Bausch + Lomb Corporation ($BLCO)

Sponsor ownership. There's been a lot of investment to build the pipeline and strengthen the foundation of the company.

Maybe just talk to us about where we are -- where we are in that journey and how we should think about just the evolution of the business both through 2026, but also beyond?

Yes, sure. Well, first, thanks for having us, and thanks for Goldman Sachs to hosting this. Look, so I joined I guess, February of '23, so a little over 3 years ago. And when I came -- it was my second time or my return to Bausch + Lomb after being there prior to my run at Allergan. And it was a company knew well and a space eyecare that I knew well. And what I found was a company with a lot of potential. But what I wanted to focus on first was really 3 things. And in order it was selling excellence and getting top line growth operational reliability. We had -- coming out of COVID, we had a lot of supply chain-related issues and then building R&D capabilities. And I think we stayed very focused on those 3 things for the first 2 years that I was here. And I think the proof is there, right? We we have been a very consistent grower faster than the market, faster than our competitors since my arrival. We -- our operations, our backorders are historical lows. We've really done a lot to stabilize and fix our operations. And then R&D, under his leadership, we went out and we really focused on -- he went out and really helped a little bit focused on recruiting the best talent in eye care R&D and building capabilities across all of our different R&D organizations. And then we have 60 programs in R&D, all of them innovative. We got rid of all the meat to copycat biosimilar work that was being done prior to our arrival. And I think R&D is in a very different place. So then last year, in beginning January 2026, I said we have to add 1 more component to our strategy, which is financial excellence. And that was the culmination of Vision 27, where we really wanted to focus on maintaining that growth what we said at Investor Day, 5% to 7% top line growth, but drive our margins from basal 600 bps from 17% EBITDA margins to 23% and EBITDA margins by the end of 2028. And we've been at it for well over a year. It's been a massive structural change of how we run the business. It's a permanent structural change of how we run the business, and you're starting to see the results. You've seen it really flowing through the P&L through the last 3 quarters. And if you look at the first quarter, it's -- there's a very strong proof point that 178 basis points of margin improvement 70 bps of SG&A leverage and good top line growth. And so it is working. We have a lot of work to do, but I want to be clear this is not a hockey stick program. This is a very consistent roughly 200 basis points of margin improvement every year for 3 years. And you're going to see it this year. You're going to see it next year and you're going to see it the following year. And the plans are all in place. The actions are underway, and it's happening. So I'm very pleased. And at the end of the day, it's proven to me that our team can execute on growing the business, growing the pipeline and reduce operational friction to get margin improvement. And so it's working.

And maybe we just got opportunity to go into a little bit more detail on some of those drivers, maybe starting with the top line. You made a reference to outgrowing the markets that you serve. I think we can see that as we observe other companies in this space. But -- maybe you could just break down a little bit how you think -- what's driving that relative outperformance? And maybe just kind of pick to the businesses, starting with Vision Care and then go to pharmaceuticals and consumer?

Yes. So it's always multifactorial. It starts with being able to supply the market -- and so I won't spend a lot of time on that because it's not very sexy. People don't like to talk about it, but really building out manufacturing capability and efficiency. But the 2 biggest drivers are field force execution and innovation. And so there's a lot that goes in between that, between medical affairs and marketing messaging and medical meetings and bringing the KOLs along. But if you boiled it down to 2 things, it's feet on the street, knowing who to target with the right message, with the right offers and then having great products that work say this is going to help my patient. And we've done a really -- Clinically differentiating our products and having our field force execute with excellence.

And not this Monday, but last week, you had a session on contact lenses that you broadcast the investment community. -- it really struck me as -- I was talking about some case, it just looks like these guys are really on offense here from a product perspective. And maybe just was my interpretation accurate and maybe just give people a little bit of the cliff notes from that session, what you thought some of the takeaways were?

Yes. I'll ask here to help me, but let me just set it up real quick for a second. So you're right. We really -- our focus is to be on offense to take market share. Obviously, we consider defense. But I would say the vast majority of my time and in the team's time has spent thinking about market share gains and how to take it. And when you think about the contact lens business, right, we were playing catch-up right in daily SiHy. We -- his team delivered a superior product in our daily SiHy, INFUSE or ULTRA ONEday outside the U.S. we're seeing really strong results. I think Q1 was about 23% growth in daily SiHy. We were the fastest grower in Q1 at 5% for the total contact lens market and that's been consistent. But ultimately, to have a step change in beyond offense, we need to drive meaningful innovation into the contact lens category. And it's a category that hasn't had meaningful material innovation since 1999 when silicone hydrogel came out. And so Yehia's team, I think, has done an amazing job figuring out how to solve for one of the biggest issue, which is end of day discomfort end-of-day dryness of contact lenses, which is the #1 reason people drop out of the category. About 20%, 25% newly fit wearers drop out in the first year because of -- so he came up with Project Taylor his team came up with Project Talos, you want to talk about it?

Yes. Sure. So just speaking overall on the big picture the guiding principles that we got from brands once he became the CEO, is that we want to invest in the 4 business areas. So we want to grow all the businesses, not focusing on one area over the other. The second is that we had a lot of great infrastructure within Bausch + Lomb, and we need to utilize all this infrastructure from manufacturing capabilities or other capabilities in terms of research or development. And the third one was focusing on talent. Really, this is a big area for us and was focusing on the best talents in eye care research and development to bring them and attract them to work with us. And this is what we have done in principle and overall picture. In terms of Vision Care, in particular, I think the Project Halo actually changed completely the way we look at the contact lenses because normal situations when we put a contact lens inside the eye and the person goes all the day long exposed to a lot of environmental factors like air conditioning, wind blowing and the eye on all [indiscernible] then the contact lens itself lose part of its mature. It becomes more and more dry over time. And the idea that we are actually and we developed this in our labs is to have a contact lens that is bioactive. That means it interacts with the biology of the eye to keep the moisture inside the contact lens all day long. And this is the HA. HA is a hyaluronic acid. It's a natural substance. It exists in our eyes. It exists in our joints. It exists in a lot of areas in our body. And it has one particular characteristic that it can actually hold water 1,000 times more than any other molecule. So it can really keep -- as if you are putting a sponge in water sake and you keep this sponge completely wet all over the time. And this is where the innovation that happened is that we were able to produce the backbone of the contact lens is from to hold the moisture and wet-ability all day long and addresses an important part, which is the end of the day dryness for the contact lens, which is a very common complaint that we hear from contact lense wears. So basically, in testing, and we tested this in one of the external study recently, and we found out that 99% of the more share of the lens is maintained over 16 hours of the day. And actually, also, we saw this translating into the comfort by the patients as well as also in terms of lubricity, -- just to give an idea what's lubricity, every time you link -- it's literally the interaction between the inner side of the lids and the contact lenses. We were able to show with this is that it has the least lubricity among all contact lens. So this will also translate that you're not feeling with the contact lens as you were and get over it the long day.

And I know it's still a couple of years maybe can you just remind us of the remaining milestones between here and approval?

Yes. So I think we are on track on the exact milestone as we calculated from the very early beginning. We concluded on external study early this year. We are going to conduct a second external study, which is based on what we learned from the first one to optimize. And then next year, we are going to go for the registration studies. I think one of the most important things that we want to translate all the findings and the great things that we are finding in the expect studies into claims that we can do also for the lens as we are moving forward. Once we have the registration study is done, then we can submit and then we can get approval as planned on 2028.

SOkay. I think one thing I would just mention, I think it's -- as you think about this kind of innovation, -- in 1999, silicone hydrogel, the innovation behind silicone hydrogel was oxygen permeability, right? ECPs or ODs, they wanted -- they were worried about the health of the eye. -- and they wanted to see more oxygen on the eye with the contact lens in. And that's why we innovated around silicone hydrogel. And so it was really -- and it's now more than half the market, right? It's the preferred material. But we were solving for a health issue with that, and it became the standard. Here, what we're trying to solve for end of day comfort is both a professional issue and the consumer's issue. And so the issue we're solving for in my humble opinion, is much more important than the issue that was solved for by silicon hydrogen. Well, it seems like it's also not just an innovation opportunity for you is the market expanding Well, that's my hope technology that will expand the market, bring people who perhaps were fitted and dropped out, that 25% that drops out in year 1 every year and/or and we can talk about pricing, but price it to make it accessible to really take market share.

Okay. And what is your latest thinking on the health of the contact lens market now that Cooper is reported and they expressed similar sort of broad trends to you around markets outside the U.S. But where do you think we are in kind of that historical 4% to 6% range that most participants have discussed?

Yes. So I think structurally, the market is fine. As you said, in the market, if you look at it historically grows 4% to 6%. So the average is 5 million -- last year, the market grew up 4%. So it's at the lower end. I predicted this year that at the beginning of the year, I said I think at the JPMorgan conference in San Francisco, I expected the market to grow at about 4.5%. And I think it's going to be somewhere in that zone. So it's going to be slightly better than last year, and we're going to grow faster than that. And there's always going to be parts of the world that have macroeconomic pressure consumer pressure that are going to be puts and takes, right? And so you're seeing that in Asia. But it's not -- it's not unique to the contact lens market, it's happening to the entire consumer market in those countries. And so I think I think the long-term outlook is stable at 4% to 6%.

Okay. And maybe touch on surgical. Obviously, a business that's seen some variability over the past year with the investor recall. Maybe just update us on where we are. I mean I think when you made pretty sharp bounce back last year and just maybe help us frame kind of the surgical business growth rate here going forward?

Yes. So I think surgical is a big opportunity for Bausch + Lomb. We've all sided to do the most work in surgical over the last 3 years, right? When 3 years ago, we were we didn't really have a lot of innovation. We really did not participate at all in the premium category. We had toric lenses, but we didn't really participate in the premium segment. And now we have a very robust portfolio of IOLs, including premium. Our premium growth is strong. First quarter was 27% premium IOL growth, so much faster than the market. And what we're hearing is our trifocal in particular, Vista Envy, which was launched in the U.S. first is now launching globally or in Europe, is really good outcomes, good predictable refractive outcomes and great patient satisfaction. So I think we have a very strong performing lens. But more importantly, we're building a full portfolio, including equipment, packs, consumables. We'll have our Elios, our MIGS procedure launch later this year. And so we're becoming a really full-service provider to the ophthalmic surgeon.

And maybe we could dive into Elios a little bit. It's another 1 that you've had some new salon and hosted an investor session, but you got a lot of questions on Ilios. Is this intended to be Elios versus iStent? Or is this about market expansion? Maybe just frame your view on the positioning of Ilios and how we should think about both the evolution of that product for you, but also how it fits into the market.

Yes. I mean I'll let Yehia answer a lot of it. But look, I think for us, it's about providing -- expanding the market and providing cataract surgeons with a best-in-class tool to manage IOP in patients that have cataract surgery. And it's a very elegant procedure, very effective. We have very good long-term data and reimbursement will be strong. So I think it's set up for a really nice growth product for us. It's not much in the P&L this year. But I think in next year, in 2018, it will be a meaningful growth driver for Bausch + Lomb. You want to talk about it clinically?

Yes, sure. So when we look first to the unmet medical need, obviously, mix is the one area that's expanding rapidly in the glaucoma space. And when we look to this area in particular, there are 2 categories, either you an implant or you leave behind stents and to maintain the intercrop pressure flow out or there are some other laser technologies. Usually, with the leaving extent or MIG inside, there's usually a lot of complications that could happen from a misplacement or it could be some hemorrhage or a lot of surgeons would not prefer that. And then when you are without a with a MIG, a laser technology, you always look how patent the holes that you are making from the laser technology will be over time. And I think this is where Elios fits perfectly because with excimer laser, you can have a very precise clean cut, 10 homes inside the trabecular meshwork. And this actually will followed up patients up to 80 years now. And we have seen that the intraocular pressure lowering have been maintained and without the use of additional communications. In addition, there's a lot of surgeons are very relieved that they are not leaving behind any stent inside the eye that could cause any complications on the long term or even displacement during the insertion. More importantly, I think the data have shown us from the pivotal studies over the 2 years period that the efficacy of intra-op pressure lowering. First is decreasing by 23% to 24% from this line. Second, that the proportion of patients are not getting back any comedications is about 62% or 63%, which is a big amount of patients. And third is on the safety side, we did not see a lot of the complications that could be happening with an implant. In terms of the surgeon population, I think we are targeting the cataract surgeons. And we looked at the data, we found out that 50% of the cataract surgeons, although they can perform combined surgery, they don't perform it. And this comes back to the learning curve of some of the procedures it takes a lot of time. And with the Elios, we sold a lot of this problem. In fact, we trained over 170, 180 surgeons currently. The learning curve is very fast. Many of them can perfect the procedure after 2x. And then the second is literally that many of them actually have found out that doesn't add a lot to the surgery time, which is a very important factor for the cataract surgeon. So it's approximately 13, 14 seconds more to do create -- this has added to us that this is a population that we would like really to target and start with. And this is our focus for the primary indication, which is with catheter.

And if you think about -- you've talked about selling and commercial excellence, on the one hand, you might look at this as I say, from the outside, well, they have the surgical business, they can cross-sell here, but they also live in other ways you want to have deep product specialists. How are you thinking about the go-to-market strategy with Elios and how it fits with the overall franchise?

So in the first quarter, we kind of reorganized how we work in surgical with more of an practice or account management focus and then you bring in the specialists when needed. So there'll be LEO specialists that will work with their account owners or practice rep and they'll work together. But for Elios, to be fair, it's -- I'm oversimplifying, but it's almost see one done one. And the way this procedure lines up is very natural for cataract or to do. So it's not going to be a high hurdle, but we will have specialists for sure.

And do you go through a limited market release to full market release process? Or are you going to use AAO -- is this sort of coming out party for Elios? How should we think about when we start to see commercial traction?

So it depends on the FDA right? The file is in. We'll see when we get it approved. We'd love to use AAO, if that's possible. But we've also -- as a said, we've already trained some of the top surgeons. We can't take orders yet until we have an approval. But we have a lot of inbound interest in Elliot. So our team is gearing up, and we'll be ready to go as soon as we get that approval.

Excellent. Maybe just closing out on pharmaceuticals. I mean, the dry market looks like it's getting kind of crowded. I think you've talked about my bo -- being market share being sufficient to kind of achieve your objectives of that product. But how are you seeing that market unfold? And how do you think about just sustainability of that franchise's competition intensifies?

Yes. So I don't think -- I think about it perhaps differently. I don't think the market is crowded. I think that the market is still very underpenetrated. There's still a tremendous amount of Americans who don't treat with prescription that should. We're nowhere near saturated or we're not even scratching the surface. And I think with Miebo in Xiidra, we have the 2 best-in-class therapies that are differentiated that offer ECPs, the best options to treat a patient with dry eye. And so we want the market to expand in terms of new entrants it sounds weird for me to say this, but I welcome them because they expand the market. And when you have the best 2 medicines, market expansion is we get more than our fair share. And so Miebo is a best-in-class product and is becoming the standard of care for dry eye, and we'll keep working on that. And then, of course, we have the combination therapy in development, we'll get data on in the second half of the year. And so that will be the next really innovation into the market where you have a multifactorial disease, you tend to see combination therapy as standard of care.

And maybe just toggle over just the broader strategy for a second. I mean you think about your portfolio, you serve really all corners of ophthalmic health. We've also talked about M&A as an area of interest. Where are some of the categories? Or how do you think about just your broader M&A strategy and what you solve?

Yes. So first, let's just say from a capital allocation perspective, our #1 priority is delevering, and we put out a target of 3.5x leverage by end of 2018. And we will meet that because that's priority number one. Look, we've been making investments in our surgical business to really vertically integrate and be able to offer a comprehensive portfolio to our customers. And then a lot of the rest of the investment is in, frankly, intellectual property and opportunities for his team to develop new consumer products, new contact lenses we do on our own, but news, we still have our EDOF lens coming. We have our Cnova, our next-generation Vega machine coming and then, of course, pharma, we have a very rich pipeline. And in fact, hopefully, around the turn of the year or early next year, we'll be talking to you about our early retina programs in particularly geographic atrophy, which are really early, but really exciting.

And as you think about the pipeline that sits in front of you and this sort of is under that sort of, I think, umbrella of capital allocation is that it's sort of I appreciate there's always a balance between growth and profitability, and you want to achieve the 600 basis points of margin expansion that you've set out. But how did you think about the balance between sitting on this sort of I think probably one of the strongest pipelines in the company's history with making sure you fully extract the value from that pipeline -- maybe it's not first operating margin expansion, but -- how do you think about the interplay between the...

So the reality is Vision 27 is 650 basis points of margin improvement, with 50 basis points reinvested back into R&D. The second thing that he and his team done has done extraordinarily well is really deploy AI to shift our R&D expenditures to clinical programs. So when we arrived, we were spending, what, 70%, 80% on maintenance of business and 20%, 30% on new product development. He's turned that upside down. We now spend 70%, 80% of our R&D budget on programs or new product development and 20%, 30% on programs because we use AI to do maintenance of business, regulatory filings, pharmacovigilance. I mean, your team is deepen it labeling -- and so that's where the we're getting the efficiency, but we don't expect the margin improvement to come from R&D. We expect them to develop more products.

Okay. So -- and I know you laid out some specific targets for kind of the shape of the P&L, but it seems like with this new product launches, you get a good amount of gross margin leverage that funds that necessary reinvestment?

Yes. Well, first, let's be clear on the targets for 2028, the pipeline is completely incremental because the only pipeline product that's in the numbers of Elios because we hope to have it approved this year. Everything else comes in '28 and '29 and '30. And so it's all incremental growth and product, but take a product like Project Halo. Because it was intentionally designed to be made on existing capital equipment, there is no -- unlike every other big leap forward in contact lens, where you have this huge capital investment that has to be made to build capacity. We don't have to do that. And on day 1, that lens, regardless of where we price it will be margin accretive to the contact lens portfolio. And so it was very -- it sounds very easy to say, but what his team accomplished was extraordinary to come through with a breakthrough material innovation that could launch at a high margin and not require capital expenditures.

It's good because it's when you get to the 2030 LRP, you won't have all of us complaining about why can you continue to grow 5% to 7% of things beyond that.

Yes. I mean, look, -- we won't bat 1,000 in R&D. No 1 ever has. I don't -- I hope we do, but no 1 ever has. But we don't need to. Any one of these programs is game changing to our top line and to our margin. And so I hope they're all successful. But even if you don't develop as clear as 1, 2, 3 had approved because that's never happened in my career. I think we have enough shots on goal that we're going to be successful.

And as you think about that shift in the R&D investment away from being able to be more efficient with sustaining engineering -- in dollars into the new product development side. If you were to maybe even a little further in terms of some these characterizations, incremental, substantial transformational some consultant came up with. But how do you think about the mix of that R&D that's our development investment?

Well, I think just from an overall picture on the investment side, I think one of the areas that we are focusing always if we would love to have everything is a breakthrough first-in-class nothing like. But the fact is some of it will be like that when we -- this is our focus, like, for example, the material that you mentioned, I think this will be very innovative and the fourth front of innovation. Some others will be best-in-class. And this is also one of the targets for us. For us, important 2 things: clinical differentiation and huge unmet medical need. And these are the 2 moving needles for us or the compass for us to develop the new product. For example, we developed another program in vision here myopia. We're not the first one to try to hold myopia progression, which is going to be even a much bigger problem than it is currently by 2050, expect the population will suffer from myopia. But we are targeting here to be best-in-class. If we look to the pharma pipeline, we are trying to get also to be at the forefront of innovation. First ocular surface pain. Pain is the most common complaint at the ophthalmic and OD clinics. Nevertheless, there is no targeted products who were paid always towards surroundings of the can complaint. Second, also, if we look to glaucoma, if successful, it will be the first-ever product to lower intraocular pressure and show functional improvement for glaucoma patients who lose their vision despite the use of intraocular pressure lowering. And then, obviously, some other areas like the combo therapy, it's not be the first. There are a lot of other combinations, but it's the first combination of dry eye. And for us, it's going to be the best therapy for the patients because normally dry eye or it's usually a combination of different factors inside the eye. That's -- this is the concept of developing is trying to really look at differentiation and unmet medical need.

And I mean if you listen to kind of wrap this all up, there's an incredible amount of momentum that you have, both in the core business but also what looks to be on a much longer-term basis, the potential to reshape some of the markets that you serve and take significant share at a stock question. But at the same time, you've got this sort of boogie man of the retained cash ownership. And I know there's a thing -- it's not really within your direct control, but how do you kind of contextualize that for investors? And any sort of your viewpoint, how we think about this sort of accelerating momentum, but then this sort of lingering overhang?

Look, I think I hear that question in every investor meeting I'm in. So I understand it's on top of mind of investors. But you're right, it's something I don't control -- what I do control is operational performance and strategy. And so my focus is the best way to support BHC is to have the best execution and grow the fastest, improve our margins and drive the pipeline. And so every day wake up, go to bed thinking about those things and not really worrying about the ownership.

Excellent. And that's a great place to wrap up. I very much appreciate your participation and look forward to getting the next update in July.

Great. Thanks for having us.

Thank you very much. Thank you.