Bausch & Lomb
The private equity firm Warburg Pincus purchased Bausch & Lomb in 2007 for $65.00 per share. The Company specializes in eye health products, including contact lenses, lens care, pharmaceuticals, and ophthalmological surgery products. As an international company, almost 60% of its $2.3 billion annual revenue comes from outside of the United States. In its consumer divisions, which represents 49 percent of the company's revenue, Bausch produces the successful PureVision and SofLens lines of contact lenses and the leading ReNu brand of lens care products. In pharmaceuticals, Bausch controls 80 percent of the rapidly expanding market for ocular vitamins, which have recently been shown to be effective in fighting age-related macular degeneration, as well as a fast-growing Chinese opthalmological research company. Bausch also produces intraocular implants and instruments for cataract surgery and equipment for LASIK surgery.On May 15, 2006, Bausch & Lomb recalled its MoistureLoc lens cleaning products after they were associated with an increased risk of fungal infections, and lost 23.6% of the market within 10 weeks of the recall. In addition to lost revenue from MoistureLoc products, the recall increased consumer uncertainty in Bausch's other products unrelated to MoistureLoc, negatively affecting sales of other lens cleaning solutions and contact lenses, as well as halting the development of new products containing MoistureLoc. Rebuilding brand image and recuperating from the financial impact of the recall, including damages from upcoming litigation, represent significant challenges for the company.
Bausch is subject to the trends of health insurance. Over the last several years, major health insurance companies, including the government insurance plans Medicare and Medicaid, have set more stringent policies for reimbursements of cataract surgery and intraocular lenses. Bausch's products in this market have been negatively affected, as health care providers and patients became more reluctant to pay for products that are not covered by insurance.
Bausch & Lomb is a global company, with almost 60% its revenues coming from outside of the United States. It sells products in more than 100 countries, and employs 13,000 in more than 50 countries. This geographically diversification of sales shields Bausch & Lomb from regional market fluctuations. However, additional costs are associated with international business, including the costs of securing regulatory approval in each market, and exchange rate fluctuations.
Contact lenses represent Bausch's most important business division, bringing in 31 percent of its total revenue. Bausch's product portfolio includes traditional, disposable, multifocal (presbyopia correction), and toric (astigmatism correction) soft contact lenses as well as rigid gas permeable (RGP) contact lenses. Some of Bausch's most popular lines of contact lenses are:
Contact lens sales declined by 3 percent from the previous year. Even though the contact lens division is separate from lens care, Bausch's brand image was negatively impacted by the MoistureLoc recall, especially in the Asian market.
ReNu is Bausch's flagship brand of lens care products, including cleaning solutions, re-wetting drops, and saline solutions. ReNu had leading market share prior to 2006, but lost 23.6% of the lens care market within 10 weeks of the MoistureLoc recall. Furthermore, the increasing popularity of inexpensive disposable contact lenses has put pressure on the lens care market, because disposable contacts do not require as much care. For example, one of the primary benefits of daily disposable contacts is that no cleaning solutions are required. Current developments are concentrated in rebuilding brand image and reclaiming lost market share associated with the recall, and also expanding its offerings of multipurpose cleaning solutions, the only growing segment in the overall lens market.
Pharmaceutical products, which includes generic and branded drugs, eyedrops, ocular vitamins, and over-the-counter medications, is Bausch's second largest business segment. Among Bausch's pharmaceutical products are Lotemax and Alrex, ophthalmic steroids used to treat ocular inflammation, and PreserVision, a line of ocular vitamins. Bausch holds dominant share in the rapidly growing market of ocular vitamins. This may be a direction important to the development of Bausch's pharmaceuticals division, as a recently concluded 10-year study suggests eye vitamins may be effective in treating age-related vision loss. (See Ocular vitamins)
In 2005, Bausch acquired a majority stake in CT Freda, a Chinese ophthalmologic pharmaceutical company. With 20% market share in the Chinese market, CT Freda is already established and established company, and is growing rapidly at 15% annually. While Bausch's pharmaceutical division grew by 13% in 2006, CT Freda accounted for 9% of that growth. In addition, the company shows potential for great profitability, with operating margins above 30%. As a result, CT Freda is likely to become a key player in Bausch's pharmaceuticals division in the future.
Competitors in pharmaceuticals is fragmented due to the variety of medications.
A cataract is the clouding of the eye's lens, and is a commonly associated with aging. Cataract surgery involves removing the cloudy lens on the eye and replacing it with an artifical intraocular lens, and is one of the most commonly performed surgical procedures. Bausch & Lomb produces both intraocular lenses (IOLs) and surgical equipment used in cataract surgery, and is currently launching new products in both categories. Bausch's new line of acrylic IOLs marketed under the Akreos brand can be inserted through only a two millimeter incision, 33 percent smaller than most incisions today. In addition, the SofPort line of IOLS features technology that blocks harmful violet light. Bausch's new microsurgery platform, Stellaris, promises better ergonomics and supports cataract surgery using incisions
Refractive surgery, also known as the LASIK procedure, involves using lasers to correct vision by permanently reforming the shape of the cornea. Bausch produces LASIK surgical equipment, including the Zyoptix laser system and Hansatome microkeratome, a surgical instrument used for cutting the cornea. However, consumer adoption of LASIK surgery is far less than that of contact lenses. As LASIK surgery is permanent, it cannot be used with changing prescriptions, and consumers risk irreversible vision damage. Recent advances in contact lens technology, such as the 30-day silicone hydrogel lenses, further diminish the market for LASIK. Correspondingly, refractive surgery products constitute a minor fraction of Bausch's total revenue.
On May 16, Bausch & Lomb announced plans to enter into a merger agreement with the private equity firm Warburg Pincus, in a transaction valued at $3.7 billion in cash. Warburg Pincus will pay shareholders $65.00 per share in cash, which represents a premium of 26% over the stock price during the preceding month. Bausch & Lomb will no longer be a publicly traded company.
The buyout is subject to shareholder and regulatory approval before the deal is finally closed. Meanwhile, Bausch may solicit for higher bids from other firms, but is bound by a $40 million break-up fee. The possibility of a higher bid has driven stock prices above $65.00.
Companies in the health products industry face significant liabilities if a product is later found to be defective or produce adverse reactions. Even though such adverse effects are previously unknown and impossible to predict, the company may be forced to recall products or face litigation. Bausch & Lomb's recall of its MoistureLoc lens cleaning solutions represents a significant setback for the company, negatively affecting market share and brand image.
On May 15, 2006, Bausch & Lomb recalled lens cleaning products containing MoistureLoc after it was associated with increasing the risk of developing fusarium keratitis, a rare corneal fungal infection that may result in loss of vision. MoistureLoc is an additive in Bausch's ReNu lens cleaning solutions that increases comfort for the wearer. Bausch's ReNu lens cleaning solutions had leading market share prior to 2006, but lost 23.6% of the market within 10 weeks of the MoistureLoc recall. In addition to lost revenue from MoistureLoc products, the recall increased consumer uncertainty in Bausch's other products unrelated MoistureLoc, negatively affecting sales of other lens cleaning solutions and contact lenses. The recall set back new product development, as many new products contained MoistureLoc. Bausch expects several hundred lawsuits beginning in the summer of 2007, including from 59 patients who required cornea transplants to restore vision.
In an unrelated incident, Bausch recalled certain batches of its ReNu multipurpose solution due to elevated levels of trace iron that led to discoloration, on March 6, 2007. Unlike in its MoistureLoc recall, this concern did not represent a health risk and was not due the formulation of the product.
Developing a new product is a time-consuming and costly endeavor. In 2006, Bausch & Lomb spent a total of $197 million in research and development in its five business segments. All of Bausch's products are subject to regulation by government authorities, such as the FDA in the United States. In addition to the cost of designing a new product, substantial resources must be spent to establish its safety and efficacy according to regulations. The research and development process, and especially ophthalmic research due to stringent regulations, is inherently uncertain, as products face being delayed or rejected by regulation authorities. Candidate new products may not complete the development process after significant resources have been invested.
Before the MoistureLoc recall, MoistureLoc had been one of Bausch's most promising technologies in its lens care business. Since many new lens care products in Bausch's pipeline contained MoistureLoc, the recall halted many of Bausch's future prospects for development. Without MoistureLoc, it is a continuing challenge for Bausch to create new products in face of competition.
Companies aim to align their new product development with changes in consumer demand, one of which is the adoption of new technology. It may be difficult to predict which markets will be most profitable in the future. Bausch & Lomb is well positioned to benefit from the increased adoption of silicone hydrogel contact lenses and ocular vitamins.
Traditional soft lenses are made from a polymer hydrogel material. Although they are comfortable to wear, the polymer limits the amount of oxygen that can pass through to the eye. As a result, traditionally contacts must be removed every night to maintain eye health.
On the other hand, new silicone hydrogel lenses, such as Bausch's PureVision line, replaces the polymer with silicone, which has 5 to 6 times greater oxygen permeability. In addition, the surface of silicone hydrogel lenses retain more moisture than traditional counterparts, providing increased comfort. Bausch's PureVision lenses are approved for 30-day extended wear without removal or cleaning and are much more convenient for the consumer. Consumers are switching to silicone hydrogel lenses over traditional contacts for health and convenience.
Bausch is focusing development in its contact lens business on its PureVision silicone hydrogel products, which have experienced strong double digit growth.
Age-related macular degeneration (AMD) is one of the leading causes of blindness in the elderly, affecting more than 10 million adults in the U.S. The center portion of the retina known as the macula often thins with age, potentially leading to loss of vision. Until recently, AMD was often accepted as an inevitable effect of age, as no treatments were available. However, a 10-year trial conducted by the National Eye Institute demonstrated that high levels of ocular vitamins can reduce the risk of developing AMD by 25 percent.
Currently, Bausch controls 80% of the ocular vitamins market, which is projected to grow at double-digit rates. Bausch's PreserVision ocular vitamins are the only treatment proven effective in fighting age-related vision loss. This result of the study significantly boosts consumer confidence in PreserVision products and is extensively cited in marketing campaigns, further solidifying Bausch's lead in the market.
Changes in health care coverage may impact on sales. If an insurance program changes its policies and removes coverage for a certain treatment, sales are likely to decrease. Bausch's pharmaceutical and surgical products are affected by changes in health coverage. For example, over the last several years, major health insurance companies, including the government insurance plans Medicare and Medicaid, set more stringent policies for reimbursements of cataract surgery and intraocular lenses. Bausch's products in this market are negatively affected, as health care providers and patients became more reluctant to pay for products that are not covered by insurance. The profitability of elective products and procedures not eligible for reimbursement, such as Bausch's LASIK equipment, are more at risk to economic fluctuations as a result.
Bausch & Lomb faces competition in each of its business segments:
CIBA Vision Corporation (a Novartis subsidiary), CooperVision, and Vistakon Inc (a Johnson & Johnson subsidiary) are major competitors in the contact lens market. All of Bausch's major competitors offer contact lenses to treat most refractive eye disorders in both traditional and silicone hydrogel materials. Characteristics of lenses such as comfort and prescription availability largely overlap, although specific attributes such as wear time differ. Vistakon's Acuvue brand holds dominant market share. The Acuvue line of disposable contacts includes both traditional and silicone hydrogel materials, and directly competes with Bausch's SofLens and PureVision. CIBA Vision's Focus Night and Day lens, which is the only other lens also approved for 30-day extended wear, competes directly with Bausch's PureVision brand. Currently, Bausch is the only company to offer toric and bifocal lenses for 30-day extended wear.
|30 Day Continuous||7 Day Continuous||Daily|
|Spheres||Night & Day - CIBA, PureVision - B&L||Acuvue Oasys, O2Optix - CIBA||Acuvue Advance, Cooper Biofinity|
|Toric||PureVision Toric - B&L||O2Optix - CIBA||Acuvue Advance for Astigmatism, Cooper Biofinity toric|
Advanced Medical Optics (AMO), Alcon, and CIBA Vision Corporation are major competitors in the lens care market. Prior to 2006, Bausch's ReNu products held a dominant market share in the lens care. However, Bausch lost 23.6% of this market share within 10 weeks of its MoistureLoc recall. Bausch's competitors also faced problems with their lens care offerings, although the impacts of other recalls were much less than that of MoistureLoc. AMO had to recall certain batches of its Complete MoisturePlus brand due to bacterial contamination. Alcon recalled its Systane brand of lubricant eyedrops, also due to contamination. There have been rumors that Johnson & Johnson may enter the lens care market, which may put further pressure on Bausch's market share.
Although pharmaceuticals is Bausch's second largest segment by revenue, Bausch is a relatively small player in the ophthalmic pharmaceutical market, with only a 5% share. Only a fraction of Bausch's pharmaceutical products are truly proprietary, and none represent major blockbuster drugs. Notably, Bausch controls 80% of the rapidly growing ocular vitamins market. (See Ocular vitamins
Advanced Medical Optics (AMO) and Alcon are Bausch & Lomb's largest competitors in optical surgery products. AMO produces intraocular implants and the Sovereign line of cataract surgery products. Alcon produces the Infiniti Vision System for cataract surgery and LADARvision for LASIK refractive surgery. Bausch currently leads the market in LASIK systems sales, specifically with its Hansatome microkeratome, but sales have been stagnant due to a saturated U.S. market and slow adoption abroad.