A Wall-Street Perspective
Soft contact lens market sees continued, but slowing growth in 2006.
JEFFREY JOHNSON, O.D., Milwaukee
As an optometrist and an equity research analyst for Robert W. Baird & Co. a wealth management, capital markets and asset management firm I not only have a personal interest in the contact lens market, but a business interest, as its my job to provide the most up-to-date information to my institutional investor clients.
Based on the information Ive culled from my various contacts, the biggest news this year is that soft contact lens use continues to grow, and it appears this may be the case for years to come. Here, Ill talk about this growth and my predictions for the future of the contact lens industry.
Silicone hydrogel contact lenses spur growth
Theres been a lot of action in the contact lens and artificial tear market these past 12 to 18 months. Focusing on the soft contact lens market, 2006 started off as another strong year, as independent industry data from ACNielsen (a marketing information company, located in New York) suggested that through the first half of the year, the U.S. contact lens market grew 11.5% at the retail level (excluding Wal-Mart and mail-order/Internet contact lens sales). At the manufacturer level, we, at Robert W. Baird & Co, estimate this likely translated to upper, single-digit growth after accounting for rebates for silicone hydrogel contact lenses (SiHy), including Vistakons Acuvue Oasys, Bausch & Lombs PureVision and CIBA Visions O2Optix. SiHy lens rebates had the lions share when compared with other lenses.
As was largely the case in the two years pri-or, SiHy lenses were once again the primary drivers of this strong retail growth, with sales of all SiHy lenses (including spherical, toric and multifocal) growing in excess of 80% during the first two quarters of the year vs. an estima-ted 10% decline in standard/HEMA-based soft contact lenses through the same period. There was an estimated 55% growth in spherical Si-Hy lens sales and a more than eightfold increase in toric SiHy lens sales (to more than $80 million at the retail level vs. roughly $10 million at retail in the first half of 2005), but only two SiHy torics have been on the market since mid-to-late 2005, so the 2006 eightfold growth isnt necessarily something to write home about.
Through the summer, SiHy lenses remained the primary growth driver in the domestic market, as both spherical and toric SiHy lenses continued to gain market share. Further, in using new and established office visit data, SiHy spherical lenses accounted for roughly 49% of all patient office visits in the United States during both the second and third quarters of the year and 48% of all patient visits in the fourth quarter, compared with roughly 44% of visits in the first quarter and 37% of visits during the full-year of 2005. SiHy torics accounted for approximately 35% of total new and established office visits during the third quarter of 2006 and 34% of total and new established office visits during the fourth quarter, compared with 30% in the second quarter, 25% in the first quarter and roughly 13% to 15% during full-year 2005. I believe the reason SiHy spherical lenses accounted for such a large share of patient office visits is because this type of lens is increasing market penetration, as SiHy lenses replace HEMA-based lenses.
And while multifocal SiHy options remain limited thus far, this modality accounted for 21% of new and established patient office visits in the third quarter and 24% of new and established office visits in the fourth quarter vs. 12% in the second quarter and 2% in the first quarter of 2006. Something to keep in mind: PureVision Multifocal (Bausch & Lomb) didnt launch until the Southern Educational Conference of Optometry (SECO) International 2006 meeting in late February 2006. (See Soft Contact Lens Sales, below.)
This chart reveals soft contact lens sales in the first half of 2005 (H1-05) and the first half of 2006.
By the time the fourth quarter of 2006 arrived, the U.S. soft contact lens market though still healthy started to show some signs of slowing. For instance, CIBA Vision began experiencing product delays in shipping its O2Optix lenses.
Bausch & Lomb hasnt reported official fourth quarter results yet, but using preliminary third quarter and fourth quarter data recently supplied by the company, it appears contact lens sales were relatively flat in the fourth quarter in the companys Americas region (Bausch & Lombs Americas region is large-ly made up of sales in the U.S. and Canada). And for CooperVision, the companys calendar fourth-quarter sales were down 2% excluding the impact of foreign currency movements in the quarter.
Putting all these results together, we estimate the soft contact lens market likely grew in the 5% to 7% range at the manufacturer level for the year, meaning growth at the retail level was likely up a couple of points higher, or roughly in the 7% to 9% range by our estimates. While healthy, this 5% to 7% growth is below the 9% to 11% we estimate the domestic soft contact lens market grew in 2004 and 2005. So, while the market is still relatively healthy, growth slowed in the second half of 2006.
Independent office visit data on both new and established patient visits seems to confirm our estimates, showing soft contact lens visits were up 7.3% in 2006 compared with 2005 (office visits for gas permeable (GP) lenses were essentially flat year to year and accounted for roughly 4.4% of total office visits during the year). I believe this is because GP lenses are uncomfortable, and soft toric lenses have been shown to be more effective at correcting astigmatism. For the soft contact lens segment (SiHy and non-SiHy lenses combined), spherical soft lens total office visits were up only 4.4% for the year, while toric and bifocal/multifocal office visits grew 15.6% and 14.3%, respectively.
Looking beyond 2006, we believe SiHy lenses will remain the largest growth engine for the domestic contact lens industry giv-en the health benefits these lenses are thought to provide and the financial benefits both doctors and manufacturers realize when disseminating these lenses. For 2007, we believe sales of SiHy lenses could exceed $1 billion and account for nearly 56% of the total domestic contact lens market in 2007, although CIBA Visions 02Optix recall creates some uncertainty in this statement.
In our opinion, the limited availability of O2Optix near-term could negatively impact overall SiHy market penetration rates, especially if patients are temporarily moved to CIBA Vision Focus Dailies or some other non-SiHy CIBA Vision product instead of to CIBAs Night & Day SiHy lens or competing SiHy products from Vistakon or Bausch & Lomb. To that end, we believe CIBA Vision has begun to market both its Night & Day and Focus Dailies lenses more heavily, as supply of the O2Optix line sounds as if it could be limited through much of 2007. Generally, CIBA Vision anticipates O2Optix spherical lens product availability constraints and back-orders into the second quarter, with increasing improvements throughout the mid-year, a spokesperson for the company says. Given that fact, and CooperVisions increasing focus on this product segment due to the recent launch of Proclear dailies (CooperVision also sells Biomedics/ClearSight daily disposable lenses in the United States) we cant rule out the possibility that daily disposables could gain popularity this year.
Lenses in the pipeline
Looking at contact lens pipelines in 2007 and beyond, we see a number of potential new products from each of the four major contact lens manufacturers that could be launched within the next year to several years. For Vistakon, we wouldnt be surprised to see an Acuvue Oasys multifocal within the next year, while CooperVision may still be able to expand its Biofinity spherical silicone hydrogel line to the entire United States at some point in 2007, although exact timing (and the overall likelihood of this) is still unclear. CIBA Vision was expected to launch its O2Optix toric sometime in 2007, although there is no definitive launch date for this lens at this time, according to a CIBA Vision spokesperson.
We believe that by 2008, the next potential big thing for contact lenses antimicrobial surface-coated lenses could be ready for the market. At present, we are aware of at least two privately held companies (Biosignal Limited in Australia and Selenium in the United States) working on antimicrobial surface coating products. Biosignal recently completed a 10-patient study testing the efficacy of its antimicrobial-coated contact lenses in overnight wear, with larger studies (a 30-patient study in Australia and a 250-patient study in India) scheduled in coming months. Selenium Ltd. announced in November 2005 that it planned to initiate a 200-patient daily- and extended-wear study at some point in the future, but we havent heard any further details.
The opinions expressed in this article are those of Dr. Johnsons and do not represent those of OM.
DR. JOHNSON IS A VICE PRESIDENT AND THE SENIOR MEDICAL TECHNOLOGY RESEARCH ANALYST COVERING ORTHOPEDIC, OPHTHALMIC AND DENTAL STOCKS AT ROBERT W. BAIRD & CO., INC., IN MILWAUKEE, WIS.
Optometric Management, Issue: April 2007