Alcon contact lens returns to scale

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Around the world, more and more people are becoming nearsighted. This creeping loss of distance vision is more advanced in developed countries, where young people spend large amounts of their time indoors. The problem is worst in Asia, where nearsightedness affects roughly half of the population. Younger people are more likely to be nearsighted than their parents, public health experts say, because they spend less time outdoors.

Over time, that means more people will turn to contact lenses to correct their vision. The most popular contacts, made from soft hydrogels, have been around since Contact lens makers solved that problem with lenses containing silicone, but they have not proved to be a comfortable fit for everyone.

With new monomers, polymer chemistry, and manufacturing tools, companies are closing the comfort gap. Read on to learn how future materials with electronic properties may provide better vision, help monitor and treat health conditions, and even deliver an interactive visual experience. Vitale and coauthors published an analysis that found for people aged 12 to 54 in the U. The good news is that myopia can be corrected with contact lenses, eyeglasses, or vision surgery.

Younger people, who are more likely to be nearsighted, prefer contact lenses over glasses. A growing population of young, nearsighted customers will turn to the contact lens industry for innovative products that fit their lifestyles. In the U. But after four decades of improvements, the lenses still fall short of perfection for many users. And eye doctors continue to report adverse effects from infection and inflammation.

Contact lens companies are responding with material, design, and manufacturing innovations they say are making lenses increasingly comfortable and safe. In the future, contacts could go beyond mere vision correction to treat conditions such as myopia in children. And with advances in electronic materials, lenses could start to monitor and treat health conditions by using the eye as a window into the body.

The first soft contact lenses were made of a polymer, called a hydrogel, based on the monomer hydroxyethyl methacrylate, or HEMA. When HEMA is polymerized, it becomes hydrophilic and can absorb several times its weight in water. The resulting gel is soft and compatible with the biology of the eye surface, making for a comfortable lens.

Eye doctors noticed that patients who frequently wore their hydrogel lenses all day developed redness in the white part of the eye. If the oxygen starvation is severe enough, he says, it can lead to swelling and blurry vision—a condition called cornea edema. Starting in the late s, the industry developed hydrogels that incorporate silicone-containing polymers made from molecules such as 3-[tris trimethylsiloxy silyl]propyl methacrylate, or Tris methacrylate.

Silicone chemistry had already been used to increase oxygen transfer in rigid lenses. In soft lenses, the addition of silicone permits as much as six times the oxygen to reach the cornea compared with first-generation hydrogel lenses. But making water-hating silicone polymers compatible with water-loving hydrogels was not straightforward. And the combination brought new comfort challenges. Silicone increased the stiffness of the lenses. It also repelled water, causing the lens to dry out and interrupting the surface layer of tears that provides lubrication when a user blinks.

The silicone also attracted lipids from tears that could foul the lenses, says John Pruitt, head of vision care research at Alcon, a contact lens maker that is part of Novartis. One early solution was to plasma-treat the surface of the silicone hydrogel to form an enhanced surface layer only a few hundred atoms thick. The glassy surface was wettable and lipid resistant, but handling could make it crack, Diamanti says.

So researchers dug deeper into the lens itself and created nanostructures that would keep the health benefit of oxygen permeation but negate the uncomfortable realities of silicone. Alcon designed water-gradient zones within the lens. The surfaces of the lens are engineered with hydrogel channels that trap water to make it slippery and comfortable.

The core region of the lens contains more silicone channels to transport oxygen to the cornea. Scientists at CooperVision, in contrast, wanted high water content and a more uniform structure to create very soft lenses, which some users prefer for comfort. That meant making brand-new molecules.

Patients of Stephen L. Glasser, a Washington, D. Glasser says wettability is the main concern now because most people spend many waking hours staring at a computer screen, a practice that makes them blink less frequently. But no lens is pefect for everyone, he stresses. Instead, eye care professionals help patients find the right lens based on their specific environment, physiology, ailments, and habits.

Contact lenses are the ultimate performance polymer product. The industry starts with small amounts of affordable monomers plus specialty chemicals such as activators and polymer cross-linkers. Alcon was acquired in by Novartis, which then merged it with its Ciba Vision business. The other large manufacturers, CooperVision and the Japanese firm Menicon, remain independent.

Sales in the U. Nichols, a professor of optometry at the University of Alabama, Birmingham, and editor of the industry journal Contact Lens Spectrum. The main players have a high amount of brand competition.

But compared with most consumer goods companies, lens makers have a bigger footprint in the raw material supply chain. He says the company even makes some of its own silicone monomers or has them custom made, though it also buys bulk monomers from suppliers.

Chemical companies that supply the contact lens industry tend to be small firms that have close, long-term relationships with their customers, says Carrington D. Smith, chief executive officer of MPD Chemicals. The job of firms such as Monomer-Polymer is to synthesize the new molecules. Suppliers such as Monomer-Polymer provide custom versions of workhorse monomers such as Tris methacrylate and other siloxanes, which are hydrophobic, and HEMA and N -vinylpyrrolidone, both hydrophilic.

The materials are designed in accordance with the specific manufacturing processes of each company. Last year, for example, CooperVision spent more than half of its profits on capital investments. Diamanti says the investment means the company has the infrastructure to make lenses for a wide variety of customers. Some may need stronger prescriptions with higher refractive indexes or special weighted—called toric—lenses to correct astigmatism.

And older customers need a range of multifocal options. Putting manufacturing and material innovations together has also made daily disposable lenses, which eliminate the need for solutions and cleaners, accessible to more consumers.

As a bonus, using a fresh lens every day keeps away bacteria and deposits that can lead to eye health problems. But making several hundred more lenses per customer requires lower-cost manufacturing processes. Most soft lenses are made in double-sided plastic optical molds that give the two surfaces different shapes. The molds are filled with a mixture of monomers and polymers and cured by free-radical polymerization.

In tandem with the shift to more daily lens use, Alcon developed a new method called Lightstream. Clear glass and quartz molds hold the monomer-polymer mixture. The molds are exposed to ultraviolet light through a shadow-masking pattern that precisely forms the edges of the lens in the liquid mixture. In that process, the surface of the lens never touches the mold itself.

The need for big investments in materials, marketing, and manufacturing makes the industry a tough one for start-ups, points out Karen Havenstrite , CEO of Tangible Science. Her company developed a coating material based on polyethylene glycol that it says can make lenses comfortable for patients with severe dry eye.

Tangible Science found its route to market through custom lens companies that work with eye care professionals to serve people with special requirements. Custom firms make lenses the old-fashioned way: one at a time on a lathe.

The small scale allowed Tangible Science to optimize its process and get customer feedback. Putting the coating on mass-made soft lenses, which Havenstrite hopes to do by early next year, means Tangible Science must adapt its chemistry to work on manufacturing lines that produce billions of lenses.

But future lenses could be designed to arrest the progress of vision problems or interact with the body in new ways using electronics. The alarming growth in myopia has made the condition a popular subject for researchers.

Patients with myopia have elongated corneas that focus light in front of the retina. Myopia generally appears in childhood and can advance at different rates, normally stabilizing around age 18 or 20, says Donald Mutti, an optometrist and researcher at Ohio State University. But time outdoors, Mutti says, has not been shown to slow progression once myopia develops.

He is working on a three-year clinical trial to find out whether a special kind of contact lens can slow or stop the progression of myopia in children as young as seven. The lenses were first designed to help patients with presbyopia—the loss of ability as we age to adjust focus between near and far objects.

Speaking of new product launches, Alcon had a very impressive product flow and momentum going into the first couple of months of , before COVID19 hit. In the Surgical business, Alcon launched PanOptix lenses, the first and only trifocal intraocular lenses IOL in the US, in both Japan and the US, helping patients be spectacle-free after cataract surgery achieve acuity in distant, intermediate, and near vision.

Vivity is a unique lens with an optical design that is created to eliminate halos and glare, a problem some patients face post surgery with refractive lenses like PanOptix.

Patients that were previously excluded from PC IOL, such as patients with retinal disease, irregular cornea, or with high frequency of night-driving, now have an alternative. As mentioned above, Alcon has been underperforming in contact lenses for the past few years, losing market share in key categories to its competitors.

This is mainly due to its large legacy businesses in reusable lenses flat growth market and contact lens care declining market. The company launched Precision1 mid-market daily SiHy in the US this year, to complement its Dailies Total1 brand, which is at the premium end of the market.

It is also planning to launch Precision1 both spherical and toric in Europe in 1Q Source: Company Investor Presentation. Last but not least, leadership brings about certain competitive advantages as well. Alcon has the most extensive installed base of surgical equipment in the industry e. In addition, due to the size and scale of the company, Alcon has an extensive commercial footprint and distribution network globally, spanning across countries. The company also has established long and steady relationships with key stakeholders in the market, including optometrists, eye surgeons, hospitals and wholesalers.

From the second half of last year through start of this year, the company saw very good momentum in the product flow, and good feedback from customers for the new product launches.

However, COVID19 threw a wrench into all that, and due to the deferrability of cataract surgeries, and the diminished importance of contact lenses when working from home, Alcon suffered more than most other medical devices companies.

Alcon has I have assigned a higher multiple to Alcon as I have higher confidence in the durability of its long-term growth, as compared to some of its MedTech peers. Note that if you comb through the financial statements, you will find that the reported financials are quite messy these couple of years as Alcon has been amortizing and impairing intangible assets e.

Separation costs have likely reached its tail end, so from next year core operating income should be a good proxy for free cash flow. Access to free cash flow will also give management different levers to pull in capital allocation, such as initiating a dividend, tuck-in acquisitions, paying down debt, share repurchases etc. As discussed above, COVID19 has been a stress test for Alcon, as its main business of cataract surgery is deemed to be deferrable but eventually patients will still have to undergo the surgery , and contact lenses are not as important when everyone is working from home.

There are several constraints on AT IOL, some of which I have discussed earlier halos and white glare , and also some more economical reasons, such as AT IOL being more expensive and not part of standard insurance plans in most countries, including the US. Cooper Companies have been gaining market share rapidly in the contact lenses space, and will continue to be a formidable competitor, but I expect Alcon to gain back some market share lost over the previous few years.

I am long the common shares of Alcon, as I expect the company to grow its top-line faster than the eye care devices market over the medium term, and expand its operating margin through product mix and operating leverage to a level closer to its peers.

This will lead to double digits operating income growth over the next few years, and attractive shareholders return over the long term due to the durability of the growth. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article.

Cloudforest Capital 96 Followers. Source: Company Investor presentation Market opportunity The eye-care devices market that Alcon participates in is a very attractive market supported by a few global trends that are strong and persistent.

I will highlight a few secular tailwinds in this industry below: Aging global population with growing eye care needs - many of the eye care health issues become more prevalent with age.

For example, cataract incidence dramatically increases at the age of 65 years Innovation over the years have improved the quality and safety of eye care, with patients now having more options and better outcomes The growth of the middle class in Emerging Markets EM drives demand for quality eye care - there will be an estimated 1. Spin-off from Novartis Since the merger, Alcon struggled in Novartis as even though both were healthcare businesses, the culture, product-cycle, and capital allocation are mostly different in a pharmaceutical company as compared to a medical devices company.

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