Investors eyeing Staar after failed acquisition attempt.

Staar Surgical Co. had been flying below Wall Street's radar screen for some time, but that changed in recent weeks when it announced and then rejected an anonymous buyout offer of $15 a share.

The Monrovia-based manufacturer of surgically implanted devices for improving vision saw its stock rise to a 52-week high of $17.13 on July 8, two days after calling the proposal "inadequate and not in the best interest of the company's shareholders."

The stock has fallen off a bit since then, trading around $15 last week. But that is still up 12 percent from where it was a year ago, and 150 percent above its yearly low last September.

For the first quarter ended April 2, Staar reported net income of $673,000 (5 cents per diluted share), compared with $1.7 million (12 cents) for the like period a year ago.

But the drop in quarterly earnings doesn't reflect recent news that Staar has received government approval for expanded clinical trials of its cutting-edge implantable contact lenses, which could well become a cash cow when and if they are approved for use in the United States.

"They are out there taking blind people and giving them vision," said William Gibson, senior analyst at Cruttendon Roth Inc. "With Staar's device, if you catch glaucoma fast enough, it stops deterioration right in its tracks. There is an aging Baby Boomer population and a lot of people will pay to get rid of their glasses."

Staar's proprietary technology, along with demand for refractive surgery, is considered a potent combination. There are about 130 million people in the United States with bad vision, and the number of people around the world who could afford a corrective procedure is about twice that.

Staar already is the industry leader in development of foldable lenses for cataract surgery the company's primary source of income right now. It also has created ICLs that correct nearsightedness and farsightedness, and is in the process of testing ICLs that can halt, although not reverse, the onset of glaucoma. These products are awaiting approval for the U.S. market by the Food and Drag Administration.

The procedure is done by making a 2-millimeter incision in the eye and slipping the corrective lens in front of the eye lens and behind the iris.

Last month, the FDA gave approval for Staar to begin phase III clinical trials for ICLs that correct farsightedness. In earlier studies, the procedure corrected more than 80 percent of patients' vision to 20/40 or better without glasses or contact lenses.

Recently, a similar ICL was placed in a patient's eye in Germany by a leading European ophthalmologist as part of clinical trials to obtain approval to market the lenses in the European Union.

"That German farmer could not have had any kind of laser surgery," said Staar CEO and Chairman John R. Wolf.

He figures that it will be about five years until such lenses are sold in the United States, but the company's strong technological advances will position it to be a major player in refractive surgery.

While it has put its financial troubles from the '80s far behind, Staar still suffers from one of the decisions made back then: the licensing of its foldable lens technology to its competitors. The company no longer needs to license technology to raise needed capital, but continues to see its earlier products sold under someone else's name.

Because it now guards its patents jealously, there is speculation that the buyout offer was from a large eye-care company, such as Bausch & Lomb, seeking to own rather than pay for Staar's technology.

But Gibson thinks it might have been from a large investor making an offer it knew would be rebuffed as a way of heightening interest in the company and its stock. "Somebody was trying to put the company in play," he said.

While it's trading at a steep price-earnings ratio of over 67, Gibson is a strong believer in Staar's future.

"It's undervalued on its potential for new products," Gibson said. "Even at $25 a share, it looks like a steal."

YEAR (Jan. 1)                    1999           1998

Revenue (millions)              $55.1          $45.5
Operating Costs (millions)       47.6           33.3
Operating Income (millions)       7.6           12.3
Net Income (millions)             2.5            7.4
Earnings Per Share              $0.29          $0.53

SUMMARY

Business: Manufacturer of medical devices

Headquarters: Monrovia

CEO: John R. Wolf

Market Cap: $208.7 million

Dividend Yield: N/A(*)

Total Liabilities: $25.5 million

P/E Ratio: 67.61

Long-Term Debt: $10.3 million

* Staar Surgical has not paid dividents this year