Good afternoon, everybody. I'm David Adlington, and I head up the European MedTech Research Group in London for J.P. Morgan. It's my pleasure to introduce David Endicott, and we've got Tim on stage as well for the Alcon presentation: a 20-minute presentation, then 20 minutes Q&A. Thanks very much, David.
David. David.
Thank you, David. Let me, first of all, thank everybody for swinging through this afternoon. Quick conversation about what we're doing these days. Obviously, Alcon is an eye care company deep in the different businesses that we participate in: the equipment, the over-the-counter business, the pharmaceutical business. We have been in this business a long time. We are a specialist in eye care. We do a lot working with KOLs, institutions, experts around the world in trying to advance vision care. We work in a number of important unsolved problems in eye care and continue to be dedicated to fixing and improving vision around the world. The strategy we've employed really centers around people, and it is a specialty business. We focus on eye care. We are really about trying to build an expertise in the technologies and markets that are eye care.
And by leveraging that expertise, we think we can do a better job, at least decision-making-wise, on investing capital around either new markets that will develop or new technologies that will come to market to create value and create innovative products. We do that well, and we think forward a little bit to the need to create data. Assuming we do that well, we believe we can kind of demonstrate value, create access, commercialize globally where we have a unique advantage. We are in about 130 countries around the world. We have an ability to accelerate the uptake of products probably faster than most. We have the scale and size to kind of work in this space kind of everywhere eye care takes us. So to the extent that we create a customer experience that is unique and different and rapid, we believe that we're particularly competitive.
You do that, you obviously have the opportunity to generate income, generate resources that we can then turn around and reinvest in R&D, which, of course, if we do that correctly, attracts and retains the best people in eye care, so that is the basic idea, which is create value through better knowledge, rapid movement, capital deployment that is precise in the eye care space. In the vision care business, we've been working hard on a lot of different ideas. Obviously, the contact lens business is the starting point for us. It's a big part of our business, and in both the manufacturing capabilities and in the design of the lens material and the lens surface characteristics, we've created a number of products over the years and filled out the lines on both modality and the kind of multifocal toric varieties of products that needed to be done.
We've got a dailies business that is quite substantial. We've got a reusable business that's important and growing. We've also obviously begun to build out our over-the-counter eye drops business, both with the Pataday and Systane but also the acquisition of Aerie which brought us Rhopressa and Rocklatan. We picked up Simbrinza, which was an old Alcon product as well. And we've done a number of things to kind of build out that business so far. Going forward, we've got a lot of opportunity, I think, to continue to expand into some new modalities. And I think the seven-day modality, the one-week idea, has been a really exciting idea that has been picked up by a number of optometrists that we've been working with. And we think really begins to address an intermediate space between monthly and daily.
For those that cannot afford a daily lens, which we would always advocate, a seven-day lens is a really exciting opportunity. We think that is a more natural kind of replacement schedule than, say, a two-week lens or a reusable lens over time. Obviously, we also continue to build on the Systane platform. I'll talk a little bit about that. The Systane platform is a rapidly growing, very large part of our over-the-counter businesses. 512 will be our first really new entry into the dry eye space. We'll talk a little bit about that in a second. Let me start with the PRECISION 7 modality. The two-week market, I think, has been unaffected largely by the introduction of T30. We had kind of hoped to take a little bit of the two-week market into either the dailies market or the monthly market.
But I think there is a unique space that is a price point and replacement schedule that is a little more rapid. One of the unique things about the characteristic of this is that we've been able to come up with an active flow feature that creates fluid movement from the base of the lens into the surface of the lens and then turned out to give you on day seven a much better comfort profile than what you get on day 14 in the ACUVUE OASYS 2-Week. So we think that that proposition at a similar price, slight premium, would be a real interesting opportunity for optometrists and patients. So we're excited about this launch. It's underway now. And again, I think the idea would be to kind of find a way in between the monthlies and the dailies. 512 is an exciting new product.
It is probably the most unique dry eye product, I think, that's come out in a long time. It's a TRPM8 agonist. It stimulates natural tear production through the trigeminal nerve mechanism, which is the natural mechanism for producing tears. It produces those tears in natural proportions. So it's not a supplement to a lipid layer, a supplement to a mucin layer. It's, in fact, creating kind of additional tears as you would normally do it. And so that is a really important difference between where this is and most of the other products that are available on the market. The other really substantial difference, I think, is the onset of action appears to be as early as day one. Obviously, the duration through day 90 matters a lot.
I think we have a unique mechanism, a unique result, and importantly, a really important outcome, which is a rapid response so that we can tell whether people are getting relief or not. You can see that obviously our PDUFA date is coming up in May. We should have a launch back half of this year. We'll look forward to working through that over time. Systane, as many of you know, is a big brand for us. It's approaching, will approach over our strategic planning horizon about $1 billion, probably in the five-year frame. It's been growing double digits for a while, and we'll add a product this year, which we've just launched called Systane Pro. It adds hyaluronic acid into the formulation. It's a triple-acting formula that treats kind of all the different pieces of dry eye that you could treat.
I think will be in a preservative-free bottle will be a really nice add in advance in that category. So we're excited about the momentum we can create there and continue to build this brand. It's a nice part of our ocular health business. Switching to surgical just quickly, give you a sense of where we've been. Obviously, we've been excited about the progress we've made in the multifocality of cataract surgery. The approach there has been with PanOptix and Vivity. We obviously have introduced a new material in Clareon as well. So a lot of activity over the last several years. Bringing in Hydrus in glaucoma has been a big advance for, I think, a lot of glaucoma patients. That's been well received for us. And obviously, we continue to build on our refractive business and our in-theater cataract business.
So as we go forward, we look to continue to build that out with our Unity platform, which is really designed to create an ecosystem moving data from the diagnostic, which we'll call Unity DX, which will combine probably four-ish different instruments into a single diagnostic that will take those measurements, move them to the cloud, bring them down to the OR in a planning format that is usable and available heads-up. It'll allow us to kind of combine that with our Unity VCS program, which again will be a new phaco machine. phaco-vit machine will launch in April, April, May, and directionally then bring a patient back into the clinic, take post-op measurements, and then begin to kind of feed the calculator so that we can get an optimized outcome for these patients in lens selection. So we're doing a lot to try and simplify two ideas.
The big idea here is efficiency. Efficiency being, what is the throughput in the pre-op phase? Can you move patients through more quickly? Typically, 30 minutes or more to do diagnostics with an 80-year-old, moving them four devices across is a difficult experience. You can do better if you do this quickly. I think this can be five minutes, 10 minutes on a single machine. It really does improve what we do with both the techs and the speed of movement with patients in the office. In the Unity platform, I'll talk about it in a minute. Again, efficiency is the key name of the game there. We'll continue to build on what I think will be important: how do we get more available surgeon time for the patients who need it? We're obviously working on PanOptix Pro.
We've had two really good ideas that we've been working through. We've put them both in the clinic. We've measured the results there. We're excited to bring that forward. We'll have a point of view on exactly what that's going to be at our Capital Markets Day. We would look for that in the second quarter, and then we've put out recently the DSLT product. We've been very excited about the potential to address what I think is a growing consensus around intervention in glaucoma. And the glaucoma patient largely has been a medication-driven, drops-based kind of idea. Recently, the MIGS have made a big important movement there, but I think bringing SLT forward in a more convenient, more efficient way, we think is a really good idea. We think it changes a little bit of that algorithm, starts patients there. If they need drops, great. You move that way.
You move into MIGS. You move on to other things that may be more advanced. But I think there is a growing belief that we could do more earlier for these patients. And this will be, I think, an interesting step and an exciting one. So if you switch gears directionally to the VCS and just comment, I'll comment briefly on the efficiency. This is possibly the most efficient piece of equipment ever created in ophthalmology. It is designed to improve throughput in the OR. It has taken two of the best machines in the world, combined them into one, and improved both of them. It has twice the Phaco speed that the old machine had. It's 40% less energy. It's got a new handpiece with a 4D phaco emulsification element to it that creates a much different cutting experience in the eye.
We're very excited about the speed at which this moves, but the safety at which it moves. We think we can do this at physiological IOP, which will be a big change from where people have been. That makes it safer for the patient, a little bit more comfortable. Certainly, I think helps post-op edema. And I think we're going to see, I think, a real nice outcome. Clarity early is day one, post-op. And these are important factors as you think about the patient side of it. For the doc, I think we're going to see a lot of surgeons move quickly and comfortably. The sensitivity of the fluidics is extraordinary. We can bring vacuum down. We can bring a lot of the pressure down.
And doing that both at the same time and still being able to hold the eye in perfect shape is a really remarkable thing that we've done. So a lot of interesting effects for the cataract element of this. The one that maybe is most underappreciated is the setup and teardown on this machine. Again, the game is going to be, can we turn more OR turns through this so that you can afford to pay for this thing? Because we think that if you're doing 20 today, you can probably do 21, 22 if you set that time out right. Now, you do that, you can pay for this machine pretty quickly. So anybody you guys want on your way out, we'll take orders in the back, I think. The vit-ret piece of this, the ret piece of this is even more extraordinary in many ways.
The vit cutter is about twice as fast as it is currently today. It's a 30,000 cuts per minute. It's a beautiful piece of equipment. It has what we've called a Quadra-spot laser, which allows us to treat retinal detachment much more efficiently. It's cutting that time down. I think with the vitrectomy times now, I think we're going to cut down by about a third, and we think we can do a lot better, maybe even cut the time in half on retinal detachment as we kind of think about laser reattachment, so really interesting opportunities, and we're excited about this, obviously. The key to this, of course, isn't really the console as much as it is for us and for the economics of this is the consumables, and two-thirds of our surgical business is basically equipment and consumables.
So this basically takes us into another 10 years of consumables that really drives the core of our profitability in surgical. So we're very pleased about the progress made here. And we look forward to bringing it to market later this year. I'm going to switch gears a little bit and give you a little more detail on the 4D Phaco and the HyperVit. Obviously, every phaco machine comes with a unique cassette that is a disposable element. We have a new balance tip that does a lot to increase the time and efficiency or decrease the time and increase the efficiency of our removal. On the HyperVit, I mentioned most of this, but directionally a lot faster. And obviously, the Quadra-spot helps on the retinal reattachment. PanOptix Pro is an exciting opportunity, I think, as we come forward.
We know that the biggest challenge out there is light scatter and dysphotopsia. We know that halos and glare continues to be the kind of principal thing we're trying to avoid, and we believe that we are using a lot less. We're getting a lot less scatter with this lens, about 50% less, and we've got a significantly better image contrast and smoother transitions from the way in which we're using light. We're using more light. We're using it more efficiently, and that is the basic design choice that we've made. We're continuing to build this lens right now, and again, we'll launch this into the second quarter. We think directionally we're excited about where this goes, but obviously, it also sits on the Clareon platform, which again is our newest material. Not different than what I said a minute ago.
The growing consensus around glaucoma is that there is a need for intervention sooner. I think I was at a meeting not too long ago where the question was asked of about 1,000 surgeons, how many of you believe SLT should be the first line that we try with glaucoma patients? Everybody raised their hand. How many of you are actually doing it? I have a smattering of hands that we're doing it routinely. And I think what we're hoping is that as we see the ease of this improve, where you don't have to hold a gonioscope, where you don't have to anesthetize the eye, where this moves a little bit faster and easier, that this really takes shape. So we're excited about that. It is a first-line idea.
And if you can save a year or two years of glaucoma therapy on drops, that's a big deal to a patient. So I think it's certainly worth the effort on this. And we'll see how that shakes out. Obviously, Rocklatan, Rhopressa, doing well for us. Hydrus, we've talked about. And Ex-PRESS, we're thinking a lot about all of these spaces. The DSLT element uses an existing reimbursement code. So we're comfortable that almost right away we're in a good place. We don't have to really wait or worry about reimbursement here. There is a recurring revenue stream on a click fee for us here. And we obviously have a launch coming up immediately now. We are moving manufacturing from Israel, where it was invented, into our California facility. And we should be in a kind of an unconstrained environment for the product probably mid-year.
So in the near term, we are a little bit hand-to-mouth on the supply of this product. But we will be in a good place probably mid-year. The short version of all of this, as we reflect on the company, is that we operate in kind of resilient, durable markets. We talk about the market growth as being roughly around 4%. If you aggregate the contact lens and the cataract market, the retina market, the variety of OTC markets we participate in, and the pharmaceuticals, you really do, if you show up and do all right, the markets are going to grow around 4%. That's a very durable underlying dynamic. It's underpinned by age dynamics. It's underpinned by economics of eye care, which are positive for governments to pay for. So we feel very good about where that is.
Now, we're aspiring to grow faster than the market because we think we can invent ideas or acquire ideas that are really powerful in these spaces and then commercialize them, so to the extent that we do that, we get operating leverage because we're growing revenue considerably faster than our cost structure. We've obviously spent a good bit of time over the last five, six years, I guess now, from spin. We've put $4 billion into eye care research, and that's obviously beginning to take shape. As we said earlier, we're investing a lot of money continuously, but this year, we're going to put out seven new products in the United States and numerous products in different markets around the world, so we really do think that the productivity of what we've been doing is beginning to show its head, and that's exciting for everybody at the company.
We've talked a lot about margin. And margin improvement has been a big source of gain for us. I think we've grown probably in constant currency, probably 150-ish, 100 to 150 basis points a year for the last five years. It's a really valuable thing. Obviously, as we get moving here, as long as we can grow revenue faster than our operating costs, we feel good about continuing that. And obviously, we've made comments around. And we will continue to work towards this mid-20s in 2027. And obviously, last year in 2024, we had a very significant step up in free cash flow, I mean, more than $1 billion from the prior year. So our continuous cash flow movement is quite significant. And so we believe we have the resources. The balance sheet looks great.
And we do have the resources to continue to grow this company and do a lot of different things. So we're really excited about where the year is taking us this year and really excited about what lies in store for the future of eye care. So thank you for your attention. And I think we'll take questions, David.
Great. Thanks, David. So just picking up there, obviously, you've got a plethora of new launches coming through this year across the whole piece. I suppose the first question is, how much investment will they require? And how should we be thinking about the impact on the accelerating top line? But I suppose nearer term, the impact on margins.
You want to take that one?
Yeah, sure. So again, as David alluded to in his remarks, if you look at the last two or three years, we've had, call it 150 basis points of margin improvement in constant currency. So we've been able to demonstrate that we can drive that operating leverage. And we would expect to continue that going forward. I think what you're going to see in 2025, you're going to see continued operating leverage improvement. It's probably not going to be as high as what we've seen in the past. And that's primarily because we want to make sure that we invest behind these products. Because again, our view is, as we've done in the past, when you have a robust innovation pipeline, that drives the revenue growth. And our view is incremental revenue growth will drive more value than an incremental 50 basis points or 100 basis points of operating margin.
But we'll continue to see that leverage. It just won't be as much as what we've had in the past couple of years.
So, still some underlying operating leverage. And how do you think about currency as things have moved against you in the last few weeks?
Yeah, currency has been a challenge. Since the last time, since our earnings call, which was kind of late part of November, the dollar has appreciated significantly. And so again, we'll continue to monitor that. If the dollar stays where it is today, that would drive probably $0.15 of EPS pressure in next year's number. But who knows where the dollar is going to be? So we'll do what we've done historically. We'll wait till closer to our formal guide. We'll take the spot rates at that point in time. We'll assume those spot rates carry forward. And we'll take it from there. But right now, it would be a pressure point.
Perfect. And then all the tailwinds you've set out for 2025, you've also got Chinese VBP, which I don't think you've mentioned, also the Unity rollout 512. Which one of those are you most excited about, not just for 2025, but on a medium-term view?
I mean, the phaco machine is the core of what we're doing in the surgical business. As I said, two-thirds of our surgical business is really more or less built around our presence in the OR and what we do either there or collaterally around it. I think that has to be the most important thing. That only comes around every really 10 years or so that you get a generational change in the phaco equipment. This is a very meaningful change in the efficiency of what we're doing in cataract. It's even more. We don't talk about the retina element of this. The retina procedures are going to be even more significantly impacted in terms of efficiency, speed, safety. These are really significant changes. I think that will create a change in the platform, which will pull the consumable elements.
And each one of those consumables, every year that that improves, it gives kind of an incremental premium to those consumables. And so you get a long, steady climb of nice growth. And I think so both financially and for the benefit of patients and the ophthalmology community, this is probably our single most important thing we're doing. Beyond that, obviously, we think over the long haul, getting ourselves more situated into the pharmaceutical business, I think, is a very positive thing. It's a very high-margin thing. We're good at the marketing there. We like our chances with 512. And again, I think over the long haul, that will be a pretty exciting product and probably one of the more meaningful adds to the revenue growth. I think also it would go importantly to talk to what some of the flyers are. And I think P7 is an interesting product.
Not everybody. We've been skeptical. I've been skeptical. Not everybody has. There have been a lot of people, but I've been skeptical a little bit about whether we could create that market or not, but I think the feedback we've got, and we've had that in the market now for five months with about 50 optometrists, and the feedback's been terrific, and the lens performs really well, and consistently, every time we put something out there that is really performing well, we've done well with it, so I think our contact lens business continues to grow really well, and I'm excited about that and the potential impact it has on the rest of the line, so all of those are interesting. They're all in a different piece of our patch, if you will, but pretty important stuff.
Cooper here earlier on, I think, being quite bullish on the outlook of the contact lens market and particularly pricing. What are your thoughts in terms of the contact lens market from here?
I don't think you're going to see the pricing that you saw in 2023, obviously. I mean, I think in 2022, when you had all of the inflation, the response was natural to try and cover some of that with a more aggressive posture on pricing. That carried through into 2024. But I think there'll be some price increases. I don't think it will be. I think it will be much more in line with historical rates. And I think the way I'd think about that is kind of a net 2% growth that will drive the market up roughly about 2%. So that's where we would see the aggregate. But again, we'll see what people do. I mean, our view has been traditionally, the market has been growing 5%, 6%, 2% in price, 3% in trade-up, and 1% or so in volume.
That's likely what's going to happen.
Perfect. And then on Unity, you've got more than 30,000 units out in the field currently. How are you thinking about the adoption profile, I suppose, both the US and ex-US? It might be slightly different, I think.
Yeah. I mean, I didn't really say this exactly. But VCS will be the first product. But immediately, we're simultaneously working on the launch of a standalone cataract unit. So the combined unit will largely be an international play. There'll be a number of hospitals that will want them because they share the ORs. But there'll be a standalone cataract unit as well. We'll probably be the dominant U.S. product. The trajectory of that, typically, the cycle of replacement is eight or 10 years. I think it's reasonable to think about those 30,000 units being replaced over that same stretch with a little bit more on the front end and a little bit less on the back end. Because of course, people are waiting a little bit to see what the new machine does and see if they want that one. And we'll do well there.
And I think directionally, we'll have a little bit more energy going out. Then of course, as we get to the next generation somewhere out there, we'll see it slow down again. But I think it's an opportunity. It's been interesting to see the competition in this space. It is a very difficult thing to make phaco machines. And I think we're very pleased with where we are.
Perfect. And then switching back to 512, obviously, we had the Phase III data in Q3, Q4 last year. Was there anything out of that that sort of kind of surprised you on the positive or the negative side? And what are you seeing in terms of the reimbursement environment that makes you more or less positive on that?
Yeah. I mean, I think the exciting part was to see the goblet cell data on the conjunctiva. I mean, we had real staining changes that were improvements very quickly. And I think that was probably the most interesting insight. I mean, we expected the product to work quickly. It did. We expected the product to have a significant improvement in signs. It did. And I think we were encouraged, though, to see some of the kind of basic cellular changes that looked like the eye is healing. And I think that's a very exciting thing if that bears out to be true in the clinic. And so we'll see over time. But we're doing more work on it now. And I think we're excited about what that product actually does.
On the reimbursement side, I would say that it's been encouraging to see payers picking up some of the competitive products. I think it's been encouraging to see what's gone on in MGD and what's gone on in other dry eye products around the market, which I think has been positive. And I think that bodes well for new products with unique mechanisms and unique propositions. So I think probably if I were reflecting on it, we were a little more skeptical at the beginning with this one. And we're feeling a little more bullish right now on the reimbursement prospects.
Perfect. And there was some chatter, I think, sort of post-results about the side effect profile and the stinging of the eyes. Nothing you're too concerned about there?
No. No. I mean, look, a lot of drugs are going to sting. Look, if it works really well, if it works like we say it does, quickly and efficiently, and does what we believe it does, I don't think that's an issue. I think it, but docs are going to have to tell them, it stings. You'll know when you get it in your eye.
Perfect. And then shifting back again to the IOL side, Q3, you blamed some sampling by J&J for the slowdown. How's that been developing? And are you seeing any increased competitive pressure from J&J?
Yeah. I mean, there was always going to be pressure from not just J&J, but B&L and everybody that has a multifocal lens that wants to get in the U.S. market. I mean, we were fortunate for a long time to have kind of the only trifocal and really the best EDOF and kind of unmatched for a while. There are obviously going to be new products that come in over time. And again, we've seen most of them around the world. So we're very comfortable with the profile of the product. I think people are going to try things. They should. And those are good companies. So we'll see how those do. But we are very encouraged about what we see with Pro. I think the PanOptix Pro profile, the number one thing we hear about trifocals is how much halos and glare do you get.
And seems to be the things docs worry about. I think our profile stacks up better than anybody's. So I mean, we feel really good about that. And directionally, we had a very high share. So there wasn't much place to go but give a little bit back. And there's always room for value players.
Do you think our sampling exercise is now coming towards an end?
Yeah. I mean, that was always a transient kind of idea. But yeah, yes is the short version.
Perfect. And then Capital Markets Day coming up at the end of March. I know you don't want to preview too much here. But what will you be saying that might help us to or me to model some of these things as we go forward?
Yeah. I mean, we'll give another five-year outlook, and we'll also give obviously, between here and there, we'll give guidance as well, so we'll have a more complete financial picture for you. But I think most importantly, on Capital Markets Day, you'll see what's coming in the next 24 months, so we'll break it into two buckets of this is the next 24 months with some definitiveness and structure, and then here's 24 plus kind of out past the frame, what we're working on, what are all the big ideas as well, and so we'll take some sampling of all of those things, but we'll give you a pretty good idea of what's happening in the near term and then what's happening in the long term.
On that end, I mean, the last Capital Markets Day, you kind of held out the accommodating lens as kind of something you were working on longer term. Is that something we can expect a bit more on?
Yeah. We had said that we would have data at the end of last year. We do. We'll talk a little bit about that data on the day.
Perfect. Do we have any questions from the floor? Not that I can see anybody. Perfect, and then maybe one for Tim. Obviously, cash flow was a big highlight through last year. You've put towards continuing good cash flow. How should we be thinking about capital allocation going forwards?
Yeah. You know, I don't think our capital allocation philosophy is going to change. I think our cash balance has changed since we came out. But our first priority is going to be organic investment. Where we do that well, it's good for doctors. It's good for patients. It's good for shareholders. Think about PanOptix, Vivity, P7 coming out. So that'll continue to be our first priority. At the same time, we realize that we can't develop everything. So we will be looking at M&A. What has worked well for us are those sort of bolt-on deals, call it $50-$500 million. That's where most of the deals are. And that's what we're comfortable with. That's not to say that we wouldn't do something larger than that if it was out there. But there's just not a lot out there.
But we'll continue to be disciplined and thorough with our M&A activity. And then lastly, we'll be returning cash to shareholders. So right now, we have a dividend that's 10% of core net income. We review that every year with the board in the summertime. But if there is, as we continue to generate more free cash flow, if we don't put it in bucket number one or bucket number two, we'll look at other options. But certainly, we're going to put our money to work.
Perfect. Well, that's probably a great way to wrap it up. Thanks very much, everybody. Thanks, guys.
Thanks, guys.
Thank you.