An Assignment on: An Analysis of Ophthalmological Industry

Submitted By

Ikleel Sarwari Malik

Industry Profile
Introduction
Ophthalmologic Industry
Overall, ophthalmology covers devices, surgical procedures, pharmaceuticals and consumer eye-care goods used in the treatment of eye diseases and infections. Ophthalmology devices are used for a range of key procedures, including vitreo-retinal surgery to treat retinal conditions and refractive surgery to restore impaired vision in cases such as hyperopia and myopia. Devices are also used for ophthalmological surgery in the treatment of glaucoma, the leading cause of blindness, and cataracts, and the number one cause of treatable blindness, to replace the natural eye lens with an intraocular lens.

Eye Health across the Globe
According to the World Health Organization, there are more than 180 million individuals in the world who are blind or are at serious risk of becoming blind. This number is staggering when you consider that as many as 75 percent of these cases could have been prevented or treated at an early stage. Unfortunately, proper eye care is either unaffordable or unavailable in many areas of the world today. This problem is compounded by the fact that many within the medical communities that serve these areas lack the proper education, tools and resources to provide adequate care. The world's population is aging, and the prevalence of blindness caused by treatable or preventable eye diseases – such as cataracts and glaucoma – could continue to grow at an exponential rate without proper action.
Global Scenario
Changing trends in diet and lifestyle as well as increased longevity are growing the market for ophthalmological treatments: the global ophthalmic device market is expected to reach $28 billion by 2016 exhibiting a 2.5% compound annual growth rate from 2009 to 2016, according to Global Business Intelligence (GBI) Research

The Vision Care Market Remains the Largest Category in the Global Ophthalmic Devices Market. The vision care category, which consists of spectacle lenses and contact lenses, accounted for 85% of the overall ophthalmic devices market in 2009, making it the largest category within the ophthalmic devices market. Historically the market grew at a rate of 5.9% in the last seven years. The vision care market is expected to be driven by technological advances in lenses materials, the fashionable aspect of the latest contact and spectacle lenses and a huge population base to wear them.

The US currently represents the biggest regional market in the global ophthalmic device industry and is set to reach 27% market share by 2016, at which time it should be worth $7.6 billion in value reports GBI Research. Cataract surgery is the number-one surgical procedure carried out in the US, with 3 million procedures performed annually. According to Medical News Today, more than 20 million individuals over 40 years of age in the US have cataract and over 50% of the population could suffer from the condition by the age of 80.

Figure 1.1
Indian Scenario
For India’s ophthalmic industry and its estimated 15,000 ophthalmologists, the changing face of Indian society represents both a challenge and an opportunity.
Nowhere is this more evident than in the exponential growth of cataract surgery in India over the past decade. Indian surgeons performed an estimated 0.5 million cataract surgeries in the early 1980s.This increased to 4.8 million in 2006, 90 per cent of which included intraocular lens implantation. The large multinational ophthalmic companies are now in India in force. At the recent All India Ophthalmological Society meeting in Bangalore, the largest and glitziest stands belonged to the usual corporate titans: Alcon, AMO, Bausch & Lomb, Carl Zeiss Meditec and so forth. As well as having its own academic journal, India is now also served by at least three competing industry magazines targeted at the specific needs of the Indian ophthalmologist.
Key players in the market
The competitors in this sector are big multinationals who take advantage of their size to force some of their conditions to their customers. This gives Alcon the perfect competitive advantage providing a better and more flexible service to their customers. Companies have to focus on differentiation to make them the competitive. Some of our main players in this market are: * Based in Texas, Alcon is the second-largest division of pharmaceutical giant Novartis, with sales across 180 markets spanning 75 countries. It is heavily involved in R&D, with plans to invest $4 billion over the next five years. Alcon is the world leader in ophthalmic surgical devices, products and pharmaceuticals, with its intraocular lenses AcrySof accounting for over 50 million lenses implanted worldwide. The company’s Infiniti Vision System is used in cataract surgery and affords physicians greater accuracy and safety than traditional systems. * In existence since 1853, US-based Bausch & Lomb is a long-standing market player, offering ophthalmic surgical devices and instruments as well as ophthalmic pharmaceuticals. It launched the first soft contact lens on the market four decades ago, and partnered with pharmaceutical company Micro Labs in 2011 to launch in India, where the ophthalmology market is growing rapidly.

* Essilor International and Johnson & Johnson Vision Care Lead the Global Ophthalmic Devices MarketIn 2008, Essilor International and Johnson & Johnson Vision Care had a combined market share of 26% in the ophthalmic devices market. These two companies are the leading players in the ophthalmic devices market. This can be attributed to their leading market share in thevision care category, which accounts for about 85% of the global ophthalmic devices market. These two companies, especially Essilor, have undertaken multiple acquisitions in the last four years which have led to an increase in their market share. Also, both companies enjoy good brand name and awareness with both patients and physicians, which are making it easy for them to introduce new products.

* Carl Zeiss Meditec AG is a Germany-based medical technology solutions supplier, specializing in Ophthalmology and Neuro/Ear Nose Throat surgery. Its diagnostic and therapeutic solutions are used for treating four main ophthalmic conditions: vision defects, cataracts, glaucoma, and retinal disorders. The Company's solutions include optical biometry equipment; optical coherence tomography equipment; lens analyzers; fundus imaging cameras; standard and refractive ophthalmic lasers and slit lamps. In the field of Neurosurgery, it offers visualization solutions and surgical microscopes, used in clinical treatment of accidents, nerve reconstruction and pediatric neurosurgery. It is also involved in the development of visualization solutions in the area of intraoperative radiation therapy. The Company has subsidiaries in Germany, France, Spain, the United States, Japan, Mauritius and the United Kingdom, as well as distribution companies and agencies globally.

Other major companies in the industry
- Allergan
- IntasPharmaceuticals Ltd
- Johnson & Johnson Vision Care, Inc.
- Sanofi
- Abbott Medical Optics, Inc.
- Hoya Corporation
- CooperVision, Inc.
- Appasamy Associates
- Aurolab
- Topcon Corporation
- NIDEK CO., LTD.
- Haag-Streit AG
- Dutch Ophthalmic Research Center International BV
- Quantel Medical SA
- Ajinomoto Trading, Inc.
- Heidelberg Engineering GmbH
- Tomey Corporation
- Ellex Medical Lasers Limited
- SCHWIND eye-tech-solutions GmbH & Co. KG

1.5 Market Share: Lens Segment

Figure 1.2

Figure 1.3
None of the companies utilized in the selected companies’ analysis is identical or directly comparable to Alcon. The selected companies were chosen because they are publicly traded companies that operate in, or have divisions or subsidiaries that operate in, similar industries to Alcon, or comparable divisions of Alcon, and they have lines of business and financial and operating characteristics similar to Alcon or to comparable divisions of Alcon. Credit Suisse determined using its professional judgment that these selected companies were the most appropriate for purposes of this analysis.

PEST Analysis
Political
The wages for healthcare are being implemented by the government in our country. Raising the public investments in healthcare means also to implement the demand in cataract operations. Also, politics affects the ophthalmological industry because a major portion of their sales are made to public hospitals. For selling to them it is made a public contest regulated by the governmental laws. If those laws change this process it can mean a big threat to some of the companies. The main point taken into account for the competition is the quality of the product. The process consist in one or various persons visiting their facilities and making a technical inform of their organization paying special attention to the quality of their final product. The organization which wins this contest is the one with the highest punctuation achieved. All of this said it is very difficult for this system to change.
Economical
The economy won't affect them as much as it can affect to others because ophthalmologic products are of first necessity. This means that even in the case of crisis in the economy their products will continue being bought by their customers. All of that said, there is good perspective for the year 2012, and this will benefit them. The global economy seems to be reactivating. In the USA the 2011 finished with a rate growth for their Gross National Product (GNP) of the 3 %. They also have predicted a bigger growth for the year 2012. Here in India, it is growing to levels higher than the 8%. The previsions are more favourable than the American ones.

Social
The growing population in India is increasing the demand for cataracts operations. This is the most frequent surgery practiced in the developing countries. Most of the cataracts are produced by ageing and it is one more symptom of getting old. Ageing is the main reason that generates this type of pathology. Over 8.5% of adults over the age of 50 have vision <6/60 in the better eye (Murthy et al. Current estimates of blindness in India. Br. J.Ophthalmol. 2005 Mar; 89(3):257-60). At last place but very important for Alcon, the Indian economy is predicted to have one of the biggest growth. This will favour the enterprise’s manufacturing products for consumption in the Indian market.

Technological
Regarding the technology there isn't any possibility of substitution of the existing technology regarding the cataract operations, which consist on implanting a lens. Anyway, it is true that these lens and their characteristics can be implemented and new materials or new procedures can make a big change in this market. If this happens Alcon is well equipped to adapt to the change due to their strong R&D team.

Porter’s Five Force Analysis

Bargaining Power of Buyers: LOW
The unique feature of ophthalmic industry is that the end user of the product is different from the influencer (read doctor). The consumer has no choice but to buy what doctor says. Everything is dependent on the doctor. However, when we look at the buyer's power, we look at the influence they have on the prices of the product. In this industry, the buyers are price sensitive. It depends on the buying decision of the buyer as to how expensive or how inexpensive he desires to buy a certain product of. The cost of switching from one seller to another is also one factor for the low bargaining power of this industry. In this industry there are not many buyers, it is not a huge market, and buyers in this industry usually buy in small volumes. In ophthalmic industry, the buyers are scattered and they as such does not wield much power in the pricing of the products. Being a low bargaining power industry, it makes the industry more attractive and increases profit potential for the seller, whereas had it been a high buyer bargaining power industry it would have been less attractive and decreased profit potential for the seller. However, government with its policies plays an important role in regulating pricing.
Bargaining Power of Suppliers: LOW
The ophthalmic industry depends upon several organic chemicals. The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the ophthalmic firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. The chemical industry is again very competitive and fragmented. The chemicals used in the ophthalmic industry are largely a commodity. The bargaining power of the supplier also depends on the degree of differentiation of inputs. The strength of the distribution channel is also one major factor for bargain for the suppliers. The number of suppliers is less which enables the companies to have the mobility to switch or shift in between the suppliers. Although, if the suppliers have an option of taking a further step of opening up their own ophthalmic company. The suppliers have very low bargaining power and the companies in the ophthalmic industry can switch from their suppliers without incurring a very high cost. However, what can happen is that the supplier might go for forward integration to become an ophthalmic company.

Barriers to Entry: HIGH
Ophthalmic industry is one of the not easily accessible industries. The capital requirement for the industry is very high, although creating a regional distribution network is easy, since the point of sales is restricted in this industry in India. However, creating brand awareness and franchisee amongst doctors is the key for long-term survival. Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations. Going forward, the impending new patent regime will raise the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge.
Due to the large product differentiation and therefore high customer loyalty and brand recognition, it is hard to enter the market. New entrants are only successful with innovative technologies or services, in niche markets, or with an existing product with a cutting price policy, i.e. spectacle frame supply from China or the recent retail disposable lens vague.

Threat of Substitutes: MODERATE
This is one of the great advantages of the ophthalmic industry. Whatever happens, demand for ophthalmic products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an ongoing concern, ophthalmic industry seems to have an infinite future. However, in recent times, the advances made in the field of eye care technology, can prove to be a threat to the synthetic ophthalmic industry.
The existence of other products outside of the norm increases the vulnerability of customers to switch to alternative products. Examples of prosperous substitutes are clinics for laser vision correction and intraocular treatment. The use of surgery for the treatment of eye disease is also gaining traction, with surgery being the only available option for the treatment of a certain eye diseases such as cataract and DME. As most eye diseases are not curable, and only the progression can be managed with continued medication, patients may prefer surgical intervention rather than maintaining lifelong daily eye drop treatment regimen. Moreover, no approved drug was available for the treatment of DME until recently although physicians were using off-label treatments.

Competitive Rivalry: HIGH
Pressure of competitive rivalry in ophthalmic pharmaceutical industry is high because Alcon is at top Position and there are 3 rivals Rimigton Pharmaceutical, Novartis Pharmaceutical and Berrtt Hodgson (Allergan) fights of for Top Position.
The key players dominating this market are Essilor International, CIBA Vision Corporation, Johnson & Johnson Vision Care Inc., Solotica Lentes de Contato, Alcon Inc., Bausch & Lomb Incorporated, Cooper Vision Inc., Carl Zeiss AG, Abbott Medical Optics Inc., Hoya Corporation, etc. The ophthalmic industry is highly competitive and subject to rapid technological change and evolving industry requirements and standards. Companies within this industry compete on technological leadership and innovation, quality and efficacy of their products, relationships with eye care professionals and health care providers, breadth and depth of product offering and pricing. The presence of these factors varies across product offerings. Even if principal competitors do not have a comparable range of products, they can, and often do, form strategic alliances and enter into co-marketing agreements to achieve comparable coverage of the ophthalmic market. PHARMACEUTICAL

Competition in the ophthalmic pharmaceutical market is characterized by category leadership of products with superior technology, including increases in clinical effectiveness (e.g., new drug delivery systems, formulations and Combination products), the development of therapies for previously untreated conditions (e.g., AMD) and competition based on price from lower-priced generic pharmaceuticals.
Main competitors in the pharmaceutical market are Alcon Inc, Allergan, Bausch &Lomb, Merck, Daiichi and Santen.

SURGICAL

Competition in the ophthalmic surgical market is characterized by category leadership with products that provide superior technology and performance. Innovation, performance and long-term relationships are also key factors in this competitive environment. Surgeons rely on the quality, convenience, value and efficiency of a product and the availability and quality of technical service. Among principal competitors in the ophthalmic surgical market, Alcon Inc. competes with Bausch & Lomb across most of the market. Allergan, Pharmacia and Baxter each compete in limited segments of the surgical market. In addition to Bausch & Lomb, Alcon’s principal competitors in laser refractive surgical equipment are VISX and Nidek.

CONTACT LENS CARE AND OTHER VISION CARE PRODUCTS

Competition in the contact lens care market is characterized by increases in market share in a maturing market. Recommendations from eye care professionals and customer brand loyalty as well as our product quality and prices are key factors in maintaining market share in these products.

Competitors in contact lens care products are Alcon Inc., Bausch & Lomb, Allergan.