Alcon Inc. (ALC) Earnings Call Transcript & Summary

Good afternoon, and good morning, everybody. It's David Adlington again from JPMorgan in London. My pleasure now to introduce David Endicott, CEO of Alcon. David is going to make a presentation, and then we'll break out for Q&A. If you would like to submit a question, there's a button on your screen to do so. But with that, David, thanks for joining us today, and over to you.

Thanks, David. Look, we're excited to be here, even if it's virtual. We always like to be in San Francisco, but this will have to do for now. It seems to be the way of the world. We're going to talk a little bit today, just a little bit about our innovation agenda for this year. We'll talk a little bit about our longer-term piece. And of course, we'll give guidance with our year-end results next month. So let me start on Slide 3 in your deck. When we spun out in 2019, our thesis was in essence that we could create a robust pipeline with an incremental investment that would generate innovation that could drive growth at the revenue line above market. And so if we could control cost, kind of keep cost in that envelope, maybe as we've transformed, we adjust those costs from less productive to more productive uses, we could drive leverage over the long run. And of course, that's what our aspiration is. And as we said at the Capital Markets Day, we look to get to kind of the approaching mid-20s in the '25 frame. So our view for the longest time has been how do we basically get revenue growth and how do we do that with reinvigorating what Alcon has always been, which is kind of an eye care innovator. So if you look fast forward kind of 3 years on this thing, I think we believe that we've accomplished a lot. We've got 1,800 people now working in R&D on exactly this topic. They've accumulated almost 11,000 patents. And in the last 3 years, we've launched about 50 products in the 2 of our businesses. We've obviously invested a fair bit. But I think importantly, we've got over 100 new projects that have begun to cycle now from what was a lot of catch-up projects to some really exciting things that we think balance the portfolio more to the long term and an appropriate place for us at the moment. If you flip to Slide 4, just a quick reminder on the durability of our markets. These are positive durable markets which have grown substantially over the years and in a very steady way, very predictable. And it's because there is an aging population out there, certainly in the West, who need eye care. And this is, to a large degree, driving the cataract business, drives the retina business, drives our -- a lot of what's going on in our development thinking as well. But there's also in the emerging markets an increasing middle-class wealth, which among the first things governments want to do is pay for eye care because it is a very productive use of resources and we believe that's again a positive trend. The underlying pathology of myopia, I think everybody understands that this is a real epidemic. I think by 2050, more than half of the world would be myopic. And there are lots of new technologies that are arising around not just myopia but retinal disease and corneal disease and any other number of other visual maladies that we are trying to serve. So we're in a good place right now for talking about trends because, obviously, the markets have been difficult for the last couple of years. And I think it's really useful to remind ourselves that cataracts don't go away. They are out there. They will get delayed during these last couple of years. But I think we believe that over time, those cataracts will get serviced and we will take them out. Again, I think over time, these markets will return to solid, that we've loosely called kind of 3% to 4% market growth. On Slide 5, one of the things that's been really important to us is we're a products company at our heart. And so what we do with our R&D money, which is quite substantial, is critical to where we go. And as we kind of come into this next frame of time, we've moved our portfolio now to about half of our spend on portfolio -- genuine portfolio advancements. So real products that are exciting and new, not so much line extensions anymore, not so much life cycle management. We still do a good bit of that, but importantly, getting 1/3 of our portfolio also on novel ideas, really next-generation ideas, kind of outside that 5-year strategic frame. And we'll talk a little bit about those. But I think in the near term, you can see on the right-hand side, recent launches, of which there have been a number of meaningful launches, but also launches that we see in the next kind of couple of years. We certainly have IOL delivery. We have a new NGENUITY system. We have an all-in-one diagnostic. We've got a new refractive diagnostic with InnovEyes. We've just acquired Hydrus Microstent, which we get really excited about. Our next-gen Phaco-Vit is underway, and we go into [ Vivity ] and [ AutonoMe ] in the very near-term. The Clareon family of products is going out this year. DAILIES TOTAL1, probably the most awaited contact lens in a long time going out. We've got obviously TOTAL30 that we just announced launching. We've got Complete Multi-Dose Preservative-Free. We've got a whole bunch of stuff. And we've been very productive as a consequence of I think really disciplined investment, disciplined focus and really good execution from the R&D team. So very pleased with where we see ourselves right now. Now if you turn to the next slide, we've done this by design. What we did in the very beginning was think about where were the big markets that were growing quickly and where was our share and trying to select very specific areas. So one of the reasons we see 2 torics coming out this year, for example, in contact lenses is because we basically had no SiHy toric in this space. So if you think about the size of that market, a very meaningful size, high growth with almost a 0 share. I used to say it's a 0 share last year. We've now got PRECISION1 in so it's better than that, but we have a long way to go here yet. So if you take those kinds of opportunities and you piece them together. We were out of the glaucoma stent business for a while. We were not in the multi-dose, preservative-free space. Those are interesting ideas for us, where we have very little share or no share and we see significant market growth, and we like what we're doing there. Now we started on that path some time ago with AT-IOLs. I mean when we started the journey 3 years ago, Vivity was -- and PanOptix were not yet launched and they were in that left-hand side. And what you see now is that they've moved nicely over to relatively high market shares and still in fast-growing markets. So I think we're, by design, moving at things that we think make a lot of sense. Now that isn't to say that we don't have some things that we see as large markets where we have low share. So take TOTAL30, a really good opportunity for us, a $4 billion market where we have a low teens share, certainly under-indexing what we can do as a company in the contact lens business. Not a high-growth market, but at the same time, a relatively big opportunity for us because of the share position we start from. So again, we're excited about that product as we go forward. And obviously, our next-gen Phaco, probably not neither a share opportunity nor necessarily a fast-growing market, but really important in terms of establishing that next decade of consumables security that we want. We have a terrific platform today unsurpassed in its efficacy with our CONSTELLATION and our Centurion, but we have a next-generation product that has really remarkable breakthrough technologies that will take us to another level and we'll talk a little bit about that in a minute. Now let me shift gears into the Surgical business and give a little bit more detail on what we're doing. Let me start with IOLs. Having launched PanOptix and Vivity, we're now once again kind of the world leader in AT-IOLs. Our share in the United States is very substantial. Our share in the world continues to grow. What we've seen is that PanOptix is -- has been well received because it gives particularly good near, intermediate and distance vision. So we're getting very accurate continuity of vision at all focal points. Now the patients are responding well, 99% patient satisfaction. And importantly, what we're seeing is an uptick in the United States in penetration. And I'll remind you that penetration matters a lot because as exciting as share is for us, really, penetration is where the money is. So in the world market, 100 basis points of penetration will generate about $100 million for us. So I think we believe that the penetration in the U.S., having improved as a function of us getting new technologies in, I think continues to be probably our emphasis going forward. Secondly, Vivity, which again, has been launched in a number of places, certainly in the United States most recently, is a new product that offers an additive benefit. And part of the reason we think penetration is growing is because it isn't really cannibalizing PanOptix. What it's doing is it's mostly additive. It's cannibalizing a little bit but not a lot. So what we're getting is a number of patients who maybe were satisfied with a monofocal toric. But now because there's no risk of diffractive visual aberration, what you have is a non-diffractive lens that gives great distance, great intermediate. And most people get -- or a big -- half of people get a good near vision. These patients are upgrading to a multifocal toric in Vivity. Importantly, surgeons that are using AT-IOLs now are including more patients into who they would allow into an AT-IOL. So where you were concerned in prior circumstances about an irregular cornea, a LASIK, being able to see pathology in the back of the eye, these were patients that were excluded from the PanOptix folks and they are now coming back into Vivity as a consequence. So again, we see penetration driving the market and importantly, a big part of how we see going forward. What's important to remember, too, is that we're rolling out new materials. And I think as we go forward this year, we'll bring out, first and foremost, our CLAREON material in the U.S. Now it's in our other markets now, but importantly, this new biomaterial has advanced design. It enables sharp, crisp vision with pristine clarity. I mean this is probably the most advanced biomaterial that we've ever produced and certainly better than what we believe it to be in existence today. What I also would tell you is that the Vivity and Vivity toric, which will be on that material, will launch in Japan this year as well. And obviously, PanOptix toric in China is exciting for us. So we've got opportunities from a number of fronts, certainly on the share front internationally, certainly on the monofocal opportunity around the world. And certainly, as we think about penetration, we see continued opportunity with advanced technology lenses. Now as you think forward and you go to the next slide on Slide 9, the long-term view of IOLs, we think, lies in 2 fundamental changes to the products. The first thing is really lenses need to be, over time, customizable. The basic paradigm today is that we take a lot of measurements, we do the very best surgery we can do, and you hope that, that measurement and calculation was correct. And we get it right 70%, 80% of the time. But that means 20% or 30% of the time, we're not getting 20/20 at target. And that's a problem for particularly advanced technology lenses, where the promise of you give me $3,000, I'm going to get you spectacle-free, is really the basic premise of the exchange. And if you don't get distance correct, then you got an issue. What we believe gets distance right every time is an external correction using energy. It's not a today project or it's a [ day-to-day ] project, it's not as a product, but it is an end of the planned kind of cycle project that will come to market as we see the world going forward. So we believe you can use light energy. We believe you can use laser energy. There are a number of ways to customize lenses and customize the outcomes as you go forward and we will do that. We continue to work on that project now. Importantly, we've proven concept on that project but also on the notion of moving a lens by using the ciliary muscle that already exists in the eye. So the natural mechanism for accommodating near vision is for the muscles to kind of flatten the lens and relax to let the lens widen. Those muscles are still intact for most patients when they have cataract surgery. And if you have a fluid-filled lens, for example, and you can accommodate using those muscles, you no longer need diffractive or even non-diffractive lenses to accommodate for that near and distance vision. You're really moving your lens now, just like you were when you were 25. And that is the next generation, again, of lenses that we see. And that PowerVision project, those technologies we bought a couple of years ago, our proven concept right now, we're in clinical trials with both of these ideas. And again, we see the long-term benefit of these projects as being kind of the next wave of technologies for IOLs that, again, 5 years out, it looks pretty good to us. That's about where we see a number of things peaking and where we can see a real advantage to taking new technology into the market. So let me pass to the next slide and just comment a little bit on our Ivantis integration. We're very pleased to report that we closed the integration this last week and we added the Hydrus Microstent into our portfolio. This is a $60 million starting point on a $500 million market that we didn't participate in. Now ever since we withdrew CyPass, this was a market that we've always had a very high interest in. It's a market growing in the low teens and a market that we think has tremendous potential to grow further. I think what's important about this idea that people may want to understand is that our timing really couldn't have been better. The 5-year pivotal data that Ivantis took on some time ago is the longest continuous follow-up of a MIGS device. And what it's demonstrated are some really fundamentally important ideas for the MIGS space. First and foremost, this 5-year data talks about safety. It's a very safe product. But secondly, what it says is that 65% of patients who at 5 years, had the MIG in their eye, had Hydrus in their eye, they were medication-free. That's a tremendous amount of cost savings and a tremendous amount of quality of life and it's never been shown at that distance and that definitive a nature. The second thing is that, that same group of patients, 60% less likely to have a follow-on surgery. That means a filtering surgery, a trabeculectomy, something else that is going to cost money and cause quality-of-life damage. So again, the savings associated with this product and inserting this product are being established in a long-term, important randomized clinical trial. And maybe most interesting, the Moorfields folks out in London have shown on the same set of data that we can slow the progression of glaucoma in these patients by almost half. So if you understand that to be in essence, a patient that could go blind in 10 years now goes blind in 20 years, that is a remarkable product. And those are the kinds of things that we think expand the market. What it does is it creates an environment where reimbursement becomes much more obvious. The argument for reimbursement becomes more obvious and the need and the desire to put these in with that kind of data, we think, given our footprint around the world and our opportunity to bring this data to market, creates a unique opportunity for us. So we're excited about what's going on there. We're really pleased and proud of what the Ivantis team has done over there. Now moving on to the Slide 11. Let me just comment a little bit on the long-term view of cataract surgery. One of the things that we're very aware of is that the cataract surgeons in the United States in particular, but around the world, are not going to be sufficient to do the amount of surgery that's coming through the system. So it is imperative that the efficiency of surgery improves. So the demand for surgery is going to continue to go up. Number of surgeons in the U.S. is not keeping pace. And the demand for AT-IOLs in particular is also going up. So what we know that means is we've got to get better efficiency. That means faster surgeries, safer surgeries, we've got to lower cost and we've got to improve outcomes. And so as we think about that, the kind of critical idea is to unify the whole of the cataract surgery into an ecosystem of equipment that works together in a very efficient manner. Let me tell you what I mean. Today, the patient comes into the pre-op environment in the office and probably sits through 5 or so different exams that takes a couple of hours, that -- most of that information is taken off in paper, put into the chart that's also paper, stacked into 20 other charts that goes to the surgical planner. The surgical planner then, whether it's a doctor or a surgical assistant, inputs that data into a calculator on the computer. They make a plan for the surgery. They put it back in the folder. They put it over here on this right side. They do that 20 times if it's 20 surgeries the next day. That's an incredibly inefficient process. But then they go to the OR and they take each one of those pieces and they load that data, they move the data and the landmarking information into the OR and they proceed with their surgery. They come back. They take the post-op measurements, they do the same thing again. We believe there's a huge opportunity to streamline that. There's probably 35% of that, that can come out of that system by allowing the equipment to work with the cloud planner that we've invented now and got into the market this last AAO. The SMARTCataract planner for us will accept data from any instrument in the office. But in particular, we have a new ARGOS biometer we'll talk about that moves that data into the cloud. Now that automatically transfers the information there. The EMR information transfers in. The surgeon can then plan wherever she wants to be. If she's at home, if she's on the road, if it's the night late, it's an opportunity to plan from any location you want and do the things that need to be done for next-day surgery. When you get there, all that information is pulled down from the cloud by the Phaco machine onto the visualization system. So it's all available for you in a heads-up cockpit that looks like a surgical setting from what you'd expect. The return patient comes back in, gets the same post-op visit. And then ultimately, that data again, goes back into the system. The calculations that are in the calculator are driven by advanced technologies, machine learning and we genuinely believe that we could create better outcomes with it. So if you think about how that looks over time, it took us 20 years to get from 30% to 55% 20/20, kind of 0.5 diopter, plus or minus, off of target. Took us another 10 years to get to where we are right now, which is kind of 70% to 80%. Probably only going to take us another couple of years, we've got some time to work on this. But in the next few years, we're going to get to 90-plus, and we're going to do that because the outcomes and the design of the learning systems are going to drive better lens choice and better understanding of how the lens will act in the eye once it's inserted. So we're going to believe that we can move from a very substantially pretty good surgery to an excellent surgery. And what that really does is it also enables then AT-IOL comfort and confidence in the outcomes of all of the intraocular lenses you insert. So going forward, that's filled out by the products on Slide 12. So if you think about where we're going next, right now, we're selling one of the best biometers on the market. This is a faster unit. It takes a capture faster. It works better through hard cataracts. It has a swept-source OTC (sic) [ OCT ]. This is a genuinely exciting product for us that most importantly moves the data from the instrument to the cloud planner automatically. So it's a setup for exactly what we're talking about. SMART Solutions: SMARTCataract is our first smart solution. That cataract planner now is in the cloud. We're moving it out right now. We launched it at the AAO in November and we'll begin to move forward with that this year. It will take us a while to work out how to make that perfect, but it's going well for us right now. Importantly, we've got a new NGENUITY system coming, but the current one is 5x the extended depth of focus, creating kind of an expanded surgical space for the surgeon. So when you think about where this data lands in the surgical suite of the future, you've got a heads-up display. The surgeon is no longer tethered to the microscope leaning forward, but rather is posture correct, doing surgery and reading the screen. And on the screen has all of the Phaco machine settings, all of the landmarking information overlays and then, of course, all of the visualization inside the eye. So it genuinely looks like a heads-up jet pilot information screen up on top of the visualization system. So we're excited about that and we're excited about how that moves forward driving our cataract business. The last piece of this, and I'll push to Slide 13, is our next-generation Phaco-Vit console. And I would say that going forward, we have one of -- for the time being, we still have the very best machine in the world. We have the best fluidics in the world. We have surge that is almost imperceptible, and we have energy delivery that is remarkable. But we have got a next-generation product that can do some really exciting things because we've known for a long time that if you could raise vacuum at physiological IOP, very high, you could speed the surgery up. Things come to the tip quicker, you have less disruption. There's a whole bunch of positive reasons why you would want to run that. But it's never been able -- the fluidics have never been able to be such that you could eliminate surge at very high vacuum. We've fixed that. One of the things that's really breakthrough in this is the breakthrough fluidics and the breakthrough energy management of our next-generation product will allow us to operate much faster because we'll be at higher vacuum and yet still at physiological IOP in the eye. So it's not doing damage, very safe, excellent product, but it's going to move faster, and it's going to allow more productivity at a safer rate. And this is a remarkable change. It also, frankly, is a dual system. So it has good economic advantage for people who want to utilize both systems. So it helps the ASCs who want to buy one piece of equipment instead of 2. And frankly, it also, as you look out forward, if we can improve the vitret surgery as much as we think we can with multi-spot laser probes, for example, we can improve the throughput of the vit surgeries as well. So we're excited about what this does for the whole of the cataract business. Now moving on to Vision Care. We're excited about what's going on in Vision Care. We have a very robust pipeline that has been developed over the last several years. We got started very much in the surgical business because we had a lot of ideas that were ready to roll and it takes us a little bit longer in this journey to get both the manufacturing capacity and the products in line for Vision Care. But we're in that place now where we seem to be hitting on all cylinders and that is to say that we are launching several new products in our contact lens space and we have the capacity now to help support that. So we start with really our premium products. And the premium brand is, of course, TOTAL. And our TOTAL brand has forever needed a toric and we have never really had the capacity to allow for the toric to be built. And we finally got ourselves in that situation with the capacity in place and we are launching DT1 toric, which again was announced just recently. It was sent out there a little bit with KOLs last part of last year but now fully available going forward in the United States and around the world. So we're very excited about that toric product. And importantly, how it builds out the family because, of course, everybody wants to use the sphere, wants to have a sphere and toric and multifocal. And at this point, we've now completed that DAILIES family. The second piece on this is, of course, that we, for the longest time, had thought about reusable lenses but really didn't have a material that we could make that would take the water surface grade -- the water gradient surface on it. But our R&D team has been able to create a surface now that actually can, in a reusable format, so a durable material that can last 30 days, it can actually hold the water gradient. So we have created probably what we think is the first and only kind of real, meaningful innovation in reusable lenses in probably 10 years. And it's right in time because I think right now, we know that there's a big user base of reusable lenses who are anxious to have something else. So this lens feels as good on day 30 as it does on day 1 and we're excited about the comfort, the handling and the ongoing durability of that lens. So we are launching that right now in Europe. It's been out really for a few months. We're now moving forward with it in the U.S. and we'll continue to move forward with it around the world. If you flip to Slide 16, we've talked a lot about PRECISION1 over the last year or 2 and I do think it's important to remember that this is still a very fast-growing product. This is really the biggest section of the market, which is the performance section where you need, for an appropriate price, for the vast majority of the market, they want precise vision, lasting comfort and ease of handling and that's what this water gradient lens does. It may not be quite as good, as quite as comfortable as our DAILIES TOTAL1, but gosh, it's at a price point that most people can afford and that's really the value idea here, which is how do we get all the things we know about DT1, as much as we can, onto a lens that we can produce at a lower price so that we can charge a lower price. And again, we think this is a lens that makes a big impact on the market, continues to be a positive for us. The toric was well received in the fall. In fact, we backordered a little bit on that one. We've got that production back up and running full steam. So we're in a very good position to do well with the sphere and the toric around the world. Flipping to Slide 17, I want to make a comment on our eye drops piece. We made the decision last year to put a new sales force in the United States that would handle our eye drops business and the principal idea here was the U.S. artificial tear market is about $700 million. And about 25% of that is unit-dose, preservative-free. But the unit-dose products, and we make some of them, they're wasteful, they're expensive, they're expensive to make. And the opportunity is the rest of the world has a multi-dose, preservative-free bottle that's just a lot handier, easier to use and a lot less expensive. So we have been able to license a patent around this product that gives us a multi-dose product that will bring, I think, a real change to the U.S. market and we needed the sales force to do that. We also have a move going on from Rx-to-OTC with our allergy products. So our Pataday Extra Strength used to be a prescription product, now is an over-the-counter product and we were obviously trying to make sure that, that one moves intelligently to this and that all the surgeons and ophthalmologists around the country have access to samples, can get patients started on it and know how it works and what it does. So we did that. We bought Simbrinza from Novartis to fill out the bag and we have a real interesting, I think, mix now of products that are exciting, that can grow for us and also importantly give us a platform from which to grow our eye drops business in the future. So I think we're excited about doing that. We continue to see that opportunity around the world and we'll continue to move forward with it. So lastly, let me focus on the end game and Vision Care because we get a lot of questions around, yes, but where does this go long term? And I do think that there's probably 3 big vectors that we're working on. The first one is specialty lenses and I think the way to think about this is the penetration of toric lenses is okay. It's pretty good, but it isn't the rate at which toric astigmatism exists. And it's because toric lenses still don't necessarily settle quickly. They don't necessarily settle where they need to be. They're a little bit tricky to fit. There are a number of problems to solve in toric lenses. Multifocal is even worse. Multifocal penetration, if you think about the real problem here, the real problem with the contact lens business is that at 40, most people begin to tail off of contact lenses. And the question is, well, why do they do that? And there are 2 reasons. One is the eyes get dryer and it's harder to wear, but maybe more importantly is they also start picking up readers. And unless you have a multifocal product, then you've got a problem. You're going to lose these patients who don't want to put in reading glasses over a contact lens. So the point to that is that the optical designs are not sufficient and we make the market-leading multifocal product, but it can be better. And over the long haul, we are going to make better designs with our optical engineers here that have been working on the best IOLs in the world. They've built PanOptix. They've built Vivity. We're going to use those same engineers to go ahead and build better toric designs, better multifocal designs and put those on materials that can really make a difference. And we believe keeping -- the real money, the big money is keeping 40-year-olds for 5 more years in contact lenses. That's a multibillion-dollar idea. Now that's where we see the biggest opportunity and space in the market to go. The second one is, obviously, we have a unique investment in a contact lens platform that will allow us to manage different kinds of modalities. So whether it's a daily or a monthly or anything in between, we can do a number of things with modality, and that is the way in which people wear lenses. And we can also use different materials, we can use different surface chemistries. And we -- and obviously, the optic design fits right in that. But we will be able to create new lenses that will be more competitive in spaces that we may not participate in currently. And then third, the crazy thing in the world of eye drops is that when we started this company 75 years ago, we basically had a little glass eye dropper. And you would stick it up here and you'd stick your eye and you'd look at it and you try and make sure that drop hits your eye. And today, we're basically still doing the same thing. We've got these eye drops. You tip it back, you put it up your head, you shake it, try to get that drop in the eye. There has to be a better way. And I think that as important as the -- what's in the bottle is, it's really important that it gets in the eye and that elderly folks in particular can do that more easily. We think we can decrease concentrations of active. We think we can do things that enhance safety. We think we can do things that enhance the ability and compliance of patients to get drops in their eyes. And again, that's long term where we see the eye drops business going. So working on all of those things right now gives us a real sense that there's not just a near-term future for Vision Care but a real long-term sense there. Lastly, before I wrap up, let me just comment a little bit on capital allocation. Our capital allocation process has been consistent from the start. We have a high degree of confidence that we should be investing organically right now. We have been doing that. That's been our first priority, whether that's the R&D investments we've made, which you can see the productivity of; whether it's the manufacturing that we've done in a number of areas, but particularly Vision Care, you can see what's going on there. We're obviously going to get behind these products to support them commercially. But importantly, our first priority is to grow this business organically. We think that generates the best return and use of capital. We are going to continue and particularly as we come out of the phase where we've been spending a lot of money on transforming and separating the company, we can redeploy some of those monies largely at BD&L and M&A opportunities. And we believe there's a nice sweet spot in here for us in that kind of $50 million to $500 million area, where we can find either new technologies or new products that we can add into our significant commercial infrastructure and maximize the value of it and I think that's certainly what we'll be looking to do as a secondary idea. And of course, we're always returning -- we're thinking about shareholder return on this one. We are committed to our dividend. Every year, we'll look at it. We'll discuss it with the Board and make a decision with the shareholders as to what we do on dividend, but we're committed to that 10% of core net income. So that's our kind of ongoing capital view. Wrapping up, let me just kind of give you a high sense of where we see this business. We have very good markets. And despite the kind of interruption that has been these last 2 years, if you just take our third quarter growth, which was 14% over '19 and you divide it half, figuring that it was roughly 7% a year, we said when we came out we'd grow mid-single digits. And by gosh, we did it even despite the COVID. And the reason I say that is because as you see that reflect go forward and the markets return, the growth that we can achieve given our substantial market positions will be even better and I see that positive growth coming over time because the markets are solid and because our share positions are quite substantial. We're strengthening our leadership in surgical. You can, I think, see that with the shares but also maybe most importantly in the way in which we're moving the portfolio of projects. We're beginning to look longer term at what the next wave of big ideas are, while at the same time, we're getting out very consistent products that are going to add to the portfolio. We're investing in all of the products that we've launched, make sure we get the maximum value from them and we've got a disciplined capital allocation framework. So again, I really appreciate the opportunity to share with you, I think, what we're excited about, which is this kind of 3-year program that we've been excited about, but feel good about where we are and we see kind of going forward a real positive outlook. So excited about that. David?

Great. Thanks, David. Really interesting and comprehensive update there. Thanks for that. Inevitably, there's been a bit of a focus this week in terms of Omicron. I just wanted to get your thoughts in terms of how that has impacted kind of short term, I'm afraid, in terms of late Q4 into the first part of this year. I suppose leading on from that, in terms of sort of pent-up demand for surgery, which you touched on through your presentation, what capacity is there in the market to be able to catch up that pent-up demand? And what can you do to try and help your customers, your surgeon customers, out there?

Yes. So look, I mean I think our view on the market hasn't really changed much since November. We saw a little bit of Omicron at the very beginning there, and I think our view has been that the U.S. would continue to grow over '19. We still believe that it was growing in the third quarter over '19 pretty substantially. We think it grew in the fourth quarter as well. So we'll see how that goes forward, but that's been our view for a while. International is not and it's a little bit lower. It's been, I think, double digit below '19 for a while. We think it's going to take probably into the middle part of this year to see that really get back to '19 levels. And so on balance, we think we're roughly at '19. I mean we'll find out as we kind of close the fourth quarter, but we think that the world market is roughly at the '19 levels in Surgical and Vision Care. But again, it's a different story, international versus United States. That said, I don't know that there's -- there isn't going to be in either of our businesses a rapid bounce back of backlog procedures because the capacity doesn't exist internationally to do it. It's mostly hospital-based. And they are, generally speaking, have had -- they ran roughly at capacity or pretty close to it. And even in the U.S., where there is a little bit of capacity and flexibility to add some, again, they were running pretty efficiently at, let's say, 85%, 90% of what they could do. So I think what you're very much -- I think very much what you're likely to see is going to be a kind of better-than-normal growth rate. So if the growth rate in surgeries have been, let's call it, 3% historically, it will be a little bit better than that, but probably for several years. And I actually think that's -- I think that's a positive for us because, again, you don't see -- you're not going to see a big bounce up followed by a tough comparator the next year. What you're going to see likely is a steady growth year-on-year that really has an impact on us going forward for several years. David, I think -- there you go.

That's the first time -- managed that all week. One of the questions that's come in is just with respect to the puts and takes on margins and obviously you've got this margin profile out to the middle of the decade. But into the near term, a lot of puts and takes, a lot of products being launched. How should we be thinking about the margin evolution over the next year or 2?

Yes. Tim, do you want to take that one?

Yes. So as we said on the Q3 call, we feel very good about the low 20s in 2023 and approaching mid-20s in 2025. I think the puts and takes near term, we continue to feel good about the revenue momentum that we have both from products that we launched last year and products that are coming out this year. We do expect to see some inflationary pressure, particularly if you think about next year, that's a year-over-year view. We have pricing increases out in the marketplace. We've got productivity initiatives in place. But at the end of the day, we would expect to see some inflationary pressure. We'll continue to get operating leverage as we continue to grow that SG&A base modestly, but continue to grow that revenue line nicely. That generates quite a bit of operating leverage and that will be important for the margin progression. So I would go back to the Q3 comments we made. The one thing that I would highlight that we talked about is foreign exchange. And as we said on the Q3 call, if you took the November rates, the early November rates at the time of that call, compare them with your September year-to-date rates, that's about 2 or 3 points of FX pressure. And a point for us is roughly, on the revenue side, it's roughly $40 million; operating income, it's roughly $15 million. So coming out of that Q3 call, if those rates hold, that's about $100 million of revenue pressure year-over-year and about $50 million of core operating income pressure year-over-year. Now that assumes those rates hold, so we'll just have to see how that plays out. Rates have continued. The dollar has continued to strengthen, so we've seen a bit more pressure since then. But I think that's the one piece that as you think about near term, I'd incorporate that in your models.

That's great. I'm afraid that's taken us to the end of the session that we got time today, so thanks very much for your time. Thanks for attending the conference. I'm hoping you had a good time. Thanks, everybody.

Thanks, David.