, and the numbers suggested a lower volume than claimed.
  • Inventories, PPE, and manufacturing activity did not appear to support large annual volume growth.
  • J-Cap believed that STAAR inflated sales and then balanced the “income” by marking up marketing costs. According to a former executive, marketing “subsidies” may be around one third the stated value of the lens, so that the distributor buys the lens at $300 but STAAR books the sale at $450 and in order to hide the phantom
    revenue allocates the $150 to marketing.
  • The largest Tier 2 distributor is Shanghai Leyue Optical Equipment Co. Ltd. which accounted for 20% of Chinese Sales.  J-Cap believed that the company does not have any real operations.
  • Suspicious H1 2020 volumes, Asia was gut punched by Covid-19, but STAAR reported growth of approx 7% in Sales. Doctors, distributors, and marketing platforms that promote eye surgery said that the number of ICL procedures in China from January through June had declined by around 50-60%.
  • STAAR’s Q2 2020 report showed that the company earned almost no interest on its large cash balance of $116 mln—just $20,000, versus $216,000 in Q1 despite holding more cash. This is a net number, but debt is tiny, at $1.3 mln. The company in May 2020 issued a shelf offering, which is odd, since STAAR is sitting on more than 5x as much cash as it ever had prior to the secondary offering in 2018.
  • J-Cap found the company compensation to be out of proportion to results. Despite almost unbroken losses through 2017, top executives took option awards worth $9.7 mln in 2016-19 and total compensation averaging $1 mln per year.

J-Capital Research: STAAR Surgical - Less Than Meets the Eye, 11 Aug 2020
STAAR Surgical: Half Year Report - HY ending July 3-2020
STAAR Surgical: Annual Report - YE Jan. 3, 2020
STAAR Surgical: Annual Report - YE Dec. 28, 2018


 


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