STAAR Surgical Co (STAA) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the STAAR Surgical 2Q 2010 Financial Results Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded, August 3, 2010. I would now like to turn the conference over to our host, Doug Sherk. Please go ahead, sir.

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 second quarter of 2010, which ended on July 2, 2010. The news release announcing the second quarter results crossed the wire about a half hour ago and is available at STAAR's website at www.staar.com.

Additionally, we have arranged for a tape replay of this call today, 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 will be 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, revenue, 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 product in the U.S. and the international markets; the outcome of product research and development or any clinical study; 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 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 Factors section of our annual report on Form 10-K 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.

Thank you, Doug, and good afternoon, everyone. I would like to thank you for joining us today to review our second quarter 2010 results. I will start with a review of how we performed during the quarter against our operating metrics, which we laid out at the beginning of the year. Deborah will then address some of the operational factors behind the financial results for the quarter, and then I will return for a few additional thoughts. Let's move to our five key operating metrics to see how we are doing.

Our first metric is to generate double-digit growth from our core ICL and IOL product lines. Our revenue growth during the quarter was 7%, 9% in ICLs and 5% in IOLs. We did not achieve this metric for the quarter. However, there are a few factors that impacted those sales to which I will speak. We are, however, still at double-digit growth for the year, at 11% for ICLs and IOLs.

The first factor causing our revenue shortfall occurred in Korea, where our distribution partner has formed a new legal entity to focus exclusively on marketing the Visian product line. Overall, this is a very good thing. The formation of the legal entity, however, wasn't completed in time to ship a replacement inventory order, and they have been depleting their normal inventories in anticipation of this move. The good news is that the new entity formation is now complete, and during July we shipped the order, getting their inventory levels back to normal levels.

The Visian ICL order was valued at approximately $500,000, and it had been manufactured during the quarter and was set aside specifically for this order. Korea is one of the few markets where our distribution partner does indeed carry inventory. Our sales to the distributor declined 28% during the quarter, despite the fact the distributor's second quarter shipments to customers increased by 34%. Their shipments to customers have increased 46% during the first half of this year. We fully expect a strong second half from the Korean market. Our distributor focused these efforts in order to achieve their goal, which is to get the Visian ICL from its current 11% share of the refractive market, to a 25% share position.

The second factor resulting in the revenue shortfall during the quarter relates to the shipments on the IOL side. We finished the second quarter with about 4,000 IOLs on back order while we typically have not had back orders on a quarter-to-quarter quarter-to-quarter basis. This was primarily due to an increase in demand from both Japan and Europe for certain preloaded silicone IOLs which happened during the same time as our transfer of silicone IOL manufacturing from Japan to the US.

We are still struggling on the supply side. We have made progress this past week and we expect to have about 90% of these back orders cleared within the next 30 days or by the end of this month, August. I expect that we will exceed metric No. 1 during the third quarter.

Now, our second metric is to generate gross profit margins in the low to mid 60% range, which we did achieve. Our gross margins came in at 63.6% for the quarter as compared to 60.6% in prior year period. Deborah will discuss the margins in more detail.

Our third metric is to make progress toward profitability during year and achieve profitability for the year. On a GAAP net loss basis we did not achieve this metric during the second quarter due to three items, two of which are definitely not going to recur during the remainder of the year. Deborah will review these during her comments. However, in terms of this metric, I believe we did make progress, and let me explain. In order to better understand how the business is doing and how I grade this metric, here is how I look at the quarter.

If you take out the one-time severance charge, the base business on $13.6 million of revenue lost $99,000 at the operating income line. When you go to the net income line and exclude the loss of the early payment on the note and the exchange loss on the re-evaluation of cash and accounts receivable, which are denominated in Euros, the bottom line is, we would have lost less than $300,000 on $13.6 million in revenue. These two points demonstrate to me the progress toward profitability and why I believe we are very close.

The fourth metric is to generate cash from operations. Our goal is to meet this metric despite the loss of the cash generated from operations by Domilens in the past. We did point out on the call last quarter that the cash from operations would be negatively impacted by our payment out of the escrow account of the legal settlement. Aside from this $4 million legal settlement payment, we generated approximately $300,000 in cash during the second quarter from operations.

Finally, on the fifth metric, which was to improve our balance sheet, this one we achieved with flying colors, and I'm going to let Deborah have the honors of walking through these accomplishments.

So, while not as clear and clean as I would like them to be, I think it is fair to say we achieved four out of the five metrics during the quarter, and we are quite confident that in the third quarter we should be in position to clearly achieve all five.

At this point I would like to turn the call over to Deborah for further review of the quarter operational and financial highlights. Deborah?

Good afternoon, everyone. Given the detail provided in our news release this afternoon, I would like to focus my comments on the key financial highlights during the quarter. Thanks, Barry, for giving me the task of describing our new balance sheet, as I believe it is as clean as it has ever been in my 15 years with the Company.

First, during May we were able to buy back 1.7 million preferred shares at $4 a share. Today that looks like a pretty good deal. This was at a cost of $6.8 million. In early June we paid the $4 million cost for the litigation settlement to lift that cloud of uncertainty from the Company. And, finally, in late June we were able to pay $5.3 million to retire the Broadwood note including interest. The note was not due until December 2010. I think it is pretty fair to say that the metric of improving our balance sheet has been met for the year.

On the top line, Barry reviewed the circumstances that resulted in a delay in the timing of certain sales to move from the second quarter of 2010 to the third quarter of 2010, and as a result our overall revenue growth was lower than planned at 3.7% on revenues of $13.6 million. Foreign currency exchange favorably impacted our revenue by $258,000.

From a product category perspective, total Visian ICL sales were up 9%, due to increased volume in ASP while total IOL sales were up 5% due to increased ASP. NanoFLEX IOL sales were up 15%, and preloaded IOL sales were up 12%. Other product sales, which are those we elected to deemphasize from the sales and marketing support perspective due to their low margins, declined 29% from a year ago to $770,000.

For the quarter, IOLs were 51% of total sales, ICLs were 43% of total sales, and other product sales were 6% of total sales. I would like to refer you to our release for more specifics on geographic sales developments during the quarter.

Gross margin for the quarter increased to 63.6% from 60.6% in Q2 2009, but decreased from 64.1% in Q1 2010. The increase was primarily due to two factors. First, as noted, gross margins were favorably impacted by higher ASPs and improved mix. Additionally, a decrease in royalty expense on ICL and COLLAMER IOL sales as a licensed patent expired in the fourth quarter of last year. This expense was $203,000 in 2009. The decrease from Q1 2010 is due to product mix.

Had the Korean order shipped as expected, gross margin would have been approximately 64.2%, and we would have reported operating income. We continue to believe that the planned progress of our business should enable us to achieve our goal of gross margin in the mid 60% range for the full year.

Our G&A expense decreased by 14.5% over the year-ago period primarily due to decrease in legal fees. Sales and marketing expenses were up 10.9% over the second quarter of 2009, due to the timing of trade show expenses as well as the planned expansion of the US sales team to foster higher growth in the latter part of this year and next. Barry will review that expansion in just a few moments.

Other operating expenses of $700,000 recorded during the quarter resulted from accrued severance costs due to the nonrenewal of an executive employment agreement. The severance will be paid out over 15 months beginning September 2010.

Other net expenses during the second quarter were $920,000, compared with $74,000 in Q2 2009. This large increase is primarily due to foreign currency exchange losses of $389,000, which was a swing of about $600,000 from the gain reported in the second quarter of 2009 of $214,000.

These mostly unrealized losses are primarily the result of the quarterly revaluation of receivables, payables and cash denominated in Euros. During this period the Euro declined 8% from 135 to 124. Currently, the Euro is gaining strength and is about 132. To the extent this holder continues to improve, the FX losses will reverse.

Other expenses also increase due to the approximate $300,000 noncash write-off of the unamortized note discount in connection with the Broadwood note repayment. We also had a decrease in royalty income for the quarter of approximately $113,000 due to catch-up payments that were made in the prior year quarter. Interest expense, which was $225,000 in the quarter and $631,000 year-to-date is expected to drop to about $50,000 per quarter as a result of the Broadwood note repayment.

Our cash balance, which included restricting cash on July 2, was $8 million as compared with $13.7 million at the end of 2009, and $23.8 million at the end of Q1. Net cash used in operating activities for the quarter was $3.7 million, which included the $4 million used to pay legal judgments, so before the legal payment we generated approximately $300,000 in cash from operations for the quarter.

Net cash provided by investing activities was $7 million, which included release of the bond of $7.3 million posted for the litigation. Net cash used in financing activities was $11.9 million resulting primarily from the $5 million early repayment of the Broadwood note, and $6.8 million redemption of the Canon preferred shares. As Barry mentioned, with these transactions we are essentially debt-free except for a line of credit we have to support STARR Japan. Now I'll turn the call back over to Barry for a few additional comments before taking your questions.

Thank you, Deborah. We hope that you can see from Deborah's presentation that some unusual items does hide, to some degree, our consistent progress toward profitability. We expect to continue the march toward GAAP profitability in the third quarter and believe that profitability for the full year is within range.

One major reason for optimism is the go-to-market organizational structure we discussed last quarter, which is designed to provide more focus on key market growth within the three regional areas of the world. It is very proper, I think, so say that at least since I've joined STAAR, our global management team has never worked more closely together. This will only improve.

In the next two weeks the global management team will be presenting our four-year growth plan to our board of directors. We have already expanded the US sales effort to now 35 individuals selling STAAR products in the field with the addition of five new sales representatives. We now have a total of 16 direct employees and 19 independent representatives selling in the US market. We also have added two new marketing managers for the Visian ICL. One is dedicated to the professional side, the other is dedicated to the consumer side.

Our new strategy should also enhance sales growth resulting from the second quarter expanded approval for the Visian ICL products in Europe. The ICL is already a strong product line in Europe and getting stronger. In the second quarter we began to see some additional growth signs for markets where we have not seen much recent growth, namely, Spain, France, and the UK. With the new approved range for our Visian ICL products in Europe, the market opportunity for us has more than doubled. The STAAR team of direct employees and distributors were trained on these expanded opportunities during the first week of July, and we expect to start shipping these products in September, as well as highlight them at the upcoming ESCRS meeting the first week of September.

I would like to give a quick update on where we are in the regulatory review process for the Visian Toric ICL in the US and Japan, which is the major two markets in which we still lack approval for the Toric version of the ICL. First, in the United States we have completed the response to the FDA on our submission for approval of the Visian Toric ICL, and have requested a face-to-face meeting to review. Though not required, we felt the best way to respond to the FDA was to sponsor a clinical study on the 10 eyes they flagged as outliers in regard to endothelial cell loss from the five-year data. This was only 6% of the eyes in the initial study. Basically, we found three things. First, all of these eyes were consistent with the confidence limits in the endothelial cell table of the approved labeling for the Visian ICL.

Second, the rate of decrease in endothelial cells declined in the second five years by 5% as compared to the first five years. Finally, these eyes are now 10 to 11 years from their original surgery date. All patients indicated they were satisfied with their surgery and would have had the Visian ICL implanted again.

While this process took longer than I would have liked, it was most important to produce a substantive response, and I believe we have done just that. I want to thank Dr. John Vukich from Madison, Wisconsin, Dr. Rob Rivera from Phoenix, and Dr. Hank Edelhauser from Atlanta for their efforts allowing us to complete the response. We hope to have an update by the time we talk with you in early November in conjunction with the release of our third quarter results.

In Japan it is fair to say that we have had more interaction with PMDA regarding our submission on the Toric ICL than we have expected this early in the process. Combined with the FDA request, it has certainly given our regulatory department a lot to do. They have worked very hard and I want to thank them very much for their efforts.

We have made good progress already this year in terms of increasing shareholder value. We have streamlined the focus of the Company to our core products, resolved all the legacy issues which have been a distraction, and established a good financial platform from which to grow. We are very confident we will return to double digit core product revenue growth in the third quarter and believe we can achieve all five of our metrics for the year.

45 a.m. Eastern Daylight Savings Time. The presentation will be available on the STAAR website.

Next week we will also be presenting in the Collins Stewart 2010 Healthcare Conference in New York City on Wednesday. And then on Thursday the Canaccord Global Growth Conference in Boston. That presentation is at 2 p.m. Eastern Daylight Savings Time, and the Canaccord presentation will also be available on the STAAR website.

Our quarter's performance illustrates that though we have made a lot of progress, we still have a lot of work to do. We are very confident, though, that the continued focus will enable us to exceed our goals. Operator, we can now open the line for questions from participants.

Thank you, sir. (Operator Instructions) And our first question comes from the line of Raymond Myers with Benchmark & Company. Please go ahead.

Thank you for taking the questions. Barry, let me first ask about the Korea distributor restructuring. Help us to understand why restructuring the distributor was done. What exactly was done and why did that cause a $500,000 shift in order volumes?

Good question, Ray, and let me expand upon what we previously said. First of all, as you know, our Korean distributor has done a wonderful job for us, and they continue to do so. They have also set some pretty high goals going forward. They are at 11% market share of the refractive market in Korea now, and they want to get to 25%. They have felt the best way to do that is to establish a second legal entity, a second group that will be exclusively focused on just the Visian ICL, and they have legally separated that from the rest of the product lines which they distribute. And they are setting up a new site at which they are doing that, and they were depleting their current inventory. And, again, Korea is just one of a handful of countries in which inventories carry. They carry inventory because they -- the speed to the customer is very important to them, and the don't want to wait for it to have to ship from Switzerland product-by-product. So, they carry the inventory there and they were depleting their inventory from their old site in anticipation of the new site being ready, both legally and physically ready to receive inventory.

They actually, at the end of the quarter, would have taken the inventory. It would have been a problem for them. They would have had to physically move it, and from a legal perspective they would have had to move the assets. And we said, no, it's not in your best interest and it's not of that much value to us to show $0.5 million in sales in one quarter versus another quarter, and let's just wait until you're ready and let's do it the right way. And that is exactly what we did.

Looking at the $1.16 million in Q2, if we added $500,000, you would be at almost $1.7 million. As we look into Q3 and beyond, can we model this as if this were $1.7 million in this quarter and there should be some incremental gain even beyond that in Q3, or should we smooth it out more?

Ray, I'm not sure I understand your question, this $1 million number?

In Korea.

Oh, I'm sorry, just looking at the Korean sales.

Yes. Is it fully additive or should we smooth it out more?

I believe in Korea it is fairly additive.

Good. That should set up a strong Q3, then.

Right.

Good. Can you talk a little bit about the dynamics in the United States? Clearly, the economy is a little -- continuing softer than people expected. You had been able to grow through that, but now it seems that things seem to be slowing down just a little bit for STAAR. Can you give us more color?

Yes. I think the main reason behind that for the quarter, and I think we were down 6% on the ICL in the US, was mainly in the military. And there were not any major military orders during the second quarter, though we have already seen some during third quarter. And I know I got a call from a sales manager whom at one military facility they did 36 ICLs the other day and now have to reorder.

So, I think it was more a cycling of the orders in the military, which, as you know, represents a decent percent of our overall sales in the US that impacted second quarter on a comparative basis.

Okay, sounds good. And the 400 backorder IOLs, what is the market value of those?

Well, about half of those IOLs, about 2,000 are in the Japanese market, and those are very high average selling price. About 40% is in Europe, which is not quite as good selling price, and then about 10% are to China, which is not a very good selling price.

So, how should we think -- is that $0.5 million to make up the --

Yes, it's somewhere about $500,000, a little bit more.

Okay, so kind of a $1 million delta there.

And I think -- going back to your same question on the ICL, I think most of that is not business we will lose. A little bit of it we might indeed lose because a customer wanted the product and we were not able to deliver and they may have gone someplace else.

Okay. And there is no continuing problem in manufacturing the silicone [IOLs]?

Well, I think we have taken the month of July for us to get a really better handle on where we are, where we stand in terms of our demand, our planning and our manufacturing. And I met with our manufacturing head this morning. We made very good progress last week, which is the first week we have made progress since the end of the quarter, to be fair. And that we fully expect by the end of this month, August, to have recovered from 90% of that backlog.

Okay. Why couldn't the manufacturing happen in the United States to get that up and running before you transition it?

Well, we did. It's more an issue of the demand and the planning for that demand.

Okay, So, was there more demand than you had anticipated?

Yes. The demand was specifically in certain model numbers, and we didn't plan for that appropriately. Some of it is communication and some of it is process. And I think during the month we have made good progress on correcting both of those.

Okay, good. And then maybe, finally, could you discuss a little bit more about the FDA and the process with the FDA approval? You have submitted and now the FDA is reviewing your submission. Were you able to submit everything you were hoping to and what exactly did you submit?

Yes. I think -- we were not going to submit until we were absolutely prepared to do it. The team worked hard, the physicians worked hard to get the patients back in. We had to also spend time analyzing the data once we got it back in and putting it into our response to the FDA. So, that was sent to them and almost simultaneously we asked for a meeting, and they are in the process of trying to accommodate that request.

Okay, sounds great. I'll get back in the queue. Thank you.

Thank you, Ray.

Our next question comes from the line of Joanne Wuensch with BMO Capital Markets. Please go ahead.

Good afternoon. This is Robbie calling for Joanne. Thanks for taking my question. Just a couple of questions.

Joanne, you sound much different.

She is actually -- we are going between calls, thanks.

I got it. I understand how you guys do.

So, can you talk a little bit more about the sales force expansion going forward? How should we look at that?

Good question, Robbie. Right now at this point in time we made the expansions that we plan to make. We are going to see how effective this expansion is in the US. We don't plan right now to add anymore headcount to the US until we see that progress starting to be made. Once we see evidence of that, then we do plan to make some additional expansions based upon our ability to do so within our resources.

Okay, thanks. And then what changes have you noted in the European market in terms of competitive landscape?

Well, that's a really good question, because I think as we noted in the release and in our statement that in Europe we are starting to see a few countries which in the most recent past have been, I'd say kind of stagnant for us. And we are starting to see some pretty nice increases in some of those countries in Europe. For example, Spain, France, and in the UK. So, as you know, Alcon has introduced their phakic lens in those markets. What we tend to hear from our customers is they are trying some and they are going to wait for a year to see how these anterior chamber phakic IOLs work. Because, as you know, in Europe they have not had a very good reputation, and we don't know if it is because -- that Alcon has kind of raised the market level for phakic IOLs or if it is because the acceptance of their lens hasn't gone over real well. It doesn't matter to us the reason, but we are quite excited that we are seeing some expansion in Europe we did not expect when we began the year. And now that in September we are going to release the expanded versions of the ICL, we see the opportunity door opening up for us even more.

Okay, that's helpful. Thank you very much. I'll get back in the queue.

Thank you, Robbie.

Our next question comes from the line of Joseph Mondillo with Sidoti & Company. Please go ahead.

Hi, guys. Thanks for taking my call. How are you? Listen, I'm just looking at the numbers now. I notice a decrease in R&D from 11% to 10.1%. Can you guys touch a little bit on that?

I think, Joe, that is well within what we planned to do within the R&D group, and so I think as you look forward you should expect our R&D expense to be in about the 9% to 10% level.

Okay. And also on geographic sales, you point to -- you show United States, Japan, Korea. The other market, does that include United Kingdom, Spain and France, that you talked about?

Yes, it does.

Okay. And I would like to know what kind of initiatives your salespeople in the US are looking to go forward with to increase sales? I mean, I know you are expanding the headcount and look to increase revenues, but, I mean -- and I know you are competing with LASIK. What are they going out and telling -- I mean, I'm just wondering.

No, I think two fronts, Joe. First, in regards to the ICL. They are really trying to focus on the accounts that have the ability to show strong growth in a short period of time. They are not focused on training new surgeons or getting new surgeons to use the product. They are really focused on the accounts that can use the Visian ICL to highlight their whole refractive practice and move that forward.

Secondly, on the IOL side, they are focused on the NanoFLEX IOL, our single piece COLLAMER lens, and I think as we said in the press release in the US, those sales were up 17% in the quarter and worldwide they were up 15%. We did train our European folks on the NanoFLEX during July in anticipation of getting CE mark in Europe so we can start selling NanoFLEX there, also. So, the NanoFLEX is a key focus for both US force and European force as we get approval.

Okay, thanks, guys.

Thank you, Joe.

Our next question comes from the line of Larry Haimovitch with HMTC. Please go ahead.

Hi, Larry.

Hi, Barry. Question on CAST. I know you referred to that in the press release. I didn't hear you say too much, if anything. Maybe I missed it on the call itself. Could you give us an update on the progress there, because that's an area where I think you may have a real winner down the road.

Yes. We have made our second submission to the FDA on the protocol for CAST II. On July 14 they told us it would be any day they would be back to us. We are still waiting. So, we are waiting for their approval of the protocol so we can go forward with that clinical study.

Just remind me and probably a couple of others on the call. CAST II again is?

Yes. If you will recall from the original CAST, and CAST, again, stands for COLLAMER Accommodating Study Team. We took eight surgeons who had been using our single piece COLLAMER lens and said you do everything the way you typically do it, but we want you to measure near and intermediate vision. And we gave every surgeon the same cards to measure that by. And what they came back with was that the intermediate vision, which is laptop vision, was better than any lens on the market, and that the near vision results were better than any standard IOL in the market.

So, now we want to take that to a clinical level with a protocol so that we might be able to come up with a claim of either best in class at intermediate or best in class at near vision, a way to ether get us into a new NTIOL status and/or get us into the premium channel status.

Barry, how long do you think CAST II will run before you have data and then can make a submission?

Well, I think we will -- once CAST II starts, we should have data within six months we can start talking about. But in total, it will probably take about 12 months to get to the point we can submit data to the FDA on any potential claims.

All right. And then a question on the Toric ICL, which, of course, is very important to the future. What are the potential scenarios you see coming out of both good, bad and ugly, so-to-speak, coming out of the next FDA meeting you have?

Well, I think good is if we can help them understand the results of the outlier eyes they had in question, which again, you know, endothelial cell count is a tough topic for everyone, including the FDA. So, that is why we ask for a face-to-face meeting rather than just reading black-and-responses, and our intent is to take all three of the physicians that helped us through the clinical evaluation of those eyes.

So, in my mind, if we can get in front of them and they understand it, I think it would -- the good would be an approval in a pretty quick period of time, because they spent a lot of time on this data with some enhanced labeling claims. And we have suggested in our response label claim expansion, and we have also suggested additional market surveillance in this area.

So, that will take -- I mean, it depends on the FDA, obviously. If you have a good meeting with them coming up, presumably, then it would go directly through the process to get ultimately approved?

Yes. Well, the labeling has been through a lot of questions and responses in the last six months, so we should be very close on that. And if we can get past, I think in my mind the biggest issue is the endothelial cell issue. If we get past that, then I think we should be very close.

I know you're in the prediction business and I tease you about that, of course.

I was just trying to say that. We were talking over each other. I am out of that business.

No, I understand, but if the meeting with the FDA goes well and you satisfied an endothelial cell count, that would give you good reason to expect approval in the next few months?

I have told our folks that I wouldn't be surprised if we get approval in one month, and I wouldn't be surprised if we got approval in six months.

So, you're like an analyst, Barry. You're in this broad range of prediction, okay. Okay, thanks, Barry. Have a great day.

Thank you, Larry.

(Operator Instructions) And our next question is a follow-up from the line of Raymond Myers with Benchmark & Company. Please go ahead.

Yes, hi. I just have a follow-up question on Japan. There were some comments in the prepared remarks about the Japan taking a little longer than expected to train the physicians, and if there was some reprocessing to be done?

Yes, Ray, good question. Basically, the rules that we have been following in Japan is the Japanese Ophthalmic Society, JOS, had to approve the certification process and approve each surgeon who got certified to go forward with the ICL in Japan. And we have now have worked with JOS and they are sponsoring with us a new training course, and they are giving us a little more flexibility on the process to get these surgeons certified and approved to begin implanting.

Was that a matter of time or it sounded like there was possibly a change in the process.

A change in the process in regards to timing and how quickly we can get surgeons up and certified. I think, as you know, a couple of months ago we trained, I think it was about 30, 35 surgeons in Japan, and the amount of time it has taken to get those proctored and certified. One of the requirements JOS had was that we had to have an ophthalmologist at the proctoring for the new physician, and it seems like they are going to be more flexible in that regard so we can use some of our folks who have been trained that can do proctoring, like we do here in the US.

Okay, good. Well, thank you. Good luck.

Thank you.

Thank you. Our next question is a follow-up question from the line of Joseph Mondillo with Sidoti & Company. Please go ahead.

Hi, guys. Just a follow-up touching a little bit on something that the last caller said. I notice in China and India you are experiencing rapid growth. Can you talk a little bit as to what is driving this rapid growth in those two countries?

Yes, good question, Joe, and we do see these as very important markets going forward, particularly China. You know, China is very close to the US now of total refractive procedures that are being done. And our market share in China and our introduction to the product in China is just in its infancy. Last year we believe we have less than 0.05% of 1% of the market in China.

We currently have four direct employees in China out in the field, working with our distributor. The acceptance has been good, the growth has been good. We are still working off of a small base, though, but with both areas with good opportunities.

And in India, we have a very good distributor there that we have been working with. India is the fifth largest refractive market in the world and we are still very -- we haven't been in India that long. We are at about 2% of the market now. In both of these countries, some of the demographics in terms of patients who can afford these procedures have shown improvement, and we see both as very important opportunities in the Pacific Asia region for us going forward.

And the distributor, do they hold inventory as well as the distributor in Korea?

They do not.

They do not.

Yes. Most of our distributors carry very little inventory because of the broad range of SKUs that we have. And we ship right away, but Korea is one of those markets where they want to be quicker to get product to the customer, and they have made the sacrifice of investing in inventory.

Okay. Thanks, guys.

Thank you, Joe.

Thank you. At this time I show no further questions in the queue. I would like to turn the conference back to management for closing remarks.

Great. Thank you very much for participating in today's call. And, again, on Thursday we will be presenting at the BMO conference. That will be on our website. If you have any questions as follow-up, please feel free to give Deborah or I a call, and have a good evening. Thank you.

Ladies and gentlemen, this concludes the STAAR Surgical Q2 2010 financial results conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030, enter the access code of 4330779, followed by the pound . Thank you for your participation. You may now