Finding eye-catching stocks
From time to time, many of us need to take measures to improve our eyesight. But a quick look at the industry behind the products unveils a fascinating market that is expanding. One of the leaders in this consolidated field is Alcon, which started out as a humble pharmacy in Fort Worth, Texas, in 1945, and has grown to a world leader in eye care with two complementary businesses in surgical and vision care.
Alcon has got an extensive portfolio of everything needed to deliver cataract or refractive surgery, ranging from the advanced machines and diagnostics, intraocular lenses, glaucoma devices through to the consumables and surgical packs required to make a surgery as efficient as possible. In total, the company controls about 80% of cataract surgery equipment. Moreover, as a top producer of vision care, Alcon has a large portfolio of contact lenses and solutions for dry eye, glaucoma, and allergies.
Innovation through relationships
In the eyecare market, innovation really matters. Some 90% of vision impairments are either curable or often preventable. Alcon has become an innovation leader primarily through the relationships it has formed with the eye care professional. The average age of its installed machines in eye care surgeries is well over a decade, meaning the sales force has been able to form very strong relationships with those on the front line, conducting the surgeries; any problems or issues can be fed back to the R&D division, helping continuously enhance Alcon’s products and deliver a better experience for customers.
There are a number of other compelling reasons why our Quality team is optimistic about Alcon’s prospects. The structural growth aspect of the market is here to stay. There's a high probability that people aged 65 and above will require cataract surgery, as proteins have clumped together and grown around or over the lens covering the eye. This probability increases exponentially as one ages, and with an ageing population, this need will grow for the foreseeable future.
Solutions that benefit everybody
In a cataract surgery, a doctor will need to remove the existing lens and replace it with a new one. Essentially, there are two options in terms of lenses, with a monofocal lens – typically covered by insurance – or a premium lens that typically requires a customer to pay a premium. Globally, nearly 90% of consumers choose monofocal lenses in the market today, providing clear distance vision but requiring glasses for clearer vision. Yet, recent studies suggest about 40% of consumers are prepared to pay for premium lenses, which offer multifocal vision. Much of this – we would argue – is down to Alcon's innovation in the premium lens space during the last few years, with all stakeholders benefiting.
The patient has an enhanced probability of living without the need for glasses post-surgery, and the doctor and Alcon receive a financial benefit. A key barrier to adoption has been the doctors' confidence in implanting these lenses, but this has been diminishing amid further innovation due to the strong feedback loop. In recent years, there has been a significant uptick in the penetration of premium lenses.
Resilience through economic cycles
If eyes need care, consumers will typically focus on getting that care and cut other areas of their budget in more challenging times. Therefore, Alcon is less economically sensitive than most companies. For instance, during the Global Financial Crisis, Alcon’s contact lens volumes grew by 3%. In addition, people are often creatures of habit, typically staying with the same brand of contact lens that has been prescribed. Revenues tend to therefore be recurring – and resilient – in their nature.
Turning to Alcon’s surgical business, a 65-year old's probability of getting cataract surgery does not change due to economic conditions, especially as cataract surgeries are typically covered by health care insurance. Therefore, we would argue Alcon's ability to innovate is going to be a far more important factor to drive growth than the economic cycle. In an ever-expanding market, this attribute should ensure Alcon remains in good shape to consolidate its already dominant position in this fascinating field.
