Annual Reports


Alcon Inc. 20-F 2008





(Mark One)








For the fiscal year endedDECEMBER 31, 2007






For the transition period from _________________ to ________________






Date of event requiring this shell company report _____________________

Commission file number



(Exact name of Registrant as specified in its charter)


(Translation of Registrant's name into English)


(Jurisdiction of incorporation or organization)

Bösch 69

P.O. Box 62

Hünenberg, Switzerland

(Address of principal executive offices)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class

Name of each exchange on which registered

Common Shares, par value CHF 0.20 per share

The New York Stock Exchange


Securities registered or to be registered pursuant to Section 12(g) of the Act.


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.


Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.               297,662,706 Common Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.






If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.






Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.






Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer



Accelerated Filer



Non-accelerated Filer



Indicate by check mark which financial statement item the registrant has elected to follow.


Item 17



Item 18

If this report is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).























































ITEM 16.         [RESERVED]


















ITEM 19.         EXHIBITS









Trademarks used by Alcon, Inc. ("Alcon") appear in italic type in this report and are the property of or are licensed by one of our subsidiaries.


In this report, the trademark product brand names refer to the products noted below.


Product Brand Name

Referenced Product


A-OK® ophthalmic knives


Accurus® surgical system


AcrySof® intraocular lens

AcrySof® IQ

AcrySof® IQ intraocular lens

AcrySof® Low Power ReSTOR®

AcrySof® Low Power ReSTOR® intraocular lens

AcrySof® Natural

AcrySof® Natural intraocular lens

AcrySof® ReSTOR®

AcrySof® ReSTOR® intraocular lens

AcrySof® ReSTOR® Aspheric

AcrySof® ReSTOR® Aspheric intraocular lens

AcrySof® ReSTOR® Toric

AcrySof® ReSTOR® Toric intraocular lens

AcrySof® Toric

AcrySof® Toric intraocular lens


ALCON® house trademark


ALLEGRETTO laser system




ALLEGRETTO WAVE® Eye-Q 400 Hz laser


ALLEGRO ANALYZER® wavefront system


ALLEGRO TOPOLYZER® corneal topography system


AquaLase® liquefaction device


AZARGA™ ophthalmic pharmaceutical preparations


Azopt® ophthalmic suspension

Betoptic S®

Betoptic S® ophthalmic suspension

BSS Plus®

BSS Plus® irrigating solution


Ciloxan® ophthalmic solution and ointment


CIPRODEX® otic suspension

Cipro® HC*

Cipro® HC Otic


CONSTELLATION® vitreoretinal system


CustomCornea® wavefront system

Custom Pak®

Custom Pak® surgical procedure packs


DisCoVisc® viscoelastic system


DuoTrav™ ophthalmic solution


DuoVisc® viscoelastic system


EXPRESS® contact lens care solutions


EYELITE® laser


Fluorescite® ophthalmic solution


Grieshaber® surgical instruments


ICAPS® dietary supplements


Infiniti® vision system


LADAR6000 excimer laser/system

LADARVision® 4000

LADARVision® 4000 excimer laser/system


LADARWave® wavefront system


Laureate™ compact phacoemulsification system


LEGACY® surgical system


Maxitrol® ophthalmic suspension


NEVANAC® ophthalmic suspension




Product Brand Name

Referenced Product

Opatanol® (EU)

Opatanol® ophthalmic solution


OPTI-FREE® contact lens care solutions


OPTI-FREE® EXPRESS® No-Rub® contact lens care solution


OPTI-FREE® RepleniSH® multi-purpose disinfecting solution


OZil® torsional hand piece/technology


Pataday™ ophthalmic solution


Patanase® nasal spray


Patanol® ophthalmic solution


Perfluoron® perfluoro-n-octane liquid


ProVisc® ophthalmic surgical device


PUREPOINT™ vitreoretinal laser


RETAANE® 15 mg anecortave acetate suspension


Silikon® ophthalmic surgical oil


SOFZIA® preservative system


Systane® lubricant eye drops

Tears Naturale®

Tears Naturale® lubricant eye drops


TobraDex® ophthalmic suspension or ointment

TobraDex® ST

TobraDex® ST ophthalmic suspension


Tobrex® ophthalmic solution or ointment


TRAVATAN® ophthalmic solution


TRAVATANZ ® ophthalmic solution


TRAVATANZ ophthalmic solution

Vegamox®* (Japan)

Vegamox® ophthalmic solution


Vigamox® ophthalmic solution


VISCOAT® ophthalmic surgical device



*      Cipro® andCIPRODEX® are registered trademarks of Bayer AG, licensed to Alcon by Bayer Healthcare AG. Moxifloxacin, the primary ingredient in Vigamox® and Vegamox®, is licensed to Alcon by Bayer Healthcare AG.


Avelox® is a trademark of Bayer Healthcare AG. Zaditor® is a trademark of Novartis AG. Timoptic-XE® is a trademark of Merck & Co., Inc.


In this report, references to "$", "U.S. $", "U.S. dollars" and "United States dollars" are to the lawful currency of the United States of America, references to "CHF" and "Swiss francs" are to the lawful currency of the Swiss Confederation, references to "euro" are to the lawful currency of the member states of the European Monetary Union that have adopted or that adopt the single currency in accordance with the Treaty establishing the European Community, as amended by the Treaty on European Union, and references to Japanese yen are to the lawful currency of Japan. Unless otherwise stated, figures provided are under United States generally accepted accounting principles ("U.S. GAAP"). Unless we specify otherwise, all references in this report to "we," "our," "us" and "our Company" refer to Alcon, Inc. and its subsidiaries and references to our "common shares" are to our common registered shares.



This report uses certain terms defined below.





Age-related macular degeneration


Abbreviated New Drug Application


Otitis media in the presence of tympanostomy tubes


Alcon Supplemental Executive Retirement Plan


Benzalkonium chloride


Chief Executive Officer


The Centers for Medicare and Medicaid Services

CP Program

Alcon's Commercial Paper Program

(the) Company

Alcon, Inc. and its subsidiaries


Alcon Executive Deferred Compensation Plan


Depository Trust Company


FASB's Emerging Issues Task Force


Alcon's Executive Salary Continuance Plan


European Union


Concerned member state of the European Union

Evaluation Date

End of the period covered by this annual report

Exchange Act

U.S. Securities Exchange Act of 1934

External auditors

The primary Alcon Group external auditors and additional external auditors specific to the Company subsidiary


Financial Accounting Standards Board


United States Food and Drug Administration


Food and Drug Administration Amendments Act of 2007


FASB Interpretation


U.S. Federal Trade Commission


International Accounting Standards Board


The initial public offering of approximately 69,750,000 of Alcon, Inc.'s common shares on March 20, 2002


Institutional Review Board


Alcon's Long Term Incentive Plan


New Drug Application


Nestlé S.A., a Swiss corporation

Non-U.S. Holder

A holder that is not a U.S. Holder (see definition of U.S. Holder below)


Non-steroidal anti-inflammatory drug


New Technology Intraocular Lenses, as defined by CMS


Nestlé Waters North America, a subsidiary of Nestlé


New York Stock Exchange


Over-the-Counter drugs available without a prescription


Pre-market Approval


Risk evaluation and mitigation strategies discussed in the FDAAA


Reference member state of the European Union


Staff Accounting Bulletin published by the SEC


United States Securities and Exchange Commission

Services Agreement

Guarantee Fee and Commercial Paper Program Services Agreement, as described in Item 7.B, "Related Party Transactions"


Statement of Financial Accounting Standards


Share-settled stock appreciation right(s)

Swiss Holder

Security holder as defined in Item 10.E.


United States generally accepted accounting principles

U.S. Holder

Security holder as defined in Item 10.E.





References to the ophthalmic industry in this report do not include eyeglasses or contact lenses. This report relies on and

refers to statistics regarding the ophthalmic industry. Where specified, these statistics reflect the Company's internal estimates. Otherwise, we obtained these statistics from various third-party sources that we believe are reliable, but we have not independently verified these third-party statistics. Unless otherwise specified, all market share information was based on units sold.


Statements in this report regarding the Company's market share position in the United States for ophthalmic pharmaceuticals (including generics) are based on total prescriptions filled as independently reported by the Wolters Kluwer Health Source Prescription Audit for the year ended December 31, 2007.


Statements in this report regarding the Company's market share position worldwide for ophthalmic surgical products by sales are based on internal estimates prepared using industry data for the nine months ended September 30, 2007.




This report contains "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, (the "Exchange Act") relating to our business and the sectors in which Alcon and its subsidiaries and interests operate. These forward-looking statements are contained principally in the sections entitled "Key Information," "Information on the Company," "Operating and Financial Review and Prospects," "Financial Information," "Additional Information," and "Quantitative and Qualitative Disclosures about Market Risk." These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by our forward-looking statements. Forward-looking statements include, but are not limited to, statements about: the progress of our research and development programs; the receipt of regulatory approvals; competition in our industry; the impact of pending or future litigation; the impact of any future product recalls; changes in, or the failure or inability to comply with, governmental regulation; the opportunities for growth, whether through internal development or acquisitions; exchange rate fluctuations; general economic conditions; and trends affecting the ophthalmic industry, our financial condition or results of operations.


Words such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "intend," "estimate," "project," "predict," "potential" and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in this report in greater detail under the subheadings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements represent our estimates and assumptions only as of the date of this report and are not intended to give any assurance as to future results. Factors that might cause future results to differ include, but are not limited to, the following:


resources devoted to research and development may not yield new products that achieve commercial success;


the production and launch of commercially viable products may take longer and cost more than expected;


competition may lead to worse than expected financial condition and results of operations;


changes in reimbursement procedures and/or amounts by third-party payors;


changes caused by regulatory or market forces in the prices we receive for our products;


changes in the global economic environment in which we operate, as well as changes in the economic conditions in our markets;


currency exchange rate fluctuations may negatively affect our financial condition and results of operations;

the impact of any future events with material unforeseen impacts, including, but not limited to, war, natural disasters, or acts of terrorism;



supply and manufacturing disruptions could negatively impact our financial condition or results of operations;

inability to attract qualified personnel, which could negatively impact our ability to grow our business;




difficulty protecting our intellectual property rights;


pending or future litigation may negatively impact our financial condition and results of operations;


government regulation or legislation may negatively impact our financial condition or results of operations;


product recalls or withdrawals may negatively impact our financial condition or results of operations;


the occurrence of environmental liabilities arising from our operations; and


the occurrence of any losses from property and casualty, general liability, business interruption and environmental liability risks could negatively affect our financial condition because we self-insure against those risks through our captive insurance subsidiaries.


You should read this report completely and with the understanding that Alcon's actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except to the extent required under the federal securities laws and the rules and regulations promulgated by the United States Securities and Exchange Commission ("SEC"), we undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise.









Not Applicable.





Not Applicable.









The following tables present our selected historical consolidated financial data in accordance with U.S. GAAP. This information should be read along with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 5 of this report and the consolidated financial statements, including the accompanying notes thereto, included in Item 18 of this report.




Year Ended December 31,


























(in millions, except per share data)





Statement of Earnings Data:






































Cost of goods sold






































Gross profit



















Selling, general and administrative



















Research and development



















In process research and development



















Gain on sale of plant



















Amortization of intangibles






































Operating income



















Interest income



















Interest expense



















Other, net






































Earnings before income taxes



















Income taxes






































Net earnings






































Basic weighted-average common shares outstanding



















Diluted weighted-average common shares outstanding



















Basic earnings per common share



















Diluted earnings per common share



















Dividends paid on common shares



















Dividends paid per common share: U.S. $



















Dividends paid per common share: Swiss CHF






































Cash Flow Data:



















Cash provided by (used in):



















Operating activities



















Investing activities



















Financing activities






































At December 31,



























(in millions)





Balance Sheet Data:



















Current assets



















Working capital



















Total assets



















Long term debt, net of current maturities



















Total shareholders' equity






















Exchange Rates


Fluctuations in the exchange rate between the Swiss franc and the U.S. dollar will affect the conversions into U.S. dollars of any cash dividends paid in Swiss francs on our common shares. In addition, these and other fluctuations in the exchange rates of the currencies of our various local operations affect our results of operations and financial condition as presented in our financial statements.


The following table sets forth, for the periods indicated, information concerning the exchange rate between Swiss francs and U.S. dollars based on the noon buying rate in the City of New York for cable transfers of Swiss francs as certified for customs purposes by the Federal Reserve Bank of New York:




Exchange Rate for 1 U.S. Dollar




Fiscal Year


Period End (1)


Average (1) (2)






























































































The noon buying rate at each period end and the average rate for each period differed from the exchange rates used in the preparation of our financial statements.



Represents the average of the daily rates as published by the Federal Reserve Bank of New York during the period.


The following table sets forth the high and low noon buying rate for the Swiss franc for each of the prior six months:




Exchange Rate for 1 U.S. Dollar






Period End






















September 2007












October 2007












November 2007












December 2007












January 2008












February 2008

























Although we have translated selected Swiss franc amounts in this report into U.S. dollars for convenience, this does not mean that the Swiss franc amounts referred to could have been, or could be, converted into U.S. dollars at these rates or any other rate. The Federal Reserve Bank of New York certifies this rate for customs purposes on each date the rate is given.






Not Applicable.






Not Applicable.






If the events discussed in these Risk Factors occur, our business, financial condition, results of operations or cash flows could be materially adversely affected. In such a case, the market price of our common shares could decline. The risks described below are not the only ones that may exist. Additional risks not currently known by us or that we deem immaterial also may impair our business operations.



Risks Related to Our Business and Industry


Resources devoted to research and development may not yield new products that achieve commercial success.


We devote substantial resources to research and development. The research and development process is expensive and prolonged, and it entails considerable uncertainty. Development of a new product, from discovery through testing and registration to initial product launch, typically takes between eight and fifteen years or more for a pharmaceutical product and three and seven years or more for a medical device. Each of these periods varies considerably depending on the product and the country where registration is sought. Because of the complexities and uncertainties associated with our research and development, products we are currently developing may not complete the development process or obtain the regulatory approvals required for us to market such products successfully or they may take longer than we expect to develop or to gain necessary governmental, regulatory or other approval. They may cost more to develop and may be less successful than we currently anticipate, or than other therapies that are presently or soon may be on the market. We can make no assurances that any of the projects currently in our development pipeline will be commercially successful products.


If we fail to keep pace with advances in our industry or fail to persuade physicians to adopt new products we introduce, customers may not buy our products and our sales and profits may decline.


The pharmaceutical, medical device and over-the-counter industries are characterized by continual product development, constant innovation in products and techniques, frequent new product introductions and price competition. Companies that introduce products that are first to market gain a significant competitive advantage. Our future growth depends, in part, on our ability to develop products which are more effective in treating diseases and disorders of the eye or that incorporate the latest technologies. In addition, we must be able to manufacture and effectively market those products and persuade a sufficient number of eye care professionals and/or consumers to use the new products we introduce. Sales of our existing products may decline rapidly if a new competing product is introduced by one of our competitors or if we announce a new product that, in either case, represents a substantial improvement over our existing products. Similarly, if we fail to make sufficient investments in research and development programs, our current and planned products could be surpassed by more effective or advanced products.


We may not successfully develop and launch replacements for our products that lose patent protection.


Most of our major products are covered by patents that give us a degree of market exclusivity during the term of the patent. Upon patent expiration, our competitors may introduce products using the same technology. As a result of this possible increase in competition, we may need to charge a lower price in order to maintain sales of our products which could result in these products becoming less profitable. If we fail to develop and successfully launch new products prior to the expiration of patents for our existing products, our sales and profits with respect to those products could decline significantly. We may not be able to develop and successfully launch more advanced replacement products before these and other patents expire.


For instance, our successful combination ocular anti-infective/anti-inflammatory product, TobraDex® ophthalmic suspension and ointment, will lose its exclusive marketing position in the United States in January 2009. We expect that new competitive generic products will result in a decline of our sales and profits for TobraDex®. In anticipation, we have developed a more advanced product called TobraDex® ST to replace TobraDex® and we are pursuing approval of the United States Food and Drug Administration ("FDA") and patent coverage for the new formulation. However, there is no guarantee that we will be successful in obtaining approval for this replacement product or in converting the market to the new formulation prior to generic entry. Moreover, it is possible that patents covering the new formulation will not be granted.


We depend on proprietary technologies and may not be able to protect our intellectual property rights adequately.


We currently hold more than 4,500 patents and have approximately 3,200 pending patent applications. We rely on a combination of contractual provisions, confidentiality procedures and patent, trademark, copyright and trade secrecy laws to protect the proprietary aspects of our technology. These legal measures afford limited protection and may not prevent our competitors from gaining access to our intellectual property and proprietary information. Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. From time to time, we have faced challenges of our intellectual property rights and face current challenges to some of our key products. Furthermore, we cannot ensure that any pending patent application held by us will result in an issued patent or that, if patents are issued to us, such patents will provide meaningful protection against competitors or competitive technologies. We have taken measures to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Any litigation could result in substantial expense, may reduce our profits and may not adequately protect our intellectual property rights. In addition, we may be exposed to future litigation by third parties based on claims that our products infringe their



intellectual property rights. This risk is exacerbated by the fact that the validity and breadth of patents in our industry frequently involve complex legal issues that are not easily resolved.


Alcon has joined with its commercial partners in filing patent infringement actions against three different generic drug companies. All of these generic drug companies are seeking FDA approval to market a generic version of an Alcon product under what is known as an Abbreviated New Drug Application ("ANDA").


The first infringement action was filed after Alcon received notice that Teva Pharmaceuticals USA, Inc. had filed an ANDA seeking approval to sell a generic version of Alcon's Vigamox® antibiotic ophthalmic solution. (Moxifloxacin, the primary ingredient in Vigamox®, is licensed to Alcon by Bayer Healthcare AG.) As part of its ANDA, Teva challenged three patents covering Alcon's innovator product Vigamox®. Two of the patents are owned by Alcon's licensor, Bayer Healthcare AG, and the third, which expires in 2020, is owned by Alcon. The two Bayer Healthcare patents were also the subject of another Teva ANDA seeking approval to sell a generic version of Bayer Healthcare's systematic moxifloxacin product, Avelox®. Suit was filed by Alcon and Bayer Healthcare as co-plaintiffs against Teva relative to the Vigamox® ANDA on April 5, 2006 in the U.S. District Court in Delaware. Bayer Healthcare subsequently filed suit in the same court relative to the Avelox® ANDA, and the two suits were merged. As a result of the lawsuit filing, the FDA must delay any approval of Teva's Vigamox® ANDA for 30 months unless the litigation is earlier resolved or the court modifies the 30-month stay on FDA approval. Trial was scheduled to begin February 26, 2008, but the dispute between Bayer Healthcare and Teva relative to the two Bayer Healthcare patents was resolved by settlement on the eve of trial. The terms of the settlement have not yet been made public, but at the trial that proceeded between Teva and Alcon, Teva did not challenge either of the Bayer Healthcare patents, the latter of which extends until September 4, 2014 for Vigamox®. The trial relative to the Alcon patent began on February 28, 2008 and concluded on March 6, 2008. Judgment is not expected until the first half of 2009. Should Teva succeed in overcoming the Alcon patent and secure FDA approval, it would be entitled to sell a generic moxifloxacin product that would compete with Alcon's Vigamox® product well before the 2020 expiration of the Alcon patent. Such competition would be expected to impact significantly the Company's sales and profits.


The second patent infringement action was filed after Alcon received notice that Apotex, a Canadian-based generic drug company, had filed an ANDA challenging one of the patents covering Alcon's Patanol® anti-allergy eye product. Alcon's raw material supplier, Kyowa Hakko Kogyo Co. Ltd., holds another United States patent that has not been challenged in this case and extends through 2010. The patent that Apotex has challenged, which is co-owned by Alcon and Kyowa Hakko, will expire in 2015. Alcon and Kyowa Hakko as co-plaintiffs filed suit against Apotex Inc. and Apotex Corp. on November 15, 2006, in the U.S. District Court in Indianapolis, Indiana. As a result of the lawsuit filing, the FDA must delay any approval of the Apotex ANDA for 30 months unless the litigation is earlier resolved or the court modifies the 30-month stay on FDA approval. Trial has been scheduled for September 15, 2008. Should Apotex succeed in overcoming the challenged patent and secure FDA approval, it would be entitled to begin selling a generic olopatadine product that would compete with Alcon's Patanol® product in the United States as of December 18, 2010. Such competition would be expected to impact significantly the Company's sales and profits.


The third patent infringement action was filed after Alcon received notice on October 1, 2007 that Barr Laboratories, Inc. had filed an ANDA challenging the patents underlying Alcon's Patanol® product. Unlike the Apotex ANDA, which is challenging only the patent jointly owned by Kyowa Hakko and Alcon, the Barr ANDA is also challenging Kyowa Hakko's composition patent on olopatadine, the active agent in Patanol®. The 30-month period after which the FDA could approve Barr's generic product will expire the end of March 2010, nine months before the Kyowa Hakko composition patent expires. Alcon and Kyowa Hakko filed suit in the Federal District Court in Indianapolis (where the Apotex case is pending) on October 23, 2007. As a result of the lawsuit filing, the FDA must delay any approval of the Barr ANDA for 30 months unless the litigation is earlier resolved or the court modifies the 30-month stay on FDA approval. Trial has not yet been scheduled in this case. Should Barr succeed in overcoming both of the challenged patents and secure FDA approval, it would be entitled to immediately begin selling a generic olopatadine product that would compete with Alcon's Patanol® product in the United States. Such competition would be expected to impact significantly the Company's sales and profits.


Any litigation or claims against us, whether or not successful, could result in substantial costs and harm our reputation. In addition, intellectual property litigation or claims could force us to do one or more of the following: cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenue; obtain a license from the holder of the intellectual property right alleged to have been infringed, which license may not be available on reasonable terms, if at all; and redesign or, in the case of trademark claims, rename our products to avoid infringing the intellectual property rights of third parties, which may not be possible and could be costly and time-consuming even if it is possible to do so.




Economic conditions and price competition may cause sales of our products used in elective surgical procedures to decline and reduce our profitability.


Sales of products used in elective surgical procedures have been and may continue to be adversely impacted by economic conditions. Generally, the costs of elective surgical procedures are borne by individuals with limited reimbursement from their medical insurance providers or government programs. Accordingly, individuals may be less willing to incur the costs of these procedures in weak or uncertain economic conditions, there may be a decline in the number of these procedures, there may be a decline in the amount we realize for each procedure and the market for equipment used in the procedure may be negatively impacted.


Inability of users of our products to obtain adequate reimbursement or maintain the current level of reimbursement from third-party payors could limit market acceptance of our products or reduce the prices we receive for our products, which could impact adversely our sales and profits.


The initiatives of managed care organizations and governments to contain healthcare costs in the United States and in other countries are placing an increased emphasis on the delivery of more cost-effective medical therapies. This emphasis could adversely affect sales and prices of our products. Physicians, hospitals and other healthcare providers may be reluctant to purchase our products if they do not receive adequate reimbursement for the cost of our pharmaceutical and surgical products and for procedures performed using our products from both governmental and private third-party payors. For example:


Major third-party payors for hospital services, including government insurance plans, Medicare, Medicaid and private healthcare insurers, have substantially revised their payment methodologies during the last few years, resulting in stricter standards for and lower levels of reimbursement of hospital and outpatient charges for some medical procedures.


In the United States, the Centers for Medicare and Medicaid Services ("CMS") impose controls on the prices at which medical devices and physician-administered drugs used in ophthalmic surgery are reimbursed for Medicare patients. Many private third-party payors use CMS guidelines in determining reimbursement levels. Increased pressures to reduce government healthcare spending could lower our effective average selling price.


Most European Union member states impose controls on the prices at which medicines and medical devices are reimbursed under state-run healthcare schemes. Some member states operate reference pricing systems in which they set national reimbursement prices by reference to those in other member states. Increased pressures to reduce government healthcare spending and increased transparency of prices, following the adoption of the European euro, have meant that an increasing number of governments have adopted this approach. Furthermore, with increased price transparency, parallel importation of pharmaceuticals from lower price level countries to higher priced markets has grown; and these parallel imports lower our effective average selling price.


Japan also imposes controls on the prices at which medicines and medical devices are reimbursed under the national healthcare schemes; due to increased pressures to reduce government healthcare spending, the government continues to seek cuts where possible, and is actively promoting the use of generic products.


Managed care organizations in the United States restrict the pharmaceutical products that doctors in those organizations can prescribe through the use of formularies, the lists of drugs which physicians are permitted to prescribe to patients in a managed care organization, and exclusion of our pharmaceutical products from these formularies or additional price concessions necessary to be included on formularies could have an adverse effect on our revenues and profits.


Competitors may introduce generic products that compete directly or indirectly with our products and such generic products may reduce our unit sales and prices.


There are proposed and existing laws and regulations governing product prices that may negatively affect the profitability of companies in the healthcare industry.


There have been recent initiatives by third-party payors to challenge the prices charged for medical products which could affect our profitability.


Reductions in the prices for our products in response to these trends could reduce our profits. Moreover, our products may not be covered in the future by third-party payors. The failure of our products to be so covered could cause our profits to decline.


We may experience pressure to lower the prices of some or all of our prescription pharmaceutical products because of new and/or proposed legislation.


U.S. federal legislation, enacted in December 2003, added an outpatient prescription drug benefit to Medicare, effective January 2006. The benefit is provided primarily through private entities, which attempt to negotiate price concessions from pharmaceutical manufacturers. These negotiations increase pressures to lower prices. While the current law specifically prohibits the United States government from interfering in price negotiations between manufacturers and Medicare drug plan sponsors, some members of Congress are pursuing legislation that would permit the United States government to use its purchasing power to negotiate discounts from pharmaceutical companies, which would likely have a negative impact on the pricing of prescription drugs. In addition, the new law contains triggers for Congressional consideration of cost containment measures for Medicare in the event Medicare cost increases exceed a certain level. These cost containment measures could include certain limitations on prescription drug prices.


We also face pricing pressures and potential pricing pressures for our drug products reimbursed under the Medicaid program. Some states have established preferred drug lists under which manufacturers must pay supplemental rebates to the states in order to avoid being placed in a disfavored position on the state formulary. In addition, federal proposals have been made recently to increase the rebates we must pay to the states based on the utilization of our products under Medicaid.


In many other countries medical reimbursement is regulated by government agencies. These agencies may reduce the medical reimbursement rates, leading to downward pressure on the prices we receive for our products.


The FDA and other regulators may authorize sales of some prescription pharmaceuticals on a non-prescription basis, which would reduce the profitability of our prescription products.


In October 2006 and at the request of the holder of both the patent and the New Drug Application ("NDA"), the FDA revised the status of the allergy drug Zaditor® (Novartis AG) from "prescription only" to "over-the-counter," or "OTC." The approval by the FDA of the sale of this and other pharmaceutical products without a prescription may reduce demand for our competing prescription products and, accordingly, reduce our profits. Medicines regulators in other jurisdictions have similar powers to authorize OTC switches, either on their own initiative or in response to an approval-holder's request. In the future, managed care organizations or other third-party payors may petition the FDA or other medicines regulators to permit sales of some of our pharmaceutical products on a non-prescription basis, which could reduce our profits.


Changes in inventory levels or fluctuations in buying patterns by our large wholesale and large retail customers may adversely affect our sales and earnings and add to their variability from quarter to quarter. We also face additional risks due to the concentration of certain sales with large retail and wholesale customers.


A significant portion of our pharmaceutical and eye care products are sold to major pharmaceutical and healthcare distributors and major retail chains in the United States. Consequently, our sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality, pricing, large retailers' and wholesalers' buying decisions or other factors. We can provide no assurance that large retail and wholesale purchases will not decrease as a result of fluctuations in buying patterns. Additionally, we are exposed to a concentration of credit risk to these customers that, if affected by financial difficulty, could materially and adversely affect our financial results.


The consolidation of wholesale and retail customers could further increase pricing and competitive pressures on pharmaceutical manufacturers, including us.


Wholesale and retail customers comprise a significant part of the distribution network for pharmaceutical and consumer eye care products in the United States. This distribution network has undergone significant consolidation marked by mergers and acquisitions. As a result, a smaller number of large wholesale distributors and retail pharmacy chains control a significant share of the market. Consolidation of drug wholesalers and retail pharmacy chains has led to and may further increase pricing and competitive pressures on pharmaceutical manufacturers, including us. In addition, this consolidation may lead to excess inventories and result in reduced wholesaler and retailer purchases in future quarters.



The global nature of our business may result in fluctuations and declines in our sales and profits.


Our products are sold in more than 180 countries. We have more than 75 local operations worldwide and approximately half of our revenues in 2007 came from customers outside the United States.


The results of operations and the financial position of our local operations are generally reported in the relevant local currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, exposing us to currency translation risk. In 2007, our most significant currency exposures were to the euro, the Japanese yen, the Canadian dollar, the British pound sterling and the Australian dollar versus the U.S. dollar.


The exchange rates between these and other foreign currencies and the U.S. dollar may fluctuate substantially. In addition, we are exposed to transaction risk because some of our expenses are incurred in a different currency from the currency in which our revenues are received. Fluctuations in the value of the U.S. dollar against other currencies have had in the past, and may have in the future, a material adverse effect on our operating margins and profitability.


Economic, social and political conditions, laws, practices and local customs vary widely among the countries in which we sell our products. Our operations outside the United States are subject to a number of risks and potential costs, including lower profit margins, less stringent protection of intellectual property and economic, political and social uncertainty in countries in which we operate, especially in emerging markets. Our continued success as a global company depends, in part, on our ability to develop and implement policies and strategies that are effective in anticipating and managing these and other risks in the countries where we do business. These and other risks may have a material adverse effect on our operations in any particular country and on our business as a whole. For example, many emerging markets have currencies that fluctuate substantially, in response to which we may reduce our prices, making our products less profitable. Inflation in emerging markets also makes our products less profitable and increases our exposure to credit risks. We have experienced currency fluctuations, inflation and volatile economic conditions, which have impacted our profitability in the past in several markets and we may experience such impacts in the future.


We single-source many of the active ingredients and components used in our products and interruptions in the supply of these raw materials could disrupt our manufacturing of specific products and cause our sales and profitability to decline.


We single-source active ingredients contained in a majority of our pharmaceutical and contact lens care products, including TRAVATAN® ophthalmic solution, OPTI-FREE® EXPRESS® No Rub® and OPTI-FREE® RepleniSH® contact lens care solutions, Systane® lubricant eye drops, both Patanol® and Pataday™ ophthalmic solutions and Vigamox® moxifloxacin ophthalmic solution. In these cases, obtaining the required regulatory approvals, including from the FDA, to use alternative suppliers may be a lengthy process. In many cases, we use single-source suppliers for other components and raw materials used in our products. The loss of any of these or other significant suppliers or the inability of a supplier to meet performance and quality specifications, requested quantities or delivery schedules could cause our sales and profitability to decline and have a negative impact on our customer relations. In addition, a significant price increase from any of our single-source suppliers could cause our profitability to decline if we cannot increase our prices to our customers. In order to ensure sufficient supply, we may determine that we need to provide financing to some of our single-source suppliers, which could increase our financial exposure to those suppliers.


In many cases, we manufacture a product at a single-source facility, and an inability to produce a sufficient quantity of, or any disruption in the manufacturing of, a product at the relevant facility could impair our ability to fill customer orders and could reduce our sales.


In some cases, we manufacture a product, including some of our key products, at a single manufacturing facility. In many cases, regulatory approvals of our products are limited to a specific approved manufacturing facility. If we fail to produce enough of a product at a facility, or if our manufacturing process at that facility is disrupted, we may be unable to deliver that product to our customers on a timely basis. A failure to deliver products on a timely basis could lead to customer dissatisfaction and damage our reputation. Significant delays in the delivery of our products or a delay in the delivery of a key product also could negatively impact our sales and profitability.



Some of our products are manufactured or assembled by third parties under contract. Business conditions and regulatory actions may lead to recalls of products assembled or manufactured by these companies, may result in delays in shipments of such products or may cause these contractors to abandon their contract manufacturing agreements. Any of these occurrences could have a negative impact on sales and profitability.


Unauthorized or illegal importation of products from countries with lower prescription drug and medical device prices to countries with higher prescription drug and medical device prices may result in lowering the prices we receive for our products.


In the United States and elsewhere, our products are subject to competition from lower priced versions of our products and competing products from Canada, Mexico, and other countries where there are government price controls or other market dynamics that make the products lower priced. The ability of patients and other customers to obtain these lower priced imports has grown significantly as a result of regulatory harmonization and common market or trade initiatives, such as those underpinning the European Union, and the internet. A significant influence in the United States is the expansion of pharmacies in Canada and elsewhere targeted to U.S. purchasers, the increase in U.S.-based businesses affiliated with Canadian pharmacies marketing to U.S. purchasers, state and local government initiatives and other factors. Most of these foreign imports into the United States are illegal under current law. However, the volume of imports may continue to rise due to the limited enforcement resources of the FDA and the U.S. Customs Service, and there is political pressure to permit the imports as a mechanism for expanding access to lower priced medicines.


Legislative proposals have been made to implement the changes to U.S. import laws and to broaden permissible imports. Even if the changes to the import laws do not take effect, and other changes are not enacted, imports from Canada and elsewhere may continue to increase due to market and political forces, and the limited enforcement resources of the FDA, the Customs Service and other federal and state government agencies. For example, state and local governments have suggested that they may import or facilitate the import of drugs from Canada or elsewhere for employees covered by state health plans or others, and some already have put such plans in place.


The importation of foreign products adversely affects our profitability in the United States and elsewhere. This impact could become more significant in the future, and the impact could be even greater if there is a further change in the law or if state or local governments take further steps to import products from abroad.


We are subject to extensive government regulation related to (i) the review and market approval of both drugs and medical devices, (ii) ongoing compliance and reporting obligations for products with post-approval review and (iii) ongoing pricing and reimbursement reviews for both drugs and devices. These government regulations increase our internal processes and costs to secure and maintain market registration of our drug and device products. Government regulation also could prevent us from selling our products.


The research, development, testing, manufacturing, sale and marketing of our products are subject to extensive governmental regulation. Government regulation includes inspection of and controls over testing, manufacturing, safety and environmental controls, efficacy, labeling, advertising, marketing, promotion, record keeping, reporting, the sale and distribution of pharmaceutical products, import, export and samples and electronic records and electronic signatures. We are also subject to government regulation with respect to the prices we charge and the rebates we offer or pay to customers, including rebates paid to certain governmental entities. Government regulation substantially increases the cost of developing, manufacturing and selling our products.


In the United States, we must obtain approval from the FDA for each pharmaceutical product that we market and FDA approval or clearance for each medical device that we market, and additional approvals or clearances may be required for product changes. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products distributed outside the United States are also subject to government regulation, which may be equally or more demanding. Our potential products could take a significantly longer time than we expect to gain regulatory approval or may never gain approval. If a regulatory authority delays approval of a potentially significant product, our market value and operating results may decline. Even if the FDA or another regulatory agency approves a product, the approval may limit the indicated uses for a product, may otherwise limit our ability to promote, sell and distribute a product, or may require post-marketing studies or impose other post-marketing obligations. If we are unable to obtain regulatory approval of our products, we will not be able to market these products, which would result in a decrease in our sales. Currently, we are actively pursuing approval for a number of our products from regulatory authorities and conducting other pre-market procedures in a number of countries, including, among others, the United States, countries in the European Union and Japan. Continued growth in our sales and profits will depend, in part, on the timely and successful introduction and marketing of some or all of these products.





The clinical trials required to obtain regulatory approvals are complex and expensive and their outcomes are uncertain. We incur substantial expense for, and devote significant time to, clinical trials, yet we cannot be certain that the trials will result in the commercial sale of a product. Positive results from preclinical studies and early clinical trials do not ensure positive results in later clinical trials that form the basis of an application for regulatory approval. We may suffer significant setbacks in clinical trials, even after earlier clinical trials show promising results. Any of our products may produce undesirable side effects that could cause us or regulatory authorities or research sites to interrupt, delay or halt clinical trials of a pharmaceutical or medical device candidate. We, the FDA or another regulatory authority, an Institutional Review Board or a Safety Data Monitoring Committee charged with overseeing the research to protect study subjects may suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks.


Noncompliance with applicable United States legal regulatory requirements can result in fines, injunctions, penalties, mandatory recalls or seizures, suspensions of production, denial or withdrawal of pre-marketing approvals, recommendations by the FDA against governmental contracts and criminal prosecution. The FDA also has authority to request repair, replacement or refund of the cost of any device we manufacture or distribute. Regulatory authorities outside the United States may impose similar sanctions for noncompliance with applicable legal and regulatory requirements.


We may be subject to penalties if we fail to comply with post-approval legal and regulatory requirements and our products could be subject to restrictions or withdrawal from the market.


Our manufacturing, sales, promotion, and other activities following product approval are subject to regulation by numerous regulatory and law enforcement authorities, including, in the United States, the FDA, the U.S. Federal Trade Commission ("FTC"), the Department of Justice, the CMS, other divisions of the Department of Health and Human Services, and state and local governments. Any product for which we currently have or may obtain marketing approval, or clearance, along with the associated manufacturing processes, any post-approval clinical data that we might be required to collect, adverse events and malfunctions associated with the products, and the advertising and promotional activities for the product, are subject to continual recordkeeping and reporting requirements, review and periodic inspections by regulatory authorities. Our advertising and promotion are subject to stringent regulatory rules and oversight. In the past, we have had to change or discontinue promotional materials because of regulatory agency requests, and we are exposed to that possibility in the future and also to the possibility of new civil monetary penalties that have been established for violative promotion of drug product to consumers.


New requirements and industry guidelines have been adopted to require the posting of ongoing drug and device clinical trials on public registries, and the disclosure of designated clinical trial results. We must continually review adverse event and other available safety information that we receive concerning our products and make expedited and periodic reports to regulatory authorities. In any given situation, we may consider whether to implement a voluntary product recall. We might be required to report to the FDA certain medical device recalls, device malfunctions, or product defects and failures to meet federal electronic product standards. In the United States, any free samples we distribute to physicians must be carefully monitored and controlled, and must otherwise comply with the requirements of the Prescription Drug Marketing Act, as amended, and FDA regulations.


Our sales, marketing, research and other scientific/educational programs also must comply with rules governing the promotion of medicines and devices, anti-bribery rules and related laws, such as the anti-kickback and fraud and abuse provisions of the Social Security Act, as amended, the False Claims Act, as amended, the privacy provisions of the Health Insurance Portability and Accountability Act and similar state laws. Pricing and rebate programs must comply with the Medicaid drug rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, the Veterans Health Care Act of 1992, as amended, and the Deficit Reduction Act of 2005, as amended. On July 17, 2007, CMS published a final rule implementing provisions of the Deficit Reduction Act of 2005 regarding Medicaid drug rebates. The rule addresses a broad range of issues relating to the determination of average manufacturer price, determination of best price, treatment of authorized generics, the definition of nominal prices and new manufacturer reporting requirements, among others. The statutes and regulations governing the various price reporting requirements are complex and have changed over time, and the U.S. government has not given clear guidance on many issues. In addition, recent statutory and regulatory developments have not yet been applied by the government or courts to specific factual situations. We believe that the Company is in compliance with all applicable government price reporting requirements, but there is the potential that the CMS, other regulatory and law enforcement agencies or a court could arrive at different interpretations, with adverse financial or other consequences for the Company. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to



federal and state consumer protection and unfair competition laws. Most European Union member states and Japan impose controls and restrictions that are similar in nature or effect.


In recent years, several states in the United States, including California, Maine, Minnesota, Nevada, New Hampshire, New Mexico, Texas, Vermont and West Virginia, as well as the District of Columbia, also have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state and/or make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing. Similar legislation is being considered in other states and at the federal level in the United States. Many of these requirements are new and their breadth and application is uncertain, and most apply only to drugs; however, certain legislation (e.g., California) also applies to devices.


Depending on the circumstances, failure to meet these applicable legal and regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private "qui tam" actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into supply contracts, including government contracts, any of which could have a material adverse effect on our financial condition.


New legal and regulatory requirements could make it more difficult for us to obtain approvals for our product candidates and could limit or make more burdensome our ability to commercialize any approved products.


The Food and Drug Administration Amendments Act of 2007 ("FDAAA") contains significant new regulatory requirements affecting pharmaceutical and medical device manufacturers. These new requirements share some of the broad themes in recently adopted legal requirements for drugs in the European Union. For drugs, the FDAAA grants the FDA extensive new authority to impose post-approval clinical study and clinical trial requirements, require safety-related changes to product labeling, review advertising aimed at consumers, and require the adoption of risk management plans, referred to in the legislation as risk evaluation and mitigation strategies ("REMS"). The REMS may include requirements for special labeling or medication guides for patients, special communication plans to healthcare professionals and restrictions on distribution and use. For example, if the FDA makes the requisite findings, it might require that a new product be used only by physicians with certain specialized training, only in certain designated healthcare settings or only in conjunction with special patient testing and monitoring.


The legislation also includes requirements for drugs and devices for providing the public information on ongoing clinical trials through a clinical trial registry and for disclosing clinical trial results to the public through a clinical trial database, renewed requirements for conducting trials to generate information on the use of products in pediatric patients, new requirements to pay the FDA a fee in order to obtain advisory review of certain drug consumer television advertisements and new penalties for example for false or misleading consumer drug advertisements. Other proposals have been made to impose additional requirements on drug and device approvals, further expand post-approval requirements and restrict sales and promotional activities.


New requirements also have been imposed in some states, and proposed in other states, requiring us to provide paper or electronic pedigrees with the drugs that we distribute to help establish their authenticity and to track their movement from the manufacturer through the chain of distribution.


These new federal and state requirements and additional requirements that have been proposed, and might be adopted, may make the process more difficult or burdensome for us to obtain approval of our product candidates. In addition, any approvals we receive may be more restrictive or come with onerous post-approval requirements, our ability to commercialize approved products successfully may be hindered, and our business may be harmed as a result.



We may implement a product recall or voluntary market withdrawal and could be exposed to significant product liability claims; we may have to pay significant amounts to those harmed and may suffer from adverse publicity as a result.


The manufacturing and marketing of pharmaceuticals and medical devices, including surgical equipment and instruments, involve an inherent risk that our products may prove to be defective and cause a health risk. In that event, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority. We have recalled products in the past and, based on this experience, believe that the occurrence of a recall could result in significant costs to us, potential disruptions in the supply of our products to our customers and adverse publicity, all of which could harm our ability to market our products. A recall of one of our products or a product manufactured by another manufacturer could impair sales of other similar products we market as a result of confusion concerning the scope of the recall. A product recall also could lead to a regulatory agency inspection or other regulatory action.


From time to time, we are named as a defendant in product liability lawsuits, and although we believe we are not currently subject to any material product liability proceedings, we may incur material liabilities relating to product liability claims in the future, including claims arising out of procedures performed using our surgical equipment. We historically have relied on a combination of self-insurance and third-party insurance to cover potential product liability claims. The combination of our insurance coverage, cash flows and reserves may not be adequate to satisfy product liabilities we may incur in the future. Furthermore, since January 1, 2005, we no longer purchase third party product liability insurance coverage for this risk. Even meritless claims could subject us to adverse publicity, hinder us from securing insurance coverage in the future and require us to incur significant legal fees. Successful product liability claims brought against the Company could have a material adverse effect on our financial condition.


Our activities involve hazardous materials and may subject us to environmental liability.


Our manufacturing, research and development practices involve the controlled use of hazardous materials. We are subject to federal, state and local laws and regulations in the various jurisdictions in which we have operations, governing the use, manufacturing, storage, handling and disposal of these materials and certain waste products. Although we believe that our safety and environmental procedures for handling and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of accidental contamination or injury from these materials. Remedial environmental actions could require us to incur substantial unexpected costs which would materially and adversely affect our results of operations. If we were involved in a major environmental accident or found to be in substantial non-compliance with applicable environmental laws, we could be held liable for damages or penalized with fines that could be material.


We historically have relied on a combination of self-insurance and third-party insurance to cover potential environmental liability claims. The combination of our insurance coverage, cash flows and reserves may not be adequate to satisfy environmental liabilities we may incur in the future. Furthermore, since January 1, 2005, we no longer purchase insurance coverage for this risk. Any environmental claims could subject us to adverse publicity, hinder us from securing insurance coverage in the future and require us to incur significant legal fees. Successful environmental liability claims brought against the Company could have a material adverse effect on our financial condition.


We self-insure through our captive insurance subsidiaries almost all of our property and casualty, business interruption and liability risks. We continue to purchase insurance from third parties when required by law and for the personal side of directors' and officers' liability insurance.


The pharmaceutical and medical device business involves an inherent risk of product liability and any claims of this type could have an adverse impact on us. Furthermore, we have all the risks of property and casualty, general liability, business interruption and environmental liability exposures that are typical of a public enterprise with manufacturing and marketing activities. Historically, we have relied on a combination of self-insurance through our captive insurance subsidiaries and third-party insurance to cover potential claims from these risks. Since March 31, 2005, we no longer purchase any form of insurance from third parties except for insurance coverages required by law to be purchased from third parties, such as workers' compensation and automobile insurance. We also purchase the personal side of directors' and officers' liability insurance from a third party.



Consequently we are exposed to all self-insured risks. For example, in December 2005, fires and explosions at an oil depot in Hemel Hempstead, England, damaged our nearby office building and warehouse, as well as equipment and inventories housed in these facilities. Because we self-insure these risks, we were required to record provisions for property losses in 2005 as further discussed in note 18 to the consolidated financial statements. Our captive insurance company is involved in legal proceedings to seek recovery of these losses from the third parties responsible for the fires and explosions; however, recovery of our losses is not guaranteed.


Our captive insurance companies have invested premiums from our subsidiaries in a manner and for terms appropriate to their possible use under the standards required for all insurance companies. Although our third-party insurance coverage and internally generated cash flows have been adequate to provide for liability claims in the past, future liability claims and other losses from these risks could exceed our insurance coverage limits for past activities and future cash flows, and any significant losses from these risks could have a material adverse effect on our financial condition.


We may not successfully complete and integrate strategic acquisitions to expand or complement our business.


As part of our growth strategy, we evaluate and pursue strategic business acquisitions to expand or complement our business. Such ventures may bring new products, increased market share or new customers to Alcon's prominent position in the ophthalmic industry. We cannot ensure that suitable acquisition candidates will be identified. Acquisition activities can be thwarted by overtures from competitors for the targeted candidates, governmental regulation (including market concentration limitations) and replacement product developments in our industry. Further, after an acquisition, successful integration of the venture can be complicated by corporate cultural differences, difficulties in retention of key personnel, customers and suppliers, and coordination with other products and processes. Also, acquisitions could divert management's attention from our existing business and could result in liabilities being incurred that were not known at the time of acquisition or the creation of tax or accounting issues. If we fail to timely recognize or address these matters or to devote adequate resources to them, we may fail to achieve our growth strategy or otherwise not realize the intended benefits of any acquisition.


Risks Related to Our Relationship with Nestlé


We will be controlled by Nestlé as long as it owns a majority of our common shares, and our other shareholders will be unable to affect the outcome of a shareholder vote during that time.


Nestlé owns approximately 77% of our outstanding common shares. Because Nestlé's interests may differ from those of our other shareholders, actions Nestlé takes with respect to us may be unfavorable to our other shareholders. Minority holders of common shares will not be able to affect the outcome of most shareholder votes so long as Nestlé owns at least a majority of our outstanding common shares. So long as it owns at least two-thirds of our common shares, Nestlé will be able to control, among other things: increases in our share capital; the approval of a dissolution other than by liquidation, including by way of merger; the creation of restrictions on the transferability of our common shares; and the restriction or elimination of preemptive rights in connection with a share capital increase. So long as it owns at least a majority of our common shares, Nestlé will be able to control, among other things: the election and removal of all of our directors; amendments to our Articles of Association (other than those subject to the two-thirds majority requirement referred to above); payment of dividends; changes to our capital structure unless the change is subject to the requirement that it be approved by holders of two-thirds of our common shares represented at a shareholders' meeting; and appointment and removal of our statutory and group auditors.


Because Nestlé controls us, conflicts of interest between Nestlé and us could be resolved in a manner unfavorable to us.


Most of our agreements with Nestlé (or Nestlé affiliates), including the separation agreement, were finalized while we were a wholly owned subsidiary of Nestlé and, as a result, the terms of each may not be as favorable to us as if they had been negotiated between unaffiliated parties. Various conflicts of interest between Alcon and Nestlé could arise. For example, ownership interests of directors or officers of Alcon in Nestlé shares or service as a director or officer of both Alcon and Nestlé could create, or appear to create, potential conflicts of interest when a director or officer is faced with decisions that could have different implications for the two companies, such as disagreement over the desirability of a potential acquisition opportunity, employee retention or recruiting or our dividend policy.



Sales or distributions of our common shares by Nestlé could depress the market price for our common shares.


In 2007 and 2008, Nestlé's senior management made several public statements reaffirming that its investment in Alcon is financial rather than strategic. Nestlé may, at any time, sell all or part of our common shares that it owns or it may distribute those common shares to its shareholders. There can be no assurance that any of our other shareholders will be included in any transaction in the event Nestlé sells a controlling interest in us to another party or that any of our shareholders will realize a premium with respect to their common shares as a result of such transaction or any other disposition of our common shares by Nestlé. In addition, sales or distributions by Nestlé of substantial amounts of our common shares in the public market or to its shareholders could adversely affect prevailing market prices for our common shares. Nestlé is not subject to any contractual obligation to maintain its ownership position in our shares.


Nestlé provides services discussed under "Major Shareholders and Related Party Transactions" that are beneficial to the Company and its operating results. Under a divesture by Nestlé, the Company may be forced to either seek other providers of these services or add these functions internally. These alternatives could have a negative impact on our results of operations.


Risks Related to the Securities Markets and Ownership of Our Common Shares


The price of our common shares may fluctuate.


The market price of our common shares may fluctuate significantly in response to factors, both within and outside our control, such as announcements of innovations and discoveries or new products by us or our competitors, developments concerning intellectual property rights and regulatory approvals, and changes in estimates of our financial performance or changes in recommendations by securities analysts. At December 31, 2007, options to purchase approximately 2.9 million common shares granted under our incentive plan were scheduled to become exercisable in 2008, and in the event such options are exercised and there are sales of substantial amounts of common shares in the public market in connection with or immediately following such exercise by the option holders, the market price of our common shares may decrease significantly.


The stock market in general sometimes experiences extreme price and volume fluctuations. The market prices of securities of pharmaceutical and medical device companies have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies. These market fluctuations could result in extreme volatility in the price of our common shares, which could cause a decline in the value of our common shares. You should be aware also that for the size of our company, Alcon has relatively fewer shares that trade on a daily basis than other similar companies in our industry. As a result, price volatility of our shares may be greater when the trading volume of our common shares is low.


Risks Related to Our Jurisdiction of Incorporation


We are incorporated in Switzerland and Swiss law governs our internal corporate affairs.


We are a corporation incorporated under the laws of Switzerland. The rights of holders of our common shares are governed by Swiss corporate law and by our Articles of Association. In particular, Swiss corporate law limits the ability of a shareholder to challenge resolutions or actions of our board of directors in court. Shareholders generally are not permitted to file a suit to reverse a decision or action by directors but are permitted to seek damages for breaches of fiduciary duty. Shareholder claims against a director for breach of fiduciary duty would, as a matter of Swiss law, have to be brought at our place of incorporation in the Canton of Zug, Switzerland, or at the domicile of the involved director. In addition, under Swiss law, any claims by shareholders against us must be brought exclusively at our place of incorporation.


Under Swiss corporate law, we are required to declare dividends in Swiss francs. As a result, any currency fluctuations between the U.S. dollar and the Swiss franc will affect the dollar value of the dividends we pay.


In addition, in several instances we follow Swiss corporate governance practices instead of the corporate governance practices applicable to a U.S. company under New York Stock Exchange listing standards. A summary of the principal areas of difference is provided under "Directors, Senior Management and Employees – Board Practices – Compliance with New York Stock Exchange ("NYSE") Listing Standards on Corporate Governance."










General Information


The entity that is now Alcon, Inc. was originally incorporated in Switzerland in 1971 as Société Fromagère Nestlé S.A., and, after a change of our name to Alcon Universal S.A. in 1978, was registered in the Commercial Register of the Canton of Zug on March 13, 1992. Effective on December 21, 2001, we changed our name to Alcon, Inc. Our principal executive offices are located at Bösch 69, P.O. Box 62, 6331, Hünenberg, Switzerland, and our telephone number is +41-41-785-8888. Our principal United States offices are located at 6201 South Freeway, Fort Worth, Texas 76134-2099. The telephone number at those offices is (817) 293-0450 and the fax number is (817) 568-7111.


In this document, "IPO" refers to the initial public offering of approximately 69,750,000 of Alcon's common shares on March 20, 2002. Prior to the IPO, Alcon, Inc. was a wholly owned subsidiary of Nestlé S.A., a Swiss corporation ("Nestlé").


Important Events in the History of the Company in 2007


WaveLight Acquisition


On November 9, 2007, Alcon completed a tender offer for the purchase of a majority interest in WaveLight AG ("WaveLight"), as discussed in note 19 to the consolidated financial statements. WaveLight, a German company listed in Deutsche Börse AG's Prime Standard since January 2003, develops, manufactures and markets innovative refractive laser and diagnostic systems, including the ALLEGRETTO laser system for refractive eye surgery. The ALLEGRETTO laser has a global installed base of more than 800 units and offers the fastest ablation speed on the market today. Through a combination of shares purchased on the open market and through the tender offer, Alcon acquired 77.4% of WaveLight's issued shares, or approximately 5.1 million shares. All relevant documents related to the completed tender offer can be found on Alcon's Web site,


Expansion of Swiss Operations


In September 2007, Alcon announced that it plans to establish Fribourg, Switzerland, as the central location for an expansion of the Company's Swiss-managed global administration operations. Alcon expects this expansion to include the relocation of finance, information technologies, logistics and other centralized administrative operations from Hünenberg to Fribourg and the establishment of a new European area and marketing management center in Geneva. Alcon would remain resident in Hünenberg, Switzerland, where local Swiss sales and marketing activities would continue to be managed. No changes are contemplated for its Alcon Grieshaber manufacturing operations, which will remain in Schaffhausen, Switzerland.


The Company's existing global administration operations in Hünenberg currently provide an array of common services for European and other affiliates and a relocation to Fribourg would be a first step in an expansion of these activities. Relocation activities began in late 2007 and may take more than two years until their completion. During the five years following the relocation, Alcon would expect to double the size of the Fribourg operations and broaden the common services it offers to affiliates. The expansion would support the continued expected growth of the Company's European affiliates in terms of sales and employment.


Alcon expects to realize certain Swiss tax benefits in exchange for its commitment to relocate and significantly expand its global administration operations in Switzerland. The initial term of these benefits commenced on January 1, 2008 and continues for a period of five years. These benefits would be extended for an additional five years if the company fulfills employment commitments and maintains these commitments through 2022. Taking into account the anticipated tax benefits and assuming a retroactive extension of the U.S. research and experimentation tax credit, the Company expects its consolidated effective tax rate to be in the range of 13.5% to 14.5% in 2008. Alcon plans to invest most of the 2008 tax benefit on the relocation and expansion of its Swiss operations, the funding of additional research and development projects and increased spending on strategic marketing and sales programs.



Capital Expenditures, Acquisitions and Divestitures for the Last Three Years (January 1, 2005 through December 31, 2007):


The Company's capital expenditures for property, plants and equipment, to expand and upgrade manufacturing facilities, research and development facilities, and other infrastructure, for the years ended December 31, 2007, 2006 and 2005 were $227.2 million, $222.3 million and $162.2 million, respectively.


Also see discussion of the WaveLight Acquisition above.


Capital Expenditures, Acquisitions and Divestitures Currently Underway:


In 2007, capital expenditures were made to add manufacturing capacity in our Fort Worth, Texas, Puurs, Belgium, and Cork, Ireland, manufacturing facilities and to upgrade our research and development facilities in Fort Worth and our manufacturing facilities in Barcelona, Spain, and Huntington, West Virginia. We had capital expenditure commitments of $61.3 million at December 31, 2007. We expect to fund these capital projects through operating cash flow and, if necessary, short term borrowings.


The Company has not announced any acquisitions or divestitures subsequent to December 31, 2007.






Alcon is a research and development driven, global medical specialty company predominantly focused on eye care. We develop, manufacture and market pharmaceuticals, surgical equipment and devices and consumer eye care products to treat primarily diseases and disorders of the eye. Our broad range of products represents one of the strongest portfolios in the ophthalmic industry. We believe we have the largest commitment to ophthalmic research and development of any company worldwide. Currently, our products are sold in over 180 countries, and we are present in every significant market in the world where ophthalmology is practiced. In 2007, we had sales of $5.6 billion, operating income of $1.9 billion and net earnings of $1.6 billion.


Our Products


Our broad range of products represents one of the strongest portfolios in the ophthalmic industry, with high-quality and technologically advanced products across all major product categories. Our leadership position across most of our product categories enhances our ability to extend our product offerings, through the launch of new and innovative products, and to expand our geographic reach into ophthalmic markets worldwide. We manage our business through two business segments: Alcon United States and Alcon International. Our portfolio spans three key ophthalmic categories: pharmaceutical, surgical and consumer eye care products. See notes 10 and 11 to the consolidated financial statements for a three-year history of our sales by segment and category.


Our Pharmaceutical Products


We are a global leader in ophthalmic pharmaceuticals. We develop, manufacture and market a broad offering of prescription ophthalmic pharmaceutical products.


The following table lists our principal pharmaceutical products:




Ocular Anti-Infectives/













Ocular Allergy




Otic Combination







Betoptic S®


Vigamox®/ Vegamox® (1)







Patanol®/ Opatanol®




Timolol GFS

Pred Acetate






Cipro® HC Otic (1)







Cipro® and CIPRODEX® are registered trademarks of Bayer AG, licensed to Alcon by Bayer Healthcare AG. Moxifloxacin, the primary ingredient in Vigamox® and Vegamox®, is licensed to Alcon by Bayer Healthcare AG.



Glaucoma Treatment


In 2007, sales of our glaucoma products were $830.1 million, or 35.9% of our total pharmaceutical sales.


In 2001, we launched TRAVATAN® , our entry into the prostaglandin analogue class of glaucoma treatments, in the United States. Prostaglandin analogues are the largest class of compounds currently available to reduce intraocular pressure, which is a primary characteristic of glaucoma. We have continued to improve and enhance the TRAVATAN® brand with the launch outside the United States of DuoTrav™ ophthalmic solution, which combines the prostaglandin in TRAVATAN® with a beta blocker, timolol, and with the launch in both the United States and international markets of TRAVATANZ® ophthalmic solution, a new formulation of TRAVATAN®that replaces the preservative benzalkonium chloride ("BAC") with the SOFZIA® preservative system. Brands containing our proprietary prostaglandin have been launched in more than 100 countries, including an approval in Japan obtained before the end of 2007.


In addition to TRAVATAN®, TRAVATAN Z®and DuoTrav™, we offer Azopt® and Betoptic S® ophthalmic suspensions, both of which utilize other classes of compounds. Azopt® is a carbonic anhydrase inhibitor that has shown to be an excellent adjunctive therapy when used with other glaucoma therapies, including prostaglandin analogues.


These products are important to our glaucoma franchise and currently make up a majority of our glaucoma products sales. We expect our glaucoma products to continue to contribute to our sales growth.


Anti-Infectives, Anti-Inflammatories and Combination Therapies


We currently manufacture and market a broad range of drugs to treat bacterial, viral and fungal infections of the eye and to control ocular inflammation. In 2007, combined sales of our ocular anti-infectives, ocular anti-inflammatories and combination therapies were $814.5 million, or 35.2% of our total pharmaceutical sales.


Our leading ocular anti-infective product is Vigamox® ophthalmic solution, utilizing moxifloxacin to treat bacterial conjunctivitis. According to the Wolters Kluwer Health Source Prescription Audit, Vigamox® was the leading ophthalmic topical antibiotic in the United States in 2007. During 2006, we received approval and launched Vigamox® in Japan under the trade name Vegamox® ophthalmic solution.


During 2005, we launched a topical non-steroidal anti-inflammatory drug ("NSAID") in the U.S. market for the treatment of pain and inflammation associated with cataract surgery. NEVANAC® ophthalmic suspension is unique because it is a prodrug where the active ingredient is released upon instillation in the eye. During 2007, NEVANAC® maintained the number two NSAID market share in the United States, according to Wolters Kluwer Health Source Prescription Audit. We also executed several launches of NEVANAC® outside the United States during 2007.


Our combination ocular anti-infective/anti-inflammatory product, TobraDex® ophthalmic suspension and ointment, combines a broad-spectrum antibiotic with a proven anti-inflammatory. TobraDex® is currently the only tobramycin/dexamethasone ophthalmic combination product in the U.S. market and has no generic equivalent, although it will lose its exclusive market position in the United States in January 2009 and most other countries in March 2009. We currently sell TobraDex® in more than 100 countries.




We market and manufacture products for the treatment of ocular allergies. In 2007, sales of our ocular allergy pharmaceutical products were $446.8 million, or 19.3% of our total pharmaceutical sales. The allergy market is seasonal, peaking in the spring and again, but to a lesser extent, in the fall.


Patanol® ophthalmic solution was the first ocular allergy product with a dual-action active ingredient, which acts as both an antihistamine and a mast-cell stabilizer. According to Wolters Kluwer Health Source Prescription Audit, Patanol® was the leading ophthalmic topical anti-allergy prescription product in the United States in 2007. During 2006, we received approval and launched Patanol® in Japan, the second largest ophthalmic allergy market. We have a co-marketing agreement in Japan with Kyowa Hakko Kogyo Co., Ltd. (Kyowa Hakko), a leading Japanese pharmaceutical company, whereby Kyowa Hakko promotes Patanol® to non-eye care physicians and we promote the product to eye care physicians. In February 2007, we launched in the United Statesthe first and only once-a-day ocular prescription allergy medicine, Pataday™ ophthalmic solution, which is a new formulation of olopatadine, the active ingredient in Patanol®. We currently sell Patanol® in more than 90 countries.






Otic Products


We also market combination anti-infective/anti-inflammatory products for ear infections. CIPRODEX® otic suspension for the treatment of otitis media in the presence of tympanostomy tubes ("AOMT") and of otitis externa, commonly known as swimmer's ear, is marketed in the United States and a small number of countries outside the United States. In addition, Cipro®HC Otic, for the treatment of otitis externa, is currently marketed in over 30 countries. Sales of our otic products are seasonal, with a higher percentage of prescriptions written during the summer months.


Generic Pharmaceuticals


We established Falcon Pharmaceuticals in 1994 to manufacture and market generic ophthalmic and otic pharmaceutical products in the United States. Falcon's sales in 2007 were $94.1 million, or 4.1% of our total global pharmaceutical sales. Falcon currently manufactures and markets approximately 30 generic pharmaceutical products.


Falcon's largest product is Timolol GFS, a patented gel-forming solution used to treat glaucoma, which accounts for 40.2% of Falcon's sales. Timolol GFS is currently the sole generic pharmaceutical approved by the FDA as an AB therapeutically equivalent substitute for Merck's Timoptic-XE®. In 2007, Timolol GFS accounted for more than 90% of the U.S. retail prescriptions written for gel-formulated timolol, according to Wolters Kluwer Health Prescription Service Audit. Merck's patent covering Timoptic-XE® expired in September 2006, allowing other generic competitors to receive approval of a therapeutically equivalent version of Timoptic-XE®. We are not aware of any other generic competitors that have filed or received approval of a substitutable version of Timoptic-XE®.


Falcon's other principal generic products include Prednisolone Acetate (used for the treatment of inflammation of the eye), Timolol Solution (for the treatment of glaucoma), Trifluridine (used to treat viral infections of the eye), Brimonidine 0.2% (for the treatment of glaucoma), Ciprofloxacin (used to treat infections of the eye), and Neomycin and Polymyxin B Sulfates and Hydrocortisone otic and ophthalmic suspensions (sterile antibacterial and anti-inflammatory combination products for the treatment of bacterial infections in the ear and the eye, respectively).


Our Surgical Products


We are the global leader in ophthalmic surgical products and manufacture and market the most comprehensive product offering available today.


The following table lists our principal surgical products:








General Surgical



Infiniti® vision system

Infiniti®, AquaLase® and

OZil® surgical instruments

Infiniti® consumables

Laureate compact

phacoemulsification system

AcrySof ® intraocular lenses

- AcrySof® Natural

- AcrySof® IQ

- AcrySof® ReSTOR®

- AcrySof® ReSTOR® Aspheric

- AcrySof® Toric

Viscoelastic devices

- DuoVisc®

- DisCoVisc®


- ProVisc®



200 Hz laser


Eye-Q 400 Hz laser


wavefront system


corneal topography



Accurus® surgical system

Accurus® cassettes and probes, including 23 gauge and 25 gauge vitreoretinal instrumentation

Grieshaber® microsurgical instruments

Perfluoron® liquid

Silikon® 1000 ophthalmic surgical oil



BSS Plus® surgical irrigating solution

Custom Pak® surgical procedure packs

A-OK® surgical knives






Cataract Surgery


We support our global market leadership in cataract surgical products by providing a comprehensive offering of surgical equipment, single-use and disposable products. Sales of our products for cataract surgery in 2007 were approximately $2,124.4 million, or 85.0% of our total surgical sales. We currently market products for cataract surgery in substantially all of our markets.


The Infiniti® vision system, our most advanced lens removal system, has been widely accepted by surgeons around the globe. Continued customer interest in the Infiniti® vision systems will maintain or expand our position as the worldwide leader in lens removal systems. The Infiniti® vision system has been advanced continually since its introduction in 2003, with the latest advancement being the addition of the OZil® torsional handpiece in 2006. OZil® is a proprietary technology utilizing torsional oscillation and ultrasound to more efficiently emulsify the lens. Many surgeons who have adopted OZil® torsional technology have reported a more efficient, more effective and safer lens removal procedure. In addition, many customers with existing Infiniti® vision systems chose to upgrade their units with OZil® torsional technology.


Our portfolio of surgical products allows us to compete effectively in developing as well as developed markets. In late 2007, we launched the Laureate™compact phacoemulsification system as a replacement for the Legacy® surgical system. The Laureate™provides excellent fluidics and traditional longitudinal ultrasound capabilities and is designed to support surgical procedures and practices in developing markets.


Our comprehensive line of single-use products for cataract procedures includes the cassettes used in the Infiniti®, Laureate™ and LEGACY® surgical systems, a full line of viscoelastics to protect delicate tissues of the eye during the procedure, surgical knives and surgical irrigating solutions. The Company holds market-leading positions in each of these product lines.


Our AcrySof® intraocular lenses are the most frequently implanted intraocular lenses in the world. AcrySof® intraocular lenses are made of the first material specifically engineered for use in an intraocular lens. Over 30 million AcrySof® intraocular lenses have been implanted since introduction.


Our AcrySof® IQ intraocular lens is the first intraocular lens to combine an aspheric design with ultraviolet and blue-light-filtering. This unique combination of technology allows the AcrySof® IQ to provide improved contrast sensitivity and image quality. In 2007, Market Scope reported that physician preference drove market share gains for the AcrySof® IQ intraocular lens among the competing aspheric correcting lenses.


In 2005, we introduced a new class of lens to correct presbyopia called the AcrySof® ReSTOR® intraocular lens. This lens has a unique optical system that incorporates an apodized diffractive, refractive design that provides distance, near and intermediate vision for the patient following lens removal surgery, thereby significantly reducing the patient's need for or dependence on eyeglasses. In 2007 we launched the next advancement in this technology with the AcrySof® ReSTOR® Aspheric intraocular lens. This lens incorporates aspheric correction designed specifically for the AcrySof® ReSTOR® apodized diffractive, refractive design.


In late 2005 and early 2006, we received regulatory approvals for the AcrySof® Toric intraocular lens in several major markets, including the United States. The AcrySof® Toric intraocular lens is a lens that corrects for various levels of pre-existing astigmatism in cataract patients and was launched globally in 2006. Although available in most major markets, it has not been launched in Japan.


Generally, we price our advanced technology intraocular lenses that provide additional vision benefit to patients significantly above our standard monofocal intraocular lenses. This pricing approach impacts the market acceptance of our premium intraocular lenses in the majority of countries, as patients must pay incremental charges above the cost of traditional cataract surgery to obtain a premium intraocular lens and, in some markets, must pay out-of-pocket for the entire surgical procedure and the intraocular lens.


In May 2005, CMS issued a ruling that allows cataract patients in the United States to choose an intraocular lens that provides additional refractive benefits through the treatment of presbyopia. Under this policy, Medicare will reimburse normal amounts under the covered benefit for cataract surgery, and patients may elect to pay for the non-covered charges. In January 2007, CMS issued a similar ruling allowing Medicare beneficiaries to choose an intraocular lens with the added benefit of treating astigmatism, such as the AcrySof® Toric lens. These CMS rulings, which allow for bifurcated payment, have increased the market acceptance of our premium intraocular lenses in the United States.





Vitreoretinal Surgery


Our vitreoretinal surgical product offering is one ofthe most comprehensive in the industry for surgical procedures for the back of the eye. In 2007, sales of our products for vitreoretinal surgery were $276.4 million, or 11.1% of our total surgical sales. We are the global market leader in vitreoretinal products, and we currently market our vitreoretinal surgical products in substantially all of the countries in which we sell products.


The Accurus® surgical system integrates all automated, non-laser surgical functions used in vitreoretinal surgery. Some Accurus®models also can be used for cataract removal. In addition to the Accurus®, we also sell a full line of vitreoretinal products, including surgical therapeutics, lasers, ultrasound diagnostics and hand-held microsurgical instruments. In 2004, we launched a series of instruments for use in new small gauge (25 gauge) posterior segment surgical procedures. We have continued our development in this area by expanding our micro-incision technology product offering in the fourth quarter of 2006 by launching a new 23 gauge system of consumable products for posterior segment procedures. These new offerings enhanced our Accurus® consumable products portfolio and further extended the high performance technology of the Accurus® into emerging micro-incision vitreoretinal techniques.


Custom Pak® Surgical Procedure Packs


To provide convenience, efficiency and value for ophthalmic surgeons, we have developed the Custom Pak® surgical procedure pack. We market our Custom Pak® for cataract, refractive and vitreoretinal surgical procedures. Unlike conventional surgical procedure packs, the Custom Pak® allows ophthalmic surgeons and their staff to customize and sequence the products included in the surgical procedure pack. For a single price, our Custom Pak® includes our single-use products required for the procedure, combined with products not manufactured by Alcon. We believe that our Custom Pak® allows ophthalmic surgeons to improve their efficiency in the operating room, and this gives us the opportunity to provide access to our single-use products in a value-added package. We estimate that a Custom Pak®was used in a majority of the cataract surgeries performed in the United States in 2007. We also have dedicated a production line to meet Custom Pak®product needs of Japanese surgeons. Our Custom Pak®has been successful in Europe, and we see growth potential in other markets, including Latin America and Asia.


Refractive Surgery


In 2007, sales of our laser refractive products and related technology fees were $51.6 million, or 2.1% of our total surgical sales. Although we market these products globally, the vast majority of refractive revenues comes from the United States.


On November 9, 2007, Alcon completed a tender offer for WaveLight and acquired 77.4% of the approximately 6.6 million outstanding shares of WaveLight. WaveLight's ALLEGRETTO WAVE®Eye-Q 400 Hz laser has been widely accepted by surgeons around the globe because it is fast, reliable and precise and offers optimized treatment protocols. This acquisition combined WaveLight's technological expertise with the Company's global marketing, distribution and service platform, which together provide additional clinical solutions and laser technology for Alcon's and WaveLight's refractive customers. Alcon will continue to support the existing LADARVision® 4000 laser platform while working with our customers to transition them to the WaveLight technology.




Our Consumer Eye Care Products


We market contact lens care products, artificial tears and ocular vitamins. We currently market our contact lens care and artificial tears products in most of the countries where we sell products.


The following table lists our principal products in these areas:


Contact Lens Care


Artificial Tears


Ocular Vitamins








OPTI-FREE® RepleniSH® multi-purpose


Systane® lubricant eye drops (multiple


ICAPS® dietary supplements


disinfecting solution




(multiple formulations)


OPTI-FREE® EXPRESS® No Rub® multi-


Tears Naturale® lubricant eye drops




purpose disinfecting solution


(multiple formulations)




OPTI-FREE ®RepleniSH ® rewetting drops













Contact Lens Care Products


The vast majority of our contact lens care products is comprised of disinfecting solutions to remove harmful micro-organisms on contact lenses, with a smaller amount of sales coming from cleaners to remove undesirable film and deposits from contact lenses and lens rewetting drops to improve wearing comfort for contact lenses. Sales of our contact lens disinfectants in 2007 were $440.2 million, or 56.0% of our total consumer eye care sales.


In late 2005, we received approval in the United States to market OPTI-FREE® RepleniSH®, our newest multi-purpose disinfecting solution, which is approved for silicone hydrogel and all other soft contact lenses. This product utilizes a novel wetting and reconditioning technology to provide lasting comfort and is now our flagship brand in many key markets. OPTI-FREE® EXPRESS®No Rub®multi-purpose disinfecting solution was the first multi-purpose disinfecting solution to obtain FDA approval to make a "no rub" claim. OPTI-FREE® EXPRESS® No Rub® utilizes a multi-purpose disinfecting solution with high-capacity disinfection and superior protein cleaning benefits, without requiring rubbing of the contact lenses. We currently market this product in most major markets throughout the world.


Our line of contact lens care products also includes OPTI-FREE® RepleniSH® rewetting drops, which moisten contact lenses during wear and reduce protein build-up.


Other Vision Care Products


We manufacture and market artificial tears to treat dry eye syndrome and vitamins formulated to promote good ocular health. We offer a complete line of products for the dry eye sufferer. Systane® lubricating eye drops has been launched in more than 70 countries. Systane® has an "in-the-eye" gelling formula that provides long-lasting relief of dry-eye symptoms. We added a preservative-free unit-dose Systane® to the product line in 2004. Systane® was our #1 selling artificial tears product in the U.S. marketplace based on sales dollars in 2007. However, outside the United States, our largest selling artificial tears brand remains the Tears Naturale®line of products.


We market a variety of formulations of ICAPS® dietary supplements, including an AREDS formula, one with extra Lutein and Zeaxanthin formula and a multivitamin with additional amounts of compounds that promote eye health. In its Age Related Eye Disease Study (AREDS), the National Eye Institute found that high levels of anti-oxidants and zinc reduce the risk of age-related macular degeneration in patients at risk for developing it.


Sales and Marketing


We are present in every significant market in the world where ophthalmology is practiced and currently our products are sold in over 180 countries. We conduct our sales and marketing activities through more than 55 local operating entities and more than 20 representative/branch offices around the world. We have a global sales force of approximately 3,300 sales representatives consisting of approximately 1,000 sales representatives in the United States, our largest market, and approximately 2,300 sales representatives outside the United States. All of our surgical technical service in the United States and a high percentage of that service outside the United States are provided by service technicians employed directly by


Alcon.  In countries where we do not have local operations or a scientific office, we use distributors to sell and handle the physical distribution of our products. Outside the United States, our ten largest markets by sales are Japan, France, Spain, Canada, Germany, Brazil, Italy, the United Kingdom, Australia and Mexico.


We organize our selling efforts around pharmaceutical, surgical and consumer eye care products and customize these efforts to the medical practice needs of each customer. In addition to direct promotion of our products, our sales representatives provide customers with access to clinical education programs, data from clinical studies, technical service assistance and practice management programs. We educate our specialized sales forces to recognize cross-selling opportunities for key products from other product categories.


In each of our markets, we rely on our strong relationships with eye care professionals to maintain and expand our market share. We have established several long-standing programs that bring ophthalmic residents, optometrists and other eye care professionals to our Fort Worth campus and other locations for multi-day training sessions and educational seminars. We also sponsor ophthalmic conferences around the world, and we conduct training seminars where leading ophthalmologists discuss the therapeutic attributes of our products and demonstrate surgical techniques using our products. We support these programs by having our sales representatives work closely with our customers and their staffs to better understand their practices and solicit feedback, which is important to our development of new products. We currently have permanent surgical training facilities in more than 50 countries around the world on six continents. These facilities introduce ophthalmologists to our surgical equipment and cataract products through hands-on training in surgical techniques while exposing them to leading ophthalmologists.


Most of our global marketing efforts are supported by advertising in trade publications and by marketing and sales representatives attending regional and national medical conferences. We reinforce our marketing efforts with targeted and timely promotional materials that our sales force presents to both the eye care and other professionals in the office, hospital or surgery center setting. We supplement these marketing efforts through direct mailings to eye care professionals and e-detailing. To coordinate the totality of our sales efforts, including technical service after the sale, we use an integrated customer relationship management system in many markets. Moreover, in the United States and Japan, we use direct-to-consumer advertising to promote selected products.


While we market all of our products by calling on eye care professionals, our direct customers and distribution methods differ across business lines. Although physicians write prescriptions, distributors, wholesalers, hospitals, government agencies and large retailers are the main direct customers for our pharmaceutical products. We primarily sell our surgical products directly to hospitals and ambulatory surgical centers, although we sell through distributors in certain markets outside the United States. In the United States, over 90% of our contact lens care products are sold to large grocery, drug and general (mass) merchandise retailers. Outside the United States, we sell most of our consumer eye care products directly to retailers and optical chains, while a smaller amount is sold to distributors for resale directly to smaller retailers and eye care professionals. No single customer accounted for 10% or more of our global sales in 2007.


As a result of changes in healthcare economics, managed care organizations have become the largest payors for healthcare services in the United States. In an effort to control prescription drug costs, over 95% of managed care organizations use a formulary that lists specific drugs that can be prescribed and the amount of reimbursement for each one. We have a dedicated managed care sales team that actively seeks to optimize formulary positions for our products.


Research and Development


We have the largest research and development commitment to ophthalmology of any eye care company worldwide. Our research and development organization consists of approximately 1,550 employees, including over 300 individuals who are either M.D.s, doctors of optometry or Ph.D.s. Our researchers have extensive experience in the field of ophthalmology and frequently have academic or practitioner backgrounds to complement their commercial experience. We organize our research teams around our pharmaceutical, surgical and consumer eye care products. Candidates for pharmaceutical and contact lens care product development originate from our internal research, from our extensive relationships with academic institutions and from our licensing of molecules from other companies. Our surgical design concepts are internally developed by staff engineers and scientists who, in addition to their own research, gather ideas from ophthalmic surgeons and clinicians in the involved fields. Our research and development organization has been designed to drive global registration of products through a central research facility in Fort Worth, Texas, combined with regionally based clinical and regulatory personnel in approximately 40 countries outside the United States.



We have invested more than $2.0 billion over the last five years and plan to invest at least $3.5 billion in the next five years to carry out our strategy of developing products primarily from our own research and development activities.


We enter into license agreements in the ordinary course of our business for active pharmaceutical ingredients. We have a number of agreements with pharmaceutical and biotech companies that allow us to screen compounds for potential uses in the eye. Based on compounds of interest from our screening activities, we have in place a small number of contracts with companies for development of new molecular entities for ophthalmic products.


Our research and development department maintains an extensive network of relationships with scientists working in university laboratories and with leading ophthalmologists, inventors and investigators in the pharmaceutical and surgical products fields. The principal purpose of these collaborative scientific interactions is to take advantage of leading-edge research from academic investigators and recognized surgeons to complement our internal technical capabilities.


We also fund the Alcon Research Institute, which seeks to encourage, advance and support vision research. It is the largest corporately funded research organization devoted to eye research in the world. The institute's activities are planned and directed by a fully autonomous Scientific Advisory Committee that is comprised of distinguished ophthalmologists and vision scientists. The institute has worldwide representation with the expectation that advances in the diagnosis and treatment of ocular diseases are dependent upon basic and clinical research carried out by independent investigators in institutions throughout the world.


Product Development


We are developing new products to treat diseases and conditions in all key ophthalmic categories: pharmaceutical, surgical and consumer eye care products. We also have targeted development activities in the otic and nasal areas.



The following table includes additional detail about a number of these products in development, including their expected regulatory submission date in the United States.






Expected U.S.


Status at






Submission Date


December 31, 2007 (1)


























Anecortave acetate




2010 or later


Phase II/III






2010 or later


Phase II


RETAANE® anecortave acetate suspension


AMD risk reduction


2010 or later


Phase III


Moxifloxacin, new formulation




2008 (2)


Phase III


TobraDex® ST


Anti-infective &
















Anti-infective &


2010 or later (2)


Phase III


























Patanase® nasal spray




























2010 or later (2)


Phase III


















AcrySof ® ReSTOR® +3.0 Add






Advanced development


AcrySof ® Low Power ReSTOR® lens






Advanced development


AcrySof ® ReSTOR® Toric lens




2010 or later


Advanced development


New CONSTELLATION® vitreoretinal system






Advanced development


New irrigating solution








AcrySof ®angle-supported phakic lens




2010 or later


Advanced development










Consumer Eye Care







Enhanced OTCtear substitute


Dry eye




Advanced development

ICAPS® enhancement


Ocular vitamin




Advanced development










For a description of the FDA approval process, see "­­– Government Regulation" below.



The FDA issued a notice in the fall of 2007 advising companies to meet with them regarding development of anti-infective products. In brief, the FDA advised that they were increasing the requirements for anti-infective clinical studies and that clinical programs previously agreed upon may not be sufficient to support approval. As a result, additional Phase III clinical studies may be required for approval.


The expected submission dates in the table above reflect those for the United States. We also expect to file for approval of these products in most of the countries where we currently market our products. For pharmaceutical and consumer eye care products, these approvals generally are received after U.S. approvals. For surgical products, these approvals are often obtained before U.S. approvals. We maintain a significant regulatory presence in major countries to support the filing process outside the United States.


Pharmaceutical Product Development


We are developing new products to treat ophthalmic diseases in six major therapeutic areas: glaucoma, retina, dry eye, infection, inflammation and allergy. We also have ongoing development activities in the otic and nasal therapeutic areas.


Glaucoma. Near the end of 2007, we filed our European marketing application for AZARGA™ ophthalmic pharmaceutical preparations, a fixed timolol/brinzolamide combination, as a treatment for lowering intraocular pressure. We also continued development of two new glaucoma projects in 2007. The first involves the administration of anecortave acetate via a unique injection method beneath the conjunctiva near the front of the eye. Based upon the results of an initial proof-of-concept clinical study, anecortave acetate appears to have the potential for providing intraocular pressure reductions for three months or more following a single administration in a significant proportion of patients. This project will enter full



Phase III development in 2008. The second project is a new chemical entity (AL-37807) generated from our discovery research efforts and is being developed as an eye drop to reduce intraocular pressure in patients with glaucoma.


Retina. Following receipt of a second approvable letter from the FDA, management decided to discontinue development of RETAANE® 15 mg anecortave acetate suspension for the "wet" form of age-related macular degeneration ("AMD"). We continue to pursue an indication for RETAANE® suspension that reduces the risk of progression from the "dry" form of AMD to the "wet" form of AMD. Phase III studies are ongoing and are scheduled to continue to 2010. During 2008, we will conduct a scheduled interim analysis of the first two years of data from the study to assess the potential of this novel study for meeting its intended objective. This indication has the potential to be important because "dry" AMD generally precedes "wet" AMD and the ability to slow or stop its progression before significant vision loss would be of a great benefit to patients.


Dry Eye. In 2007, we completed a clinical study of a novel formulation of the steroid rimexolone, for treating the discomfort and irritation of dry eye syndrome. While results of this study were positive, the project is being discontinued due to limited remaining patent protection. Alcon also completed initial safety evaluation of AL-43546, a novel proprietary dry eye compound. The project will enter Phase II development during 2008. We continue to pursue development opportunities in the dry eye field. During the year, we completed a licensing agreement with Riverplate Biotechnology, Inc., a subsidiary of Lantibio, Inc., to obtain U.S. marketing rights for their hyaluronic acid dry eye product, which is currently in Phase III development.


Infection & Inflammation. In 2007, we completed our development program for TobraDex® ST, a new formulation of tobramycin and dexamethasone that was developed to be a replacement product for TobraDex®. Our NDA for that new formulation is presently under review at the FDA and a response is expected during the first half of 2008. We also are developing a moxifloxacin and dexamethasone ophthalmic combination product for treating eye infections and controlling inflammation. This product was approved for marketing in Brazil.


In the last half of 2007, the FDA issued a notice of a change in their requirements for clinical studies supporting approval of anti-infective products. In this notice, they also advised companies to reconfirm their development plans, as agreements reached either through End-of-Phase II meetings or via special protocol assessments may no longer be valid. We have several projects in late stage development that may be affected by this change in U.S. regulatory position. These include our new ophthalmic formulation of moxifloxacin and our new otic anti-infective/anti-inflammatory combination for treating eye and ear infections. We plan to meet with the FDA in 2008 to reconfirm the validity of our development programs. The impact on these development projects will not be known until discussions are concluded.


Nasal. Consistent with the revised development plan that we prepared with the input of the FDA, we conducted the required additional clinical study and filed an amendment to our Patanase® product NDA during 2007. That application is presently under review at the agency and a response is expected in 2008.


Surgical Product Development


We currently have products in development in the three primary areas of our surgical markets: cataract, vitreoretinal and refractive surgery.


Cataract Surgery. We continue to add to our AcrySof® intraocular lens and Infiniti® instrumentation franchises. In 2007, the FDA approved the AcrySof® ReSTOR® Aspheric intraocular lens. This lens combines ultraviolet and blue-light filtering and aspheric design with our proprietary apodized diffractive refractive technology. We expect to add a toric feature to this lens in future years to correct pre-existing astigmatism. We plan to enhance our AcrySof® ReSTOR® product portfolio with a +3.0 add power for near vision, along with the availability of lower powers of distance correction. In 2007, we completed enrollment of our clinical study on the +3.0 add power ReSTOR® Aspheric lens and our Pre-Market Approval submission is planned in 2008. We expect to add a toric feature to this lens in future years to correct pre-existing astigmatism.


Vitreoretinal Surgery. We are developing our CONSTELLATION® vitreoretinal system as the next-generation product to replace the Accurus® system. The new CONSTELLATION® is designed to integrate all requirements for posterior segment surgery in a single unit with enhanced performance features for the efficient and effective use of related accessories. In parallel, we continue to enhance the Accurus® with the addition of new micro-incision vitrectomy consumables, handheld accessories and illumination products designed to respond to the increased needs of ophthalmic surgeons for instrument performance. The next-generation PUREPOINT™ vitreoretinal laser was approved by the FDA and is scheduled to be launched in 2008 as a replacement for our current EYELITE® laser.





In 2007, we also completed our Phase III clinical trials with a new ophthalmic irrigating solution based on a proprietary polymer system that we believe will improve surgical performance and ocular protection. Our NDA for this new product was filed in the last half of 2007 to support its use in both anterior segment (cataract) and posterior segment (vitreoretinal) surgeries and is presently under review by the FDA. We plan to apply for a CE Mark in the European Union in 2008.


Refractive Surgery. We are conducting clinical studies with an angle-supported phakic intraocular lens. Made from the same biocompatible AcrySof® product material, we believe this new lens will give refractive patients with high refractive error another treatment alternative to laser refractive surgery, which is less predictable in such patients.


We discontinued development of the LADARVision® platform in 2007 due to technology and regulatory challenges and our acquisition of a 77.4% stake in WaveLight, a leading manufacturer of refractive lasers. WaveLight's lead product, the ALLEGRETTO WAVE® refractive laser, is the fastest refractive laser on the U.S. market today and is highly regarded for its precision, reliability and usability. We will be working with WaveLight to integrate our technologies with theirs to further enhance the ALLEGRETTO™ platform and to develop other products that may improve patient outcomes in refractive surgery. Our refractive product development strategies are consistent with WaveLight's current plans. No new major product introductions are planned for the United States in 2008.


Consumer Eye Care Product Development


We currently are developing a variety of products in the areas of contact lens care, dry eye and ocular health. Our focus in the contact lens care area is to build on the disinfecting capabilities of our existing solutions with new molecules that maximize disinfecting capabilities while maintaining comfort and convenience for patients.


We also are developing new active ingredients and compounds for over-the-counter products that treat dry eye. We plan to introduce another new formulation of Systane® and have scheduled its release in 2008.


In the ocular health area, we completed the development of a softgel formulation of the ICAPS® dietary supplement product based upon the AREDS formulation for introduction in 2008. The ICAPS® products provide increased nutritional benefits for patients. This product formulation is easier for patients to swallow which improves patient compliance.


Manufacturing and Supplies




We generally organize our manufacturing facilities along product categories, with most plants being primarily dedicated to the manufacture of either surgical equipment and surgical medical devices or pharmaceutical and contact lens care products. Our functional division of plants reflects the unique differences in regulatory requirements governing the production of surgical medical devices and pharmaceuticals, as well as the different technical skills required of employees in these two manufacturing environments. All of our manufacturing plants in the United States and Europe are ISO 9001:2000, ISO 13485:2003 and ISO 14001:2004 certified.


We employ cost-reduction programs, known as continuous improvement programs, involving activities such as cycle-time reductions, efficiency improvements, automation, plant consolidations and material negotiation programs as a means to reduce manufacturing and component costs. To comply with good manufacturing practices and to improve the skills of our employees, we train our direct labor manufacturing staff throughout the year. Our professional employees are trained in various aspects of management, regulatory and technical issues through a combination of in-house seminars, local university classes and trade meetings.


As of December 31, 2007, we employed approximately 2,200 people to manufacture our pharmaceutical and contact lens care products at seven facilities in the United States, Belgium, France, Spain, Brazil and Mexico. As of December 31, 2007, we employed approximately 2,700 people to manufacture surgical equipment and other surgical medical devices at nine facilities in the United States, Belgium, Switzerland, Ireland and Germany. Currently, we manufacture substantially all of our pharmaceutical, contact lens care and surgical products internally and rely on third-party manufacturers for only a small number of products.



Due to the complexity of certain manufacturing technologies and the costs of constructing and maintaining duplicate facilities, a number of our key products are manufactured at only one of our facilities. Some of these key products include:







U.S. pharmaceutical products


Fort Worth, Texas



Intraocular lenses (l)


Huntington, West Virginia



ProVisc®, VISCOAT®, DuoVisc® and DisCoVisc® viscoelastics


Puurs, Belgium





Fort Worth, Texas



Accurus®, LEGACY®, Infiniti®


Irvine, California



LADARVision®, LADARWave® laser/wavefront systems (2)


Orlando, Florida





Pressath, Germany



Cipro® HC


Barcelona, Spain










During 2007, the Cork, Ireland, facility manufactured certain AcrySof® intraocular lenses for the European market; the remainder of the world markets continued to be sourced from the Huntington, West Virginia facility.



The Company has discontinued the manufacture of this platform in favor of the ALLEGRETTO WAVE® Eye-Q laser.




The active ingredients used in our pharmaceutical and consumer eye care products are sourced from facilities approved by the FDA or by other applicable health regulatory authorities. Because of the proprietary nature and complexity of the production of these active ingredients, a number of them are only available from a single FDA-approved source. When supplies are single-sourced, we try to maintain a sufficient inventory consistent with prudent practice and production lead-times. The majority of active chemicals and biological raw materials and selected inactive chemicals are acquired pursuant to long term supply contracts. The sourcing of components used in our surgical products differs widely due to the breadth and variety of products. Inventory levels for components used in the production of our surgical products are established based on delivery times and other supply chain factors to ensure sufficient inventory at all times. The prices of our supplies are generally not volatile.


The following table identifies certain single-source suppliers of raw materials acquired pursuant to contracts or purchase orders entered into in the ordinary course of business and the ALCON® products that contain these raw materials:


Supplier Name


Raw Material


ALCON® Product



Dow Chemical Co.









Nonanoyl ED3A





Bayer Aktiengesellschaft




Ciloxan®, Cipro® HC Otic, CIPRODEX®







Vigamox®, Vegamox®



Kyowa Hakko Kogyo Co. Ltd.




Patanol®, Pataday™, Opatanol®



Rhodia Inc.


Guar gum


Systane® lubricant eye drops



Plantex USA, Inc.




Timolol GFS



Genzyme Corporation


Hyaluronate (high molecular weight)


ProVisc®, DisCoVisc®



Lifecore Biomedical, Inc.


Hyaluronate (low molecular weight)





Biogal Pharmaceutical Works LT.




Tobrex® ophthalmic solution (all formats), TobraDex® (all formats)



Delmar Chemicals, Inc.




Fluorescite® intravenous solution



Pfizer Centre Source


Neomycin sulphate


Maxitrol® ophthalmic solution and ointment (all formats)



Alpharma Inc.


Polymixin B


Maxitrol® (ointment only)



Carbogen Amcis AG




Brimonidine (Falcon)












Anecortave acetate


RETAANE® 15 mg















The ophthalmic industry is highly competitive and subject to rapid technological change and evolving industry requirements and standards. Companies within our industry compete on technological leadership and innovation, quality and efficacy of their products, relationships with eye care professionals and healthcare providers, breadth and depth of product offering and pricing. The presence of these factors varies across our product offerings. We provide a broad line of proprietary eye care products and compete in all major product categories in the ophthalmic market with the exception of contact lenses and eyeglasses. Even if our principal competitors do not have a comparable range of products, they can, and often do, form strategic alliances and enter into co-marketing agreements to achieve comparable coverage of the ophthalmic market. We face strong local competitors in some markets, especially in Japan.




Competition in the ophthalmic pharmaceutical market is characterized by category leadership of products with superior technology, including increases in clinical effectiveness (e.g., new compounds, new drug delivery systems, formulations and combination products), the development of therapies for previously untreated conditions (e.g., AMD) and competition based on price from competing brands or generic pharmaceuticals.


Our main competitors in the pharmaceutical market are Allergan, Inc., Bausch & Lomb Incorporated, Pfizer, Inc., Merck & Co., Inc., Daiichi Pharmaceutical Co., Ltd., Inspire Pharmaceuticals Inc., ISTA Pharmaceuticals Inc., Vistakon Pharmaceuticals, LLC (a Johnson & Johnson company), Genentech Inc. and Santen Pharmaceutical Co., Ltd.




Superior technology and product performance give rise to category leadership in the ophthalmic surgical market. Service and long term relationships are also key factors in this competitive environment. Surgeons rely on the quality, convenience, value and efficiency of a product and the availability and quality of technical service. While we compete throughout the field of ophthalmic surgery, our principal competitors vary somewhat in each area. We compete with Bausch & Lomb and Advanced Medical Optics, Inc. across most of the ophthalmic surgical market, and with national or regional companies, such as Hoya Corporation (Japan and Korea), in some international markets.


Consumer Eye Care Products


The consumer eye care business is characterized by competition for market share in a maturing market through the introduction of products that provide superior technology or effectiveness. Recommendations from eye care professionals and customer brand loyalty as well as our product quality and price are key factors in maintaining market share in these products. Our principal competitors in contact lens care products are Bausch & Lomb, Advanced Medical Optics, CIBA Vision Corporation (a Novartis AG company) and, in Japan, Rohto Pharmaceutical Co., Ltd. We mainly compete with Allergan, Johnson & Johnson and Novartis in artificial tears products and Bausch & Lomb in ocular vitamins. All consumer eye care markets include significant competition from private label store brands, which generally are less costly to the consumer.


Intellectual Property


We strive to protect our investment in the research, development, manufacturing and marketing of our products through the use of patents, trademarks, copyrights, trade secrets and other intellectual property. We own or have rights to a number of patents, trademarks, copyrights, trade secrets and other intellectual property directly related and important to our businesses. As of December 31, 2007, we owned approximately 1,400 United States patents and pending United States patent applications and approximately 6,300 corresponding patents and patent applications outside the United States.


We believe that our patents are important to our business but that no single patent, or group of related patents, currently is of material importance in relation to our business as a whole. Patents for individual products extend for varying periods of time according to the date a patent application is filed or a patent is granted and the term of patent protection available in the jurisdiction granting the patent. The scope of protection provided by a patent can vary significantly from country to country.


Our strategy is to develop patent portfolios for our research and development projects in order to obtain market exclusivity for our products in our major markets. Although the expiration of all patents for a product normally results in the loss of market exclusivity, we may continue to derive commercial benefits from these products. We routinely monitor the activities



of our competitors and other third parties with respect to their use of the Company's intellectual property. When appropriate, we will enforce our intellectual property rights to ensure that we are receiving the market exclusivity they afford us. Similarly, we will staunchly defend our right to develop and market products against unfounded claims of infringement by others. We will aggressively pursue or defend our position in the appropriate courts if the dispute cannot otherwise be promptly resolved.


In addition to our patents and pending patent applications in the United States and selected non-U.S. markets, we use proprietary know-how and trade secrets in our businesses. In some instances, we also obtain from third parties licenses of intellectual property rights, principally patents, which are important to our businesses.


Worldwide, all of our major products are sold under trademarks that we consider in the aggregate to be important to our businesses as a whole. We consider trademark protection to be particularly important in the protection of our investment in the sales and marketing of our pharmaceutical and contact lens care and general eye care products. The scope and duration of trademark protection varies widely throughout the world. In some countries, trademark protection continues only as long as the mark is used. Other countries require registration of trademarks and the payment of registration fees. Trademark registrations are generally for fixed but renewable terms.


We rely on copyright protection in various jurisdictions to protect the exclusivity of the code for the software used in our surgical equipment. The scope of copyright protection for computer software varies throughout the world, although it is generally for a fixed term which begins on the date of copyright registration.


Philanthropic Efforts


We have a long-standing commitment to bringing ophthalmic products to those who would not otherwise have access to them. Our Medical Missions Program supported more than 1,200 humanitarian efforts in 2007 involving over 4,200 volunteer eye care professionals in 94 countries. Using products that we provided without charge, these eye care professionals performed over 26,000 cataract procedures in 2007. We also conduct a patient assistance program in the United States, which provided ALCON® glaucoma and other ophthalmic pharmaceutical products in response to more than 36,000 requests in 2007.


Government Regulation




We are subject to comprehensive government controls governing the research, design, clinical and non-clinical development, manufacturing, labeling, advertising, promotion, safety and other reporting, storage, distribution, import, export, sale and marketing of our products in essentially all countries of the world. National health regulatory agencies generally require pre-approval of pharmaceuticals and medical devices prior to their entry into that country's marketplace. In addition, European Union Notified Bodies audit and govern applicable Quality Management System requirements, including ISO 13485:2003 and Medical Device Directive 93/42/EEC. The certifications obtained are accepted by Australia as well. Japan also has made recent changes by introducing requirements for quality management system regulations for medical device manufacturers. State and local laws also apply to our activities. This section summarizes the applicable regulations in the United States, European Union and Japan. Please also refer to "Risk Factors – Risks Related to Our Business and Industry – We are subject to extensive government regulation that increases our costs and could prevent us from selling our products."


Pharmaceutical Development and Registration Process in the United States


The pharmaceutical research, development and registration process in the United States is typically intensive, uncertain, lengthy and rigorous and can generally take several years, or more, depending on the product under consideration. During pre-clinical testing, studies are conducted to demonstrate the activity of the compound against the targeted disease in animal models and to evaluate the effects of the new drug candidate on other organ systems in order to assess its potential therapeutic effectiveness relative to its safety. This testing includes studies on the chemical and physical stability of candidate formulations, as well as biological testing of the compound. Pre-clinical testing is subject to good laboratory practice requirements. Failure to follow these requirements can invalidate the data, among other things.


In order for human clinical studies of a new drug to commence in the United States, an Investigational New Drug Application, or "IND," must be filed with the FDA; similar notifications are required in other countries. Informed consent also must be obtained from study participants. In general, studies may begin in the United States without specific approval by the FDA after a 30-day review period has passed. However, the FDA may prevent studies from moving forward, and may suspend or terminate studies once initiated. Studies are also subject to review by independent Institutional Review Boards



("IRB"), responsible for overseeing studies at particular sites and protecting human research study subjects. An IRB may prevent a study from beginning or suspend or terminate a study once initiated.


Clinical testing generally follows a prescribed format that involves initial exposure to normal, non-diseased subjects in Phase I clinical trials, followed by exposure of patients with disease to the new drug candidate in larger Phase II and Phase III clinical trials. United States law requires that studies conducted to support approval of a new drug be "adequate and well-controlled" as a way to control possible bias. This generally means that a control, either a placebo or a drug already approved in the market for the same disease, is used as a reference. Studies also must be conducted and monitored in accordance with good clinical practice and other requirements.


Following the completion of clinical trials, we thoroughly analyze the data to determine if the clinical trials successfully demonstrate safety and efficacy. If they do, in the case of a drug product, a New Drug Application, or "NDA," is filed with the FDA along with proposed labeling for the product and information about the manufacturing processes and facilities that will be used to ensure product quality. Each NDA submission requires a substantial user fee payment for which the FDA has committed generally to review and make a decision concerning approval within 10 months, and of a new "priority" drug within six months. However, final FDA action on the NDA can take substantially longer and also may involve review and recommendations by an independent FDA advisory committee. The FDA also can refuse to file and review an NDA that it deems incomplete or not properly reviewable.


Before final action on a submission, the FDA may conduct a pre-approval inspection of our manufacturing facility to assess conformance to the current good manufacturing practice requirements and also may inspect sites of clinical investigators involved in our clinical development program to ensure their conformance to good clinical practices. The FDA may not approve an NDA, or may require revisions to the product labeling, require that additional studies be conducted prior to or as a condition of approval, or impose other limitations or conditions on product distribution, including, for example, adoption of a special risk management plan. Following approval, if new information arises related to safety or other issues, the FDA may impose post-approval clinical study and clinical trial requirements, require safety-related changes to product labeling, require the review of advertising aimed at consumers, or impose a new or modified risk management plan.


A different but similar application is used for biological products, and generally equivalent FDA review, approval and post-approval procedures and requirements apply.


Generic drugs are approved through a different, abbreviated process. Generally an Abbreviated New Drug Application, or "ANDA", is filed with the FDA. The ANDA must seek approval of a drug product that has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use (labeling) as a so-called "reference listed drug" approved under an NDA with full supporting data to establish safety and effectiveness. Only limited exceptions exist to this ANDA sameness requirement, including certain limited variations approved by the FDA through a special petition process. The ANDA also generally contains limited clinical data to demonstrate that the product covered by the ANDA is absorbed in the body at the same rate and to the same extent as the reference listed drug. This is known as bioequivalence. In addition, the ANDA must contain information regarding the manufacturing processes and facilities that will be used to ensure product quality, and must contain certifications to patents listed with the FDA for the reference listed drug.


Special procedures apply when an ANDA contains certifications stating that a listed patent is invalid or not infringed, and if the owner of the patent or the NDA for the reference listed drug brings a patent infringement suit within a specified time, an automatic stay bars FDA approval of the ANDA for a specified period of time pending resolution of the suit or other action by the court. The first complete ANDA filed with the FDA that contains a certification challenging the patents listed with the FDA for a reference listed drug is also eligible to receive 180 days of exclusivity during which the FDA is prohibited from approving subsequent ANDAs. Certain aspects of these patent and related provisions have been the subject of changes by legislation and by FDA rulemaking in recent years. Among other things, these changes in the law affect what patents an NDA holder may submit to the FDA for listing, prevent the triggering of multiple automatic stays on FDA approval of an ANDA following initiation of patent infringement suits except in limited circumstances, require ANDA applicants with 180-day exclusivity to bring a product to market within certain prescribed deadlines or forfeit the exclusivity, and clarify or change other aspects of the operation of 180-day exclusivity.


As a general matter, the amount of testing and effort that is required to prepare and submit an ANDA is substantially less than that required for an NDA. Conducting the necessary formulation development work, performing the bioequivalence testing, and preparing the ANDA typically takes one to three years, although the time can be shorter or longer. FDA review and approval can take from less than one year to two years or longer.





In addition to the NDA and ANDA procedures, there is an additional approval mechanism known as a 505(b)(2) application. A 505(b)(2) application is a form of an NDA where the applicant does not have a right to reference all or some of the data being relied upon for approval. Under current regulations and FDA policies, 505(b)(2) applications can be used where the applicant is relying in part on published literature or on findings of safety or effectiveness in another company's NDA. This might be done, for example, where the applicant is seeking approval for a new use for a drug that has already been approved for a different use or for a different formulation of the same drug that is already approved for the same use. The use of 505(b)(2) applications is the subject of ongoing legal controversy, and it is thus not clear what the permitted use of a 505(b)(2) application might be in the future.


Medical Device Development and Registration Process in the United States


Medical devices, including intraocular lenses and surgical equipment used in cataract procedures, vitreoretinal procedures and laser refractive surgery, are also subject to regulation in the United States by the FDA. Approval to market new device products is, in general, achieved by a process not unlike that for new pharmaceuticals, requiring submission of extensive pre-clinical and clinical evaluations in a new product application. The process of developing data sufficient to support a regulatory filing on a new device is costly and generally requires at least several years for completion.


In the United States, medical devices are classified by the FDA as Class I, Class II or Class III based upon the level of risk presented by the device. Class I devices present the least risk and are generally exempt from the requirement of pre-market review. Certain Class II devices are also exempt from pre-market review. Most Class II devices and certain Class III devices are marketed after submission of a pre-market notification under a process which is known as a 510(k) notification procedure. The pre-market notification must demonstrate that the proposed device is "substantially equivalent" to a legally marketed "predicate device" which requires a showing that the device has the same intended use as the predicate device, and either has the same technological characteristics or has different technological characteristics that do not raise different questions of safety and effectiveness than the predicate device. A 510(k) submission is subject to a user fee payment. Most Class III devices and devices not substantially equivalent to a predicate device are subject to the most stringent regulatory review and cannot be marketed for commercial sale in the United States until the FDA grants approval of a Pre-Market Approval ("PMA") application for the device. The PMA filing is subject to a substantial user fee payment, and PMA supplement applications are also subject to user fees.


A PMA must contain proposed directions for use for the device, information about the manufacturing processes and facilities, technical information and reports of nonclinical laboratory studies of the device, clinical data demonstrating that the device is safe and effective for its intended use, certain information regarding pediatric subpopulations, and other information required by the FDA. The FDA may refer a PMA for review by an advisory panel of outside experts for a recommendation regarding approval of the application. Clinical trials for a medical device must be conducted in accordance with FDA requirements, including informed consent from study participants, and review and approval by an IRB, and, additionally, FDA authorization of an Investigational Device Exemption application must be obtained for significant risk devices. The FDA may prevent studies from moving forward, and may suspend or terminate studies once initiated. The FDA may conduct a pre-approval inspection of our manufacturing facility, and also may inspect clinical investigators and clinical sites involved in our clinical trials program.


If the FDA's evaluation of a PMA is favorable, the FDA typically issues an "approvable letter" requiring the applicant to agree to comply with specific conditions, to supply specific additional data or information or to finalize the labeling, in order to secure final approval of the PMA application. Once the conditions contained in the approvable letter are satisfied, the FDA will issue a PMA order for the approved indications, which can be more limited than those originally sought by the manufacturer. The PMA order can include post-approval conditions that the FDA believes are necessary to ensure the safety and effectiveness of the device including, among other things, post-market studies or restrictions on labeling, promotion, sale, distribution and use. Products manufactured and distributed pursuant to a PMA are subject to extensive, ongoing regulation by the FDA. The FDA review of a PMA application generally takes one to two years from the date the application is accepted for filing but may take significantly longer. Supplemental PMA filings may be required prior to implementing product changes or manufacturing changes.



Pharmaceutical and Medical Device Registration Outside the United States


European Union


In the European Union, our products are subject to extensive regulatory requirements, such as the CE marking requirement for medical devices which, beyond the European Union, is recognized by markets such as Australia. As in the United States, the marketing of medicinal products has for many years been subject to the granting of marketing authorizations by regulatory agencies. Particular emphasis is also being placed on more sophisticated and faster procedures for reporting of adverse events to the competent authorities.


In common with the United States, the various phases of pre-clinical and clinical research are subject to significant regulatory controls. The regulatory controls on clinical research in the European Union are now largely harmonized following the implementation of the Clinical Trials Directives 2001/20/EC and 2005/28/EC. Compliance with the national implementations of Directive 2001/20/EC and Directive 2005/28/EC has been mandatory from May 1, 2004 and January 29, 2006, respectively. However, variations in the member state regimes continue to exist, particularly in the small number of member states that have yet to implement both Directives fully. In order to demonstrate safety and efficacy for the medical devices the Company must conduct clinical investigations in accordance with the requirements of Annex X to the Medical Device Directive 93/42/EEC and applicable European and ISO standards, as implemented or adopted in the European Union member states. The resulting data is introduced into the product development cycle for next-generation or new products and considered as part of design controls and risk management practices in place.


All member states currently require regulatory and institutional or other central or regional ethics review board approval of interventional clinical trials for medicines. Clinical trials for medical devices usually require the approval of an ethics review board and the prior notification of the study to European regulators. Both regulators and ethics committees also require the submission of adverse event reports during a study and a copy of the final study report.


In the European Union, approval of new medicinal products can be obtained only through one of two processes:


Mutual recognition or decentralized procedure. An applicant submits an application in European Union member states of its choosing, each referred to a concerned member state ("EUCMS"). The applicant then selects one of these states, known as the reference member state ("RMS"), to review its dossier and prepare an assessment report, a draft summary of product characteristics and a draft of the labeling and package leaflet. If the applicant already holds a national approval, it may request that the relevant national authority act as its RMS. In either case, the RMS circulates these documents to all the EUCMSs. The EUCMSs then have 90 days within which to review the documents and raise objections. If no EUCMS objects, the RMS documents their agreement and closes the procedure. Each EUCMS, and the RMS if it has not already done so, must then grant national marketing authorizations within 30 days.


If any EUCMS objects to the product's approval on the grounds of potential serious risk to public health within the 90-day period, it must communicate its detailed reasons to the applicant, the RMS and the other EUCMSs. The RMS will then refer the matter to a coordination group for a 60-day conciliation procedure, during which the applicant has a right to comment orally or in writing. If any disagreement remains, the issue is referred for binding resolution to the Committee for Medicinal Products for Human Use within the European Medicines Agency and ultimately a binding European Commission decision. The mutual recognition/decentralized processes result in separate national marketing authorizations in the RMS and each EUCMS.


Centralized procedure. This procedure is currently mandatory for products developed by means of a biotechnological process and optional for new active substances and other "innovative medicinal products with novel characteristics." From November 20, 2005, the centralized procedure also has been mandatory for new chemical entities for which the therapeutic indication is the treatment of acquired immune deficiency syndrome, cancer, neurodegenerative disorder or diabetes. From May 20, 2008, the centralized procedure also will be mandatory for new chemical entities for auto-immune diseases, other immune dysfunctions and viral diseases. Under this procedure, an application is submitted to the European Medicines Agency. Two European Union member states are appointed to conduct an initial evaluation of each application. These countries each prepare an assessment report, which are then used as the basis of a scientific opinion of the Committee for Medicinal Products for Human Use. If this opinion is favorable, it is sent to the European Commission, which drafts a decision. After consulting with the member states, the European Commission adopts a decision and grants a marketing authorization, which is valid throughout the European Union and confers the same rights and obligations in each of the member states as a marketing authorization granted by that member state.





The European Union expanded its membership by ten in May 2004 and two more countries joined on January 1, 2007. Several other European countries outside the European Union, particularly the non-European Union members of the European Economic Area, i.e. Norway, Iceland and Liechtenstein, and those intending to accede to the European Union, accept European Union review and approval as a basis for their own national approval.


The European Union regulatory regime for most medical devices became mandatory in June 1998. Under this regime, a medical device may be placed on the market within the European Economic Area if it conforms to certain "essential requirements." The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured and packaged in a suitable manner. To assist manufacturers in satisfying the essential requirements, the European Commission has requested the preparation of standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment, and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device satisfies that essential requirement. In addition, Alcon considers vertical standards wherever applicable and notates these in the applicable Essential Requirement Checklist for any given medical device intended for distribution in the European Union.


Manufacturers must demonstrate that their devices conform to the relevant essential requirements through a conformity assessment procedure. The nature of the assessment depends upon the classification of the device. The classification rules are mainly based on three criteria: the length of time the device is in contact with the body, the degree of invasiveness, and the extent to which the device affects the anatomy. Medical devices in all but the lowest risk classification are also subject to a notified body conformity assessment. Notified bodies are often private entities and are authorized or licensed to perform such assessments by government authorities. Manufacturers usually have some flexibility to select conformity assessment procedures for a particular class of device and to reflect their circumstances, e.g. the likelihood that the manufacturer will make frequent modifications to its products. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product and post-market experience in respect of similar products already marketed. Notified bodies also may review the manufacturer's quality systems. If satisfied that the product conforms with the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity and application of the CE mark.


Manufacturers must comply with requirements for reporting adverse events and near incidents associated with medical devices. In addition, a process for reporting certain events has been established between the Company and its primary Notified Body (TUV PS, Germany, ID # 0123).




In Japan, our largest market outside the United States, the regulatory process is also quite complex. Pre-marketing approval and clinical studies are required, as is governmental reimbursement approval for medical devices and pharmaceuticals. These requirements are comparable to those in the United States or in Europe. The introduction of major amendments to the pharmaceutical regulations in 2005 is notable in this respect. First, they expanded the Japanese regulatory focus to the manufacturing processes of medical devices and pharmaceuticals, both in Japan and overseas. As a result, demonstration of good manufacturing practice and disclosure of the manufacturing process are part of the requirements for marketing approval. Foreign manufacturers are required to be accredited by the authorities.


Historically, Japan required that all clinical data submitted in support of a new drug application be performed on Japanese patients. Since 1998, Japan has accepted overseas patient data when submitted along with a "bridging" study, which demonstrates that Japanese and non-Japanese subjects react comparably to the product. This approach enables companies like ours to reduce the time to approval and introduction of new drugs into the Japanese market, and we are currently employing these approaches to petition for approval of new ocular drugs in Japan. More recently, the authorities are intensifying the efforts to speed up the approval process and recommend active use of an "international joint trial" which may enable approval with a limited number of Japanese subjects.



Medical devices are similarly classified into three categories, corresponding to the level of potential risks to the human life and health. The category with the lowest risk (Class I) may be marketed without product-specific approval or other regulatory action. The highest risk category products, including most implant devices, are required to file for marketing approval, whereas devices in the middle category can be marketed subject to third-party certification of compliance with applicable Japan Industrial Specifications. The clinical trial requirement remains ambiguous and the authorities' response varies from time to time. Generally, devices representing a new technology are required to demonstrate clinical safety and efficacy for approval.


In 2005, Japan introduced the Drug Master File, which enables compound developers to protect their confidential data. The Japanese Drug Master File allows manufacturer of active pharmaceutical ingredients to file in confidence manufacturing process and other sensitive information with the authorities to which Japanese licensees may refer in their new drug application.


In the latest development, the Japanese government extended the "exclusivity" period of active pharmaceutical ingredients, which is separate from patent protection, from six to eight years. No abbreviated generic application will be accepted during this period.


Other Regulation


Ongoing Reporting and Recordkeeping


Following approval, a pharmaceutical or device company generally must engage in various monitoring activities and continue to submit periodic and other reports to the applicable regulatory agencies, including reporting cases of adverse events and device malfunctions, and maintaining appropriate design control and quality control records. Some medical devices also may be subject to tracking requirements. The FDA is in the process of implementing or considering a number of changes to its postmarket requirements for medical devices, including a unique device identification ("UDI") system and other changes to enhance postmarket surveillance for medical devices.


Advertising and Promotion


Drug and medical device advertising and promotion are subject to federal and state regulations. In the United States, the FDA regulates company and product promotion, including direct-to-consumer advertising. Violative materials may lead to FDA enforcement action, including for drugs the imposition of civil monetary penalties utilizing new authority the FDA has been granted. The FTC also has certain authority over medical device advertising. In the European Union, the promotion of prescription medicines is subject to intense regulation and control, including a prohibition on direct-to-consumer advertising. Some European Union member states also restrict the advertising of medical devices. The restrictions vary from state to state. Some subject only those medical devices that are reimbursed under state healthcare systems to specific advertising and promotion restrictions. Others restrict the advertising and promotion of devices for the treatment or diagnosis of certain listed conditions. In Japan, advertising and marketing of medical devices are subject to a government recommendation and industry self-regulations. Advertising of unapproved medical devices, for which pre-marketing approval is mandatory, is subject to criminal penalty.




In the United States, the European Union and Japan, the manufacturing of our products is subject to comprehensive and continuing regulation. These regulations require us to manufacture our products in specific approved facilities and in accordance with their quality system rules and/or current Good Manufacturing Practices, and to list or notify our products and register or authorize our manufacturing establishments with the government agencies, such as the FDA. These regulations also impose certain organizational, procedural and documentation requirements upon us with respect to manufacturing and quality assurance activities. Our manufacturing facilities are subject to comprehensive, periodic inspections by the FDA and other regulatory agencies.




In the United States, our lasers are subject to the Electronic Product Radiation Control provisions of the Federal Food, Drug, and Cosmetic Act, previously codified as the Radiation Control for Health and Safety Act, which areadministered by the Center for Devices and Radiological Health of the FDA. This law requires laser manufacturers to file new product and annual reports, comply with performance standards and maintain quality control, product testing and sales records. In



addition, lasers sold to end users must comply with labeling and certification requirements. Various warning labels must be affixed to the laser depending on the class of the product under the performance standard.


In the European Union, medical device rules regulate lasers intended for medical purposes. Depending on the class and purpose of each laser, member states also may impose additional restrictions and controls, such as limitations on those entitled to use the products and the facilities where their use is permitted. Similarly, Japan's medical device regulations cover laser products for medical treatment purposes, and the authorities do not allow the use of lasers for aesthetic purposes by non-doctors.




Our manufacturing, sales, promotion, and other activities following product approval are subject to regulation by numerous regulatory and law enforcement authorities, including, in the United States, the FDA, the FTC, the Department of Justice, CMS, other divisions of the Department of Health and Human Services, and state and local governments. Among other laws and requirements, our post-approval manufacturing and promotion activities must comply with the Federal Food, Drug, and Cosmetic Act and the implementing regulations of the FDA, and we must submit post-approval reports required by these laws. We must file marketing authorization variations or supplemental applications with the FDA or other regulators and obtain their approval for labeling, manufacturing, and other product changes, depending on the nature of the changes. Our distribution of pharmaceutical samples to physicians must comply with applicable rules, including the Prescription Drug Marketing Act. Our sales, marketing and scientific/educational programs must comply with the medicines advertising and anti-bribery rules and related laws, such as anti-kickback provisions of the Social Security Act, the False Claims Act, the Veterans Healthcare Act, and similar state laws. Our pricing and rebate programs must comply with pricing and reimbursement rules, including the Medicaid drug rebate requirements of the Omnibus Budget Reconciliation Act of 1990. On July 17, 2007, CMS published a final rule implementing provisions of the Deficit Reduction Act of 2005 regarding Medicaid drug rebates. The rule addresses a broad range of issues relating to the determination of average manufacturer price, determination of best price, treatment of authorized generics, the definition of nominal prices and new manufacturer reporting requirements, among others. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws. Finally, certain jurisdictions have other trade regulations from time to time to which our business is subject, such as technology or environmental export controls and political trade embargoes. Most European Union member states and Japan impose controls and restrictions that are similar in nature or effect.


Depending on the circumstances, failure to meet these applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private "qui tam" actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw a product approval.


Environmental, Health and Safety


We are subject to a wide range of laws and regulations relating to protection of the environment and employee health and safety, both in the United States and elsewhere. In addition, internal corporate policies and procedures provide a common format for managing these aspects of our business. Our manufacturing facilities, research and development and other support operations undergo regular internal audits relating to environmental, health and safety requirements. Our facilities in the United States are required to comply with applicable Environmental Protection Agency and Occupational Safety and Health Administration regulations. Our facilities outside the United States are required to comply with locally mandated regulations that vary by country.


We continue to obtain certifications under the internationally recognized environmental standard ISO 14001. Currently we have fifteen ISO 14001 certified operations. These include our European pharmaceutical and surgical manufacturing facilities in Puurs, Belgium, Cork, Ireland, and Kaysersberg, France, and our manufacturing and research and development operations in Barcelona, Spain, and Schaffhausen, Switzerland. U.S. certified operations include our manufacturing facilities in Sinking Spring, Pennsylvania, Irvine, California, Orlando, Florida, Houston, Texas, Huntington, West Virginia, and Fort Worth, Texas. Our manufacturing facilities in Mexico City, Mexico, and Sao Paulo, Brazil, just recently attained their ISO 14001 certification. Additional certifications include our research and development facilities and our corporate environmental affairs department in Fort Worth, Texas. Certification possibilities for our newest surgical manufacturing facility in Erlangen, Germany will be assessed in 2008. The Company also has developed its own internal Alcon Environmental Management



System based on the core elements of ISO 14001 and implemented this system at our domestic distribution centers in Reno, Nevada and Elkridge, Maryland. Based upon our reviews and the outcome of local, state and federal inspections, we believe that our manufacturing facilities are in substantial compliance with all applicable environmental, health and safety requirements. We are not aware of any pending litigation or significant financial obligations arising from any alleged failure to comply with environmental, health and safety laws and regulations that are likely to have a material adverse impact on our financial position.


We are subject to environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, that require the cleanup of soil and groundwater contamination at sites currently or formerly owned or operated by us, or at sites where we may have sent waste for disposal. These laws often require parties to fund remedial action at sites regardless of fault. We have been named as a potentially responsible party with respect to the remediation costs at two sites which are in the process of settlement or remediation. As a result of our long history of manufacturing operations, there may be other sites for which we may be responsible for all or a portion of the clean-up costs. However, we believe that we have adequate reserves for our currently known remediation matters and that such matters will not have a material adverse effect on our results of operations, liquidity or consolidated financial position. In an effort to ensure ongoing compliance with applicable environmental laws and regulations, we have a program to continually monitor waste, water, air emissions, ozone depletion components and energy consumption.


We are not aware of any pending litigation or significant financial obligations arising from current or past environmental practices that are likely to have a material adverse impact on our financial position. There can be no assurance, however, that environmental problems relating to properties owned or operated by us will not develop in the future, and we cannot predict whether any such problems, if they were to develop, could require significant expenditures on our part. In addition, we are unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal.


Price Controls


In many of the markets where we operate, the prices of pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement programs with varying price control mechanisms.


In the United States, debate over the reform of the healthcare system has resulted in an increased focus on pricing. Although there are currently no government price controls over private sector purchases in the United States, federal legislation requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to enable them to be eligible for reimbursement under certain public healthcare programs, and proposals have been made to increase the rebate levels. Various states have adopted mechanisms under Medicaid and otherwise that seek to control drug prices, including by disfavoring certain higher priced drugs and by seeking supplemental rebates from manufacturers. In the absence of new government regulation, managed care has become a potent force in the market place that increases downward pressure on the prices of pharmaceutical products. New federal legislation, enacted in December 2003, added an outpatient prescription drug benefit to Medicare, effective January 1, 2006. The benefit is provided primarily through private entities, which attempt to negotiate price concessions from pharmaceutical manufacturers. The new law specifically prohibits the United States government from interfering in price negotiations between manufacturers and Medicare drug plan sponsors, but some members of Congress are still pursuing legislation that would permit the United States government to use its purchasing power to negotiate discounts from pharmaceutical companies, which would likely have a negative impact on the pricing of prescription drugs. In addition, the law contains triggers for Congressional consideration of cost containment measures for Medicare in the event Medicare cost increases exceed a certain level. These cost containment measures could include certain limitations on prescription drug prices.


This focus on pricing has led to other adverse government action, and may lead to other action in the future. For example, legislative proposals have been made to change the import laws to broaden permissible imports. Even if the changes to the import laws do not take effect, imports from Canada and elsewhere may increase due to market and political forces, and the limited enforcement resources of the FDA, the Customs Service, and other government agencies. For example, numerous states and localities have proposed programs to facilitate Canadian imports, and some already have begun such a program, notwithstanding questions raised by the FDA about the legality of such actions. We expect that pressures on pricing and operating results will continue.



In the European Union, governments influence the price of pharmaceutical products and medical devices through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of such products to consumers. The approach taken varies from member state to member state. Some jurisdictions operate positive and/or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products, as exemplified by the National Institute for Health and Clinical Excellence in the United Kingdom, which evaluates the health economics data supporting new medicines and passes reimbursement recommendations to the government. In addition, in some countries cross-border imports from low-priced markets (parallel imports) exert a commercial pressure on pricing within a country.


In Japan, reimbursement prices of drug products and medical devices are determined by the National Health Ministry biannually, under the national health insurance. The Ministry reviews the reimbursement prices of individual products biannually. In 2006, the Japanese government reduced the overall reimbursement rates by over 3% and reduced the drug reimbursement rates by 1.6% and the downward pressure is likely to remain because of persistent budget deficits. Compensation for medical devices often takes the form of doctors' fee, which can be modified from time to time with additions of technologies using new medical devices.






Alcon, Inc. is the parent holding company of the worldwide group of Alcon companies. Alcon, Inc. owns 100% of the common voting stock in Alcon Holdings Inc., the holding company for our U.S. operations. The U.S. operations include a diverse group of subsidiaries that perform manufacturing, selling, marketing, distribution and research functions. Our larger U.S. subsidiaries are:


Alcon Laboratories, Inc., which performs selling, marketing and distribution activities in the United States, with physical locations in Texas, California, Maryland, Hawaii and Nevada, and


Alcon Research, Ltd., which is responsible for Alcon's U.S. manufacturing and research and development operations with physical locations in Texas, California, West Virginia and Pennsylvania.


Alcon, Inc. also directly or indirectly owns numerous operating subsidiaries located outside the United States, with substantial presence in Europe, Japan, South America, Canada and Australia. These international subsidiaries are primarily engaged in selling, marketing and distribution activities; however, several international subsidiaries conduct manufacturing operations and a few maintain small research facilities. Our larger international subsidiaries, all of which are wholly owned by Alcon, Inc., are:



Alcon International SA (Switzerland), which provides global administration services,


Alcon Pharmaceuticals Ltd. (Switzerland), which operates as our international trading company,


NV Alcon Coordination Center (Belgium) and Alcon Credit Corporation (Switzerland), our international financing companies,


Trinity River International Investments (Bermuda) Ltd., which manages Alcon's international portfolio investments, and