Medical Device Daily Contributing Writer

CHICAGO — The annual symposium of the American Society of Cataract and Refractive Surgery (ASCRS; Reston, Virginia), held here the past few days, was well-attended by physicians, industry and the financial community.

The biggest news at this year's meeting was the pharmaceutical behemoth Novartis (Basel, Switzerland) had engineered a deal with Nestle (Vevey, Switzerland) that would result in Novartis' full acquisition of Alcon (Huenenberg, Germany/Fort Worth, Texas).

The deal had been rumored over the past several months and had increased in intensity with the report last month that Sabri Markabi, MD, currently VP and head of Development Franchise at Novartis, would join Alcon as senior VP of R&D.

Alcon is the undisputed leader in the global ophthalmic industry, with worldwide sales of around $5.6 billion in the fiscal year ended Dec. 31, 2007. Besides being the largest company, it has registered rapid and highly profitable growth. In the past five years, its sales have risen 13% annually, operating income rising at an impressive 22% compound annual rate. An interesting sidebar to this deal is the massive financial windfall that Nestle stands to enjoy.

It initially acquired Alcon in 1978 for only $275 million, and in 2002 it sold a 23% stake in an IPO that netted about $2.3 billion. With the recent announcement, Nestle has raised an additional $11 billion for a 25% stake and can reap a further $28 billion if Novartis exercises its exclusive right to buy the remaining 52% stake between January 2010 and July 2011.

As has become a tradition in recent years, Alcon's management met with the investment community to provide an update on its global operation here last week.

Not surprisingly, given the company's conservative style, CEO Carey Rayment reiterated that its key strategies remain in place. Rayment, heading the company since late 2004, said that the its strategy "remains constant ... to continue to remain focused and sustain our leadership in the eye care arena."

One of its ongoing major initiatives is to boost its R&D spending as a percentage of revenue. In its most recent fiscal year, Alcon spent 10% of revenue on R&D. Given worldwide aging populations and tremendous opportunities to innovate in cataract and refractive surgery, Alcon has ample bandwidth to boost spending. Kevin Buehler, chief marketing officer, indicated that there are clear signs that its R&D outlays are bearing fruit.

For example, in the phaco-emulsification (cataract removal) market, Alcon's new product introductions are garnering market share. Buehler cited the "spectacular success" of the Infiniti Ozil system, which incorporates an improved microfluidic system, with a torsional handpiece that improves cutting efficiency in removing catarctous lenses of all densities.

According to a well-known cataract surgeon Kerry Solomon, MD, of the Storm Eye Institute (Charleston, South Carolina), "the biggest advantage of torsional technology ... is that we have improved efficiency more than ever before. It is really the technology of the future."

The upshot of this product introduction is that Alcon has strengthened its already dominant position in the phaco equipment market. Specifically, in the first quarter of 2007, surgeons reported performing 73% of their phaco procedures on Alcon equipment. A year later, its share had increased to 79%. Bausch & Lomb (B & L; Rochester, New York) saw its phaco share plunge from 17% to 10% in that same period.

In the premium intraocular lens (IOL) category, the introduction of an aspheric version of the acrylic-based ReSTOR, a multi-focal lens designed to provide good vision at all distances, has buoyed Alcon's share in the face of stiff competition from the Crystalens brand from the eyeonics division of Bausch & Lomb.

On a global basis, ReSTOR has a market share of about 54%, dwarfing Advanced Medical Optics' (Santa Ana, California) 24% share and eyeonics 15% share. ReSTOR is also the market leader in the domestic market, which accounts for the lion's share of global premium IOL sales.

However, Buehler admitted that the adoption of premium IOLs "is not moving at the rate we would like to see it growing. Data derived from the ophthalmic market research firm MarketScope (Manchester, Missouri) shows that the U.S. premium IOL market share has stalled at about 5% to 6% in the last 15 months. Buehler went on to say that "this market will require improved technology and better patient outcomes to grow further."

A vivid example of how improved technology drives market share and market growth is in the toric (astigmatic) IOL segment. A key attribute of this lens, which entered the U.S. market in September 2005, is its rotational stability. Conversely, the Staar Surgical (Monrovia, California) toric IOL has been plagued with a lack of stability. This enhanced technology has had two positive effects.

First, the percentage of U.S. surgeons implanting toric IOLs has increased from just 22% in the first quarter of 2007 to 53% a year later. These surgeons may have simply been avoiding toric IOLs completely or using a surgical technique called limbal relaxation incisions to treat the astigmatism.

More impressively, according to MarketScope data, Alcon has now garnered an astounding 95% market share in this category.

On the negative side of the ledger, Buehler admitted that in refractive laser vision correction (LVC) Alcon "has just not been satisfied with performance of our products." Specifically, Alcon's share of the global laser correction procedure fee market has slumped from about 23% in 2004 to 15% in 2007, as its product offerings have lagged technologically.

The acquisition of a controlling interest in the German ophthalmic company Wavelight (Erlangen, Germany) in the fall of 2007 will be a major boost to Alcon. Whereas Alcon's share has been declining, Wavelight's share in the 2004-2007 period increased from about 2% to 10%.

Wavelight's Allegretto laser is highly regarded in the LVC market and Buehler was optimistic that Alcon could begin to regain momentum in this important market arena.