Q2 2022 Bausch + Lomb Corp Earnings Call
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Good morning, and welcome to the Bausch and Lomb <unk> second quarter 2022 earnings call.
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I would now like to turn the conference over to Art Shannon. Please go ahead.
Thank you very much good morning, everyone and welcome to our second quarter 2022 financial results Conference call participating on today's call are Chief Executive Officer, Mr. Joe Papa and Chief Financial Officer, Mr. Sandell Besuki. In addition to this live webcast a copy of today's slide presentation and a replay of this conference call will be available on our website under the <unk>.
Investor Relations section before we begin we'd like to remind you that our presentation. Today contains forward looking information we would ask that you take a moment to read the forward looking statement legend at the beginning of our presentation. As it contains important information. This presentation contains non-GAAP financial measures for more information about these measures. Please refer to slide two of the.
Presentation non-GAAP reconciliations can be found in the appendix to the presentation posted on our website finally, the financial guidance. In this presentation is effective as of today only it is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure would that it is my.
Pleasure to turn the call over to Joe.
Thank you art and thank you everyone for joining us today for the second quarter <unk> earnings call I will begin some comment about bausch <unk> lomb as an integrated eye care business and briefly discuss the second quarter highlights <unk>. Our CFO will then review our second quarter financial results in detail and discuss our 2022.
Finally, I will conclude by discussing our product pipeline and upcoming catalysts before opening the line for questions, but before we talk about the quarter I would like to take a moment to address two recent announcements last month, we announced that I'll be stepping down as chairman and CEO of <unk> in the coming months, having completed the IPO of <unk>. It is in it.
Appropriate time to transition to new leadership first and foremost I want to thank all of the talented <unk> employees are dedicated to our mission of helping people see better to live better I am honored and a part of this incredible company's history and I believe knowing that bausch and lomb is well positioned for continued success.
The <unk> decision is a bausch health matter, we will not comment on at Bausch health will discuss the Norge decision on its earnings call next week.
Now, let's turn to slide four and talk about the Bausch <unk> Lomb business.
For an overview of the important differentiator to support <unk> competitive positioning in the marketplace that echelon is the most integrated eye care company operating today that <unk> was the fastest growing global contact suppliers in 2021 echelon has the highest brand awareness in eyecare echelon is a global <unk>.
<unk> consumer health outpacing U S market growth by approximately one seven times since 2018, and finally <unk> products are available to over 80% of the world's population. This clearly demonstrates the baoshan critical math and I health.
Turning to slide five we see a number of opportunities for stand alone <unk> as an eye Health company first we believe the company is well positioned for growth in large durable markets driven by new products and favorable Mega trends are tailwind such as the increasing prevalence of myopia and diabetes and an aging population that <unk>.
Utilizing 10 times more eye health and those patients under the age of 65 year old.
The growing middle class that are expected to continue driving demand for IHOP products. In addition, we have the potential margin expansion over the long term based on new product launches and supply chain efficiencies.
Finally, as a publicly traded company, we expect to have balance sheet flexibility to expand investment in the business and additional strategic bolt on product opportunities such as our recent announcement and snack list for a surgical glaucoma solution, which I will discuss in more detail later.
Moving now to the second quarter highlights on slide six our achievements contribute to a strong second quarter organic revenue growth of 6%.
First we.
We had continued momentum in key portfolios, we had great consumer performance in the second quarter with a <unk> bioterror and preservation all reaching their record high market shares in the U S.
U S market share her eye vitamins franchise increased by 410 basis points compared to the prior year quarter. The biotech solutions franchise grew by 39% in the second quarter and is expanding with two new launches underway.
The investment in fast growing categories, we'll modify our reported revenue grew by 21% in the second quarter. We in the early stages of brand expansion.
Reported revenue for the Si Hy daily contact lenses grew by approximately 50% with the global SAR had daily market growing at a CAGR of approximately 11%. We continue to see significant growth potential as we launched in more countries and finally, new product category expansion.
<unk> revised a new family of customizable soft contact lenses designed to meet the needs of more patients and in June we filed an NDA for Novo three a potential first in class treatment for dry eye disease associated with <unk> gland dysfunction to summarize our strong second quarter results demonstrated.
Vintage of our integrated eye care platform, the durability of our brands through challenging economic conditions and the continued ability of our team to execute our goals and drive innovation as.
As we look to the future as a standalone publicly traded company, we see many attractive opportunities for an eye health company that is well positioned for growth as large durable markets and in categories that are growing faster than the overall health market and with that I'll now turn the call over to Sam to cover the financial results in more detail. Thank.
Thank you Joe before we get into the details I'll remind listeners that when we talk about organic revenue growth, we mean on a constant currency basis and adjusted to remove the impact of divestitures and discontinuation.
Turning now to our results on slide seven.
Pleased to report another quarter of strong organic growth, our durable portfolio continues to drive demand across our key franchises and markets.
Reflected by our total company revenue of $941 million for the second quarter.
6% organically and up 1% on a reported basis.
The business is demonstrating the benefits of <unk> integrated and diversified platform with high brand recognition.
Which enabled us to overcome persistent macroeconomic challenges, including inflation the impact of Covid in China, and approximately $46 million of currency headwinds.
While we are seeing a gradual improvement in economic activity in China.
Covid related restrictions continues to limit mobility and disrupt consumer buying patterns.
Overall, we're very pleased with our performance in the quarter and believe we have a resilient foundation.
Allow us to accelerate growth as we build on the momentum in our current portfolio and continued to launch new products.
In the near term, we expect growth to be driven by our key vision care franchises expansion of our U S leadership position in consumer health.
Our market recovery sale was in our surgical business.
We will continue to target cost mitigation initiatives and <unk>.
Identify competitive pricing actions to address the impact of inflation and leverage our global footprint to navigate the stop and go nature of the Covid recovery.
Over the long term, we expect to continue to strategically focus our investment to <unk>.
Further strengthened our brand equity and our global franchises.
Execute on the transformation of our ophthalmic pharmaceuticals portfolio by launching new differentiating products and invest in R&D to capture future opportunities and target Mega trends shaping the eyecare sector now I'll go into more detail on each of our segments.
Revenue in the vision care segment, which includes contact lenses and consumer products grew organically by 11% in the second quarter.
Our consumer portfolio, which was up 15% organically.
Broad based growth in the U S and international markets with market share gains in vitamins and redness relief products.
The high vitamin franchise occupied improves our vision grew by 7% on a reported basis.
The franchise has continued to demonstrate resilience and as the market leader is continuing to drive growth through increasing awareness of the prevailing AMD.
<unk> reported revenue grew by 21% driven by an increase in demand.
<unk> continues to expand its market leadership position with revenue in the quarter, reaching an all time high of $35 million. The <unk> success has created a new platform for us, which we expect to build on with line extension and geographic expansion strategies.
Having already launched in the U S and South Korea were also recently launched <unk> in Canada.
Next our lens care portfolio, so strong performance driven by both base business and new product launches.
We expanded market share in the U S and recaptured market share internationally subsequent to supply challenges, resulting from the Milan recall in the prior year.
We saw robust revenue growth in the Biotroph franchise.
The launch of buy two hydration plus multi purpose solution in the U S is off to a strong start.
Also contributing to growth is to buy to buy hydration booths line, which was launched in 2021.
Internationally, our select which is a key dry eye franchise grew organically by 20%, mainly driven by strength in European markets.
Growth in <unk> was up 10% organically in the U S and up 2% organically in the international markets, excluding the impact of Covid in China. The international portfolio grew approximately 13%.
The strong results were primarily driven by 50% growth in his daily Si Hy lenses and double digit organic growth in our core brands Ultra and <unk>.
We're continuing the global rollout of the daily Si Hy lenses, most recently with the launch of <unk> in Japan.
We also launched a revised custom soft lenses in the U S, which is an important step in building out our higher margin specialty lens portfolio.
Certain products individually care portfolio has also benefited from strategic pricing actions to help mitigate the impact of inflation.
With the brand equity of the portfolio continuing to drive demand.
We will continue to monitor the market dynamics to ensure our products remain competitively priced.
Moving onto our surgical segment.
Second quarter revenue grew organically by 7% to $184 million.
Benefiting from the continued recovery as the market works through the Covid related backlog of elective surgeries.
Growth was driven by demand in consumables, which saw a 13% organic and 2% reported growth in Implantables, we saw a 10% organic growth and 4% reported growth.
Growth in Implantables was mainly driven by our <unk> franchise and the contribution from our international entry into our premium IOR category through Lexmark.
Finally in the ophthalmic Pharmaceuticals segment second quarter revenues of $168 million declined by 10% on an organic basis.
In the U S. The portfolio was impacted by the tail end of LOE products and competitive market dynamics in our generics portfolio.
We will continue to strategically focus on key promoted brands.
<unk> growth was up 36% in the quarter and total revenue grew by 16%.
<unk> now has been approved in 18 countries, we will launch in Thailand in the second quarter and we are preparing for launch in Brazil in the fourth quarter.
The international Ophthalmology portfolio was also impacted by Covid related restrictions in China, which is a key market for us outside of the U S.
We're excited about the steps taken this quarter to continue the transformation of the ophthalmology portfolio.
The NDA submission of <unk> III marks a critical milestone we expect to finding to be accepted in the third quarter.
As we make progress towards the launch in the second half of 2023.
We're also pleased with our recent launch of <unk>.
And we're seeing a positive response from the retina community.
We believe that the new product launches and portfolio transformation will provide the comic pharmaceutical segment with a strong foundation to drive growth.
Turning now to slide eight.
With total revenue of $941 million in the second quarter.
Continue our strategy of investing behind new product launches and investing in R&D, while maintaining a disciplined cost structure. Despite the incremental cost to stand up the company.
Our adjusted EBITDA in the second quarter was $182 million.
Our total adjusted gross margin for the quarter was approximately 60%, which is a 100 basis points lower than Q2 2021.
The change is largely driven by inflation related headwinds leading to higher cost in energy shipping transportation and certain raw materials.
We are working actively to mitigate inflation challenges through cost improvement and efficiency enhancing initiatives as well as strategic price increases.
We continue to maintain a disciplined approach to cost management and leverage our infrastructure, our increase SG&A spending of $10 million year over year can be attributed mainly to inflation in transportation costs.
Our investment in R&D in the quarter increased to roughly 8% of sales as we continued to focus on high priority projects.
Accelerating our ability to execute in our R&D pipeline.
Finally, adjusted EPS for the quarter was 29.
On to slide 10.
Adjusted cash flow from operations was $165 million in the second quarter.
Maintaining working capital efficiency continues to be a key priority.
We're also balancing strategic inventory management to anticipate the impact of macro headwinds.
Second quarter Capex was $34 million.
Vietnam continues to have a strong balance sheet, which provides us with the flexibility to pursue value enhancing investment opportunities now.
Now turning to guidance on slide 12, we are reaffirming revenue guidance for 2022 in the range of $3 75 billion to $3 8 billion, representing between 4% and 5% and organic revenue growth. We're also maintaining our adjusted EBITDA guidance for 2022 in the range of $740 million 780.
Million.
We expect adjusted gross margin to be approximately 60% for the year.
While we continue to implement mitigating initiatives, we expect the impact of inflationary pressure to be prolonged.
We continue to expect interest expense of approximately $150 million, which includes the impact of previously anticipated interest rate increases on our variable interest rate debt.
We also increased full year R&D investments of approximately 8% of revenue as we continued to accelerate high priority projects within our R&D pipeline.
Lastly, as we continue to finalize our separation from BSC.
And take the required.
To establish be enough Standalone capital structure post IPO, we're expecting our tax rate to be in the range of.
6% to 8% in 2022, which is lower than our previous guidance of 12%.
In summary, we're pleased with our strong Q2 results and growth momentum. We believe the results reflect the resilience of our business and provide a strong financial position from which to execute on our growth strategy now back to you Joe.
Thank you Sam I will now discuss our product pipeline in the upcoming catalysts that we expect to drive business results beginning with <unk> on slide 14. After launching in May of 2018, <unk> became a $100 million plus brand in 2021 today. It is a number one redness reliever in the category and the <unk>.
With approximately 47% market share.
Building on the phenomenal success of this product and using the power of our fully integrated eye care platform. We are planning to expand the brand geographically and through line extensions International expansion remains a priority we have launched <unk> in Canada, and where it is now available on all major pharmacy retailer and in South Korea, We are planning launches in other.
Geographies and have regulatory approvals and submissions underway in multiple countries.
We are also working on alumina eliminations, a specialty eyecare lines for the sensitive area.
Preservative free formulation of <unk>, and a combination product with key Tiffin allergy symptom control.
Turning now to slide 15, our bioterror franchise as a global Mega brand platform that includes contact lens solutions contact lenses and dry eye products. The franchise generated $92 million of revenue in the second quarter, and importantly reported revenue grew by 19% versus the second quarter of 2021, we have too long.
Which is underway first the biotech through hydration boost dry eye drops which were launched in 2021 and second a bio true hydration plus multipurpose solution, which we launched earlier. This year. This product builds on the success of the original biotech multi purpose solution, which we launched in 2010 and is the number one.
Multipurpose solution in the United States Importantly, Baijiu solutions family continues to grow and more importantly gain market share increasing by 380 basis points compared to the first quarter of 2022.
Let's take a look at the broader vision care portfolio on slide 16.
Beginning with <unk>, one day lenses, which launched in 2012 year over year sales of diesel engines grew by 13% on an organic basis and generated $200 million of revenue over the trailing 12 months.
Next we have bausch <unk> Lomb ultra contact lenses launched in 2014 reported revenue from sales of these lenses grew organically by 10% and generated $173 million of revenue over the trailing 12 months. Finally, we have the ongoing launch of our <unk> lenses up 50% on a reported basis at a CAGR of approximately 11%.
Hi daily market is the fastest growing segment of the contact lens market.
Our Si Hy daily lenses, which are now available in approximately 2500 to be an important growth driver for the lens business with global peak sales expected to exceed $250 million.
On Slide 17, we feature the newest addition to our specialty lines portfolio.
<unk> is a new family of customizable soft contact lenses that were launched with the goal of providing a more individualized vision correcting solution to a broad range of patients, including those with high or unique prescriptions.
<unk> soft contact lenses are available and spherical toric multifocal and multifocal toric options that can be worn daily for up to three months. These customizable lenses are also priced with a higher realized about margin structure. We are pleased to offer this new solution for patients with unmet needs.
On slide 18.
As I mentioned earlier, we submitted an NDA for <unk> in June for Novo three a potential first in class treatment for dry eye disease associated <unk> gland dysfunction, if approved by the FDA and expect to launch now with three in the second half of 2023.
Consistent statistically significant efficacy safety and Tolerability have now been demonstrated in two phase III studies. The charts on slide 18 shows the efficacy end points for the second phase III trial importantly, all primary and secondary endpoints were achieved including statistically significant changes from baseline as early.
As Dave <unk>.
Dry eye disease is one of the most common ocular surface disorders affecting approximately 18 million Americans in one study found that approximately 86% of patients with dry eye disease had my balmain glad dysfunction.
This is a fast growing market with unmet patient needs from 2016 to 2021 U S. Prescription dry eye market grew at a CAGR of approximately 24% given the current market for dry eye disease treatments and the results of these two phase III trial, we believe that <unk> has the potential to be a major future growth driver.
For our business.
On slide 19, we announced that we expanded our surgical portfolio by making an equity investment in <unk> and have an option to acquire the company's assets. We also entered into an exclusive European distribution agreement with Synopsys for innovative minimally invasive surgical procedure for the treatment of glaucoma men as a stateless simple and fast.
I'll call them, a treatment that effectively lowers inter ocular pressure without the need for invasive surgery globally, approximately $79 6 million people had glaucoma in 2020 and that population expected to increase by 40% by 2040, given the market landscape. We believe the transaction represents a great long term opportunity.
For our surgical business and clearly fills a gap in our near term surgical portfolio.
To summarize on slide 20, Bausch and Lomb operates.
Health ecosystem, where is uniquely positioned to be eyecare need Bachelor at the highest brand awareness of any eye care company that Sean has long standing relationships with I health professionals as well as key retailers and e-commerce channels that reach a broad consumer base.
<unk> is a fully integrated company that offers a comprehensive portfolio of more than 400 products to meet significant patient and consumer needs.
Specially <unk>, our patients and consumers.
All phases of their lives developing and offering new treatments to meet unmet health needs and help people see better to live better our second quarter results demonstrate the durability of our businesses. Our team remained focused on continuing to generate momentum in our key products investing in fast growing.
<unk> and expanding into new product categories. Looking ahead, we continue to believe that <unk> is well positioned for success as a standalone company.
With that operator, let's open up the line for questions.
We will now begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
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Withdraw your question. Please press Star then tune.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Joanne Wuensch from Citi.
Your line is live please go ahead.
Good morning, and thank you for taking the question.
Essentially the two of them one despite the particularly strong second quarter.
Both on revenue and EPS you just reiterated guidance. So I'm curious what are the some takes that get you there.
My second question is my experience is that ophthalmology is fairly recession resistant.
I'm curious if you sort of take that lens and put it on your portfolio, which products do you think could hold up.
Better than others. Thank you.
Two very good questions. So as we look to the second half of our year. We are optimistic in what we are seeing in the second half of the year with our business performance. So that part is absolutely clear, having said that though.
There are a number of.
Macro trends out there right now that we just want to make sure that we understand more about them as we think about our second half guidance. For example, the geopolitical issues that we see in terms of the Covid recovery in China. Some of the issues that we see because of the Russia Ukraine.
Innovation and how we are managing that relative to what it means for inflation energy costs, especially energy costs in Europe . So we're thinking through that foreign exchange, we're thinking through all of those things and we thought at this time, we are absolutely optimistic in how our business is performing but we wanted to make sure we all.
Considered those factors as we thought about what was happening with foreign exchange et cetera inflation.
That's the reason why we reiterated in our guidance, but very optimistic in our business as it would relate to the question of the portfolio through.
Recession, I think you said it very well in terms of looking at through our lens.
We are looking at it as the eye health business as being a business that is relatively recession resistant in the sense that vision is the most important sense for people and what we believe is that people are going to continue to.
Want to ensure they get the best vision care health that they possibly can so we do think that that is something that is out there and we've looked at it historically, we've looked at our overall business and the fact that as we've gone through the business, especially as as you've seen the most recent quarter.
Our consumer business had very very strong 15% growth context was plus 5%. So we're seeing very strong overall growth in the business and of course. The search will also be plus 7%. We felt were all indicators for us as we're looking and thinking through the surgical business. The only other comment I will make is because.
Cause of some of the challenges of Covid going back into 2020 and to 2021 and to some degree we still believe there is a backlog of approximately.
<unk>.
$10 million in cataract surgeries that are still going to need to get caught up and we see it happening.
'twenty two 'twenty three and beyond so those are all factors that we think are going to continue to drive the overall performance through the recent recession time period, depending on the magnitude of the recession.
Operator next question please.
Certainly the next question is coming from Robbie Marcus from Jpmorgan Ravi. Your line is live. Please go ahead.
Hi, this is actually.
Slowly on for Ravi its team thanks for taking the question.
Can you talk a bit about how youre thinking about the cadence over the rest of the year.
Do you expect normal seasonality in third quarter and fourth quarter and are there any other puts and takes we should be keeping in mind for the balance of 2022.
Highlighting this is Sam let me it's a good question. So traditionally our second half tend to be stronger than the first half and maybe I'll build on what Joe is really covered under question, which is when you look at what we've seen in the.
The momentum in the business in the first half we've seen very nice momentum in our consumer business.
With growth in the eye redness category with <unk>. We also saw in the vitamin category I provided and Poser vision. So we're seeing that nice momentum and we expect that we carry forward dealt with us on the lenses. We also have seen very good momentum with the launch of daily Si Hy into first half was up 50% in Q2.
We expect that to continue with us as we go forward into the second half and on surgical.
The backlog will continue to work through that so we're seeing the growth in the surgical and the elective surgeries.
Benefiting us as we go forward on the surgical front.
I think those couple of factors I think with all the macro market conditions between inflation to supply chain, the geopolitical environment and currency.
Headwinds that we've been seeing currency has been quite volatile so really bouncing all this factors in really working through the different scenarios and that's how we thought about it in the second half.
And about the potential outcomes.
To achieve bouncing the tailwind and headwinds as you think about the second half, but traditionally we would have seen second half to be.
During the first half, but we have to be I'll call. It optimistically cautious as we think about this macro headwinds as we go forward.
Second half of 2022.
Operator next question please.
Certainly the next question is coming from Craig Bijou from Bank of America. Craig. Your line is live. Please go ahead.
Great Good morning, guys.
Had a few on Si Hy one I wanted to see if you guys could provide any directional color on where.
Your daily Si Hy sales are today.
And then.
Also wanted to ask if you could provide a little bit more color on where youre seeing growth. So is it growth in the U S is it growth from the international markets that you just entered.
And then do you have a sense for how much of the.
<unk> use.
<unk> growth is cannibalization versus new users to bausch and lomb.
Sure great questions.
We try to make sure I take it one at a time.
First.
What's happening on the sales side, we're very pleased with what we're seeing with our Si Hy.
The headlines.
I'll start with the U S. But then I'll get into the rest of the world. We've seen that we've actually been able to double the number of active infuse.
<unk> for the Si Hy daily lens up.
Versus just a year ago, so the actual number.
Docks optometrists ophthalmologists that are fitting if now doubles versus just <unk>.
Same quarter, a year ago. So clearly that's mostly use data to be clear.
We're also seeing that where we have our fit set.
Which is the actual samples we call facts, we're actually seeing about a 16, 5% share of the overall Si Hy dailies market. So clearly.
It's important to us I want to be absolutely clear, we do not have the fitbit everywhere, we want them. They are up about 30% versus a year ago, but we still have more fit sets that we launch.
And once again this is U S data.
As it would relate to the international side.
The team is doing very very well.
Europe is now very early in the launch, but we've gone from.
At the end of 2021 we had about 10 countries launch we're now up somewhere in that $25 26 countries already launched so we're seeing a very nice geographic expansion.
As we had planned to go out into the marketplace with the Si Hy daily.
Product.
Outside the U S. The international teams is referring to it as ultra one day. So building on that overall brand of ultra for us as it relates to the next question. It was really where the source of the products coming from.
The best data source here in the U S business.
We are not seeing a significant amount of cannibalization, we're seeing it coming from the active you Oasis one day, one day moist we're seeing it from dailies total.
Pretty much across the board, we're picking up share from those players also.
A large percentage of it coming from new starts which was something that we think is very favorable to us in terms of what we're seeing.
The good news one of the good news point I am going to make on this is that.
One of the things that we're very pleased about is at least in terms of the cannibalization question is that notwithstanding the Si Hy daily launch, which is an important launch for US we did still see the bio true demonstrated at eight 9% reported revenue growth and our ultra.
Monthly lens showed 5% reported growth so clearly we're seeing the growth in the existing.
Lenses that we have been promoting before as we're launching the infused products, so and as we mentioned to the coffee infused revenue growth was about 50% we still believe are.
Infused product will be over $250 million opportunity over.
Over the long term for the product, but we're excited about what we're seeing in terms of the growth.
All of this you have anything to add just on the bioterror and ultra Craig is if you look at it also organically because currently you have a big impact on those products. So if you look at organic leads us to our products by through an ultra both grew double digits. So baidu was up 13% in the quarter and ultra is up 10% both of them organically.
Yes, good point.
Thank you.
Okay.
Next question please.
Certainly the next question is coming from Larry Nicholson from Wells Fargo. Larry Your line is live. Please go ahead.
Hi, This is Charles on for Larry.
First congrats on the nice quarter.
I Wonder if you might be able to give some preliminary thoughts on 2023, I know it might be premature to talk actually absolute numbers, but I'm wondering if you might be able to talk through some of the different.
Puts and takes that might or headwind and tailwind you might be might be thinking about in terms of maybe FX inflation.
<unk>, our new product launches to consider.
Sure.
Great Great question.
I'll start and Tim May want to put some additional comments on it. So I think really the important comment as we think about the future. We're obviously like a guide to 2023, yet but are important comment is that.
Our plan is very straightforward very simple we think we can continue the momentum and the current portfolio all.
All the things that we're doing this quarter as an example, we've invested in categories that we think are going to grow faster than the overall <unk> market things like the daily sidelines as I talked about the premium ILS.
The advanced digital microscope, and then important to go into new product categories.
Things like dry eye disease. So those are going to be the factors for us in terms of how we're looking at the growth strategy for this business continued momentum.
First in category is growing faster than the market and then expansion into new categories is what we're looking at.
What is 2023 is going to be all about for us is going to be.
Continuing to look at new products, it's going to be the <unk> product looking at the new formulations for whom a five plus the geographic expansion on the on the consumer side.
Continuing to look at the biotech who franchise, which many people ask questions of US could you continue to grow the bioterror multi purpose solution in our marketplace.
Aliens were taking over and I think we're answering the question, yes, we're seeing that kind of growth with the new innovation, we're bringing out and then clearly on the contact lens side for 'twenty three the story is going to be the.
<unk> introduction of the infused product and then now that we've launched the spherical we're going to transform that to the multifocal in 'twenty three and then ultimately the toric and multifocal toric lenses all designed to help US one innovation that we haven't talked much about but we're really excited about is we've come forward with three by <unk>.
<unk> is a product category that is.
Allows us to customize lenses for patients to give them.
Vision.
Let them with their vision unmet needs, where they haven't been able to get that in the past, we're going to be able to give them customizable lenses. We think that's going to be great for patients with unmet vision needs, but importantly will also generate good margins for us as we go forward with our revised portfolio and then clearly on the other comment I'll talk about on the surgical side new products.
It's going to be the Vista rolling out the luck smart <unk>.
He'd off in 2022, and then the advanced digital microscope I think are some of the highlights final comment is ophthalmology, which is one of the challenges we've had to be clear in 2020, but the good news is we've got the largest portfolio up Dominic prescription products in the world that 100 products and we're launching zipcar now <unk>.
It continues to do well and importantly, we've filed the.
Novo three product at the end of June , which we are very optimistic about for the future. So.
They are kind of the key.
Tailwind.
But I think that's one app.
I think thats from the business fundamentals and how we see it from the tailwind as.
As we go forward second half and into next year. When you think about the other elements here, which also could impact into future impact in 2023.
Currency is a big factor.
<unk> seen we guided full year currency impact to us is about $160 million, we've already seen roughly about 75 of that come through in the first half of 2022. So there is still volatility in the currency and we expect that to continue.
I think we also look at the inflation.
Guided in our guidance, we factored in roughly about 100 basis points of an impact on inflation.
And we're seeing the signs, although we're taking steps to mitigate many of the actions from inflation is manageable.
The impact of inflation is probably a little bit more prolonged as you go through into 2022 and beyond so those are key factors here.
We are going to continue to watch very closely and we're factoring into our thinking as we think about 2020.
Yes.
New product launches are going to be important.
The things that we'll continue to talk about as we think about what's going to happen in 'twenty three.
Pointed out there is a one loss of exclusivity, which is good that that's only one we worked our way through the loss of exclusivity of loadmaster Proenza product sometime late <unk>.
2023, so we feel that there's a lot of that.
The tailwind that are in front of us we dealt with many of the headwinds. So we're excited about what we see for the future as we shared with all of you as we went out and did the IPO.
Operator next question please.
The next question is coming from Imran Zafar with Deutsche Bank.
<unk>. Your line is live please go ahead.
Alright, Thank you very much for taking my question first.
First question is on the surgical business can you just talk about the capital spending environment.
In terms of what the order book looks like and then maybe to what extent you're experiencing any supply constraints within that business.
Sure so.
Let me, let me start with the overall bausch and Lomb surgical business importantly.
During this quarter, we did see some very nice growth in our consumer business plus 13% organically.
And also the implantable plus 10%. So we saw some very nice growth. There by definition are total, though only grew about 7%. So you can see that there is some capital spending.
That is lower than what we saw in the consumables and implantable so probably the best way to answer the question.
As we've been working through the supply constraints I wanted to first and foremost to say the team on our global supply chain has done an outstanding job continuing to work through these questions. There are real supply constraints out there I think that that is a fair comment, but our team has just done an outstanding job of working through things.
From microprocessors and all the things that happen.
Of the surgical device side team has done a great job to help us think through you will see that we have made some investments in.
Inventory to try to help us to work through that question.
So we've taken some active steps here to think through this to put ourselves in the best position, but to be clear there there are supply constraints.
Some parts are just like microprocessors get more difficult to get and then on the other hand some of the distribution is just taking longer to get from <unk> eight point be logistically, but we are working through it and the team has done a great job and we have taken some action steps like building some.
Inventory strategic inventory to ensure that we can work through this.
Okay. Thank you and then one quick a product level question on revised can you just remind us what the addressable opportunity for custom lenses and how needle moving that once could be.
In 2243.
So I don't want to over state this opportunity in the near term, but in the long term. We do think the ability for us to have customizable lenses that have much more flexibility and all the problems and issues that people need from a diopters point of view it will give.
A chance for patients to get custom software.
Where they previously had not had the ability because we have a high high diopter or just a unique prescription we're making them available it's spherical toric multifocal multifocal toric, all the things that.
Could customize the product make it very specific for you as an individual patient who wants a soft contact lens, where previously it was just not available. So those are the things that we.
We're excited about I do think it's going to be slow and its uptake.
<unk>.
I think it's very complementary to help.
Help us with all the other things we're doing for our GP lenses the Zen lenses.
Arise ortho K, we see that.
It's not going to be a big 2022, or 23, but over time, we do see this as being a chance to help us meet the needs of these patients who have these patient problems longer term, we will see what happens because.
<unk> patients are going to spend the money to improve their vision because it is so important to them and in many patients want want. These types of lenses that are going to be very happy to have access to them. We believe.
Okay. Thanks, so much.
Operator next question please.
Question is coming from Georgia Giordano from Cowen.
Line is live please go ahead.
Thanks, So much for taking my question and congratulations on the quarter.
Maybe just more broadly on the margins you've spoken about some of the incremental investments you're making this year.
Maybe if you could comment on how should we be thinking about margins going forward.
And what are some of the focuses of.
The R&D investments.
And then secondly.
Can you talk about the restriction that come from the 90% ownership.
He has on your business like what are some of the business activity that might be limited because of that and how could this potentially impact your business.
At all.
Hey, George So let me start with the margin.
So thinking just maybe I'll work my way through the P&L here I'm going to start with the gross margin and then I'll just take you down to the EBITDA and when you think about gross margin year over year, we're seeing gross margin.
On the gross margin of about 100 basis point.
George any of that impact is coming really from inflation. So we've seen the inflation.
With us we offset many elements of it to strategic pricing actions that we're taking through our supply chain and buildup of inventory as Joe mentioned earlier, but you'd still see a net about 100 basis points coming in through inflation.
A lesser extent the product mix also played a factor here because as we launch new products short term tend to have pressure on the margins, but the beauty about that element of it is that it does flip as you go forward because as you scale up and as you build up your launch it does contribute to margin improvement.
See a short term pressure on the margin, but youll see more improvements as you go forward when you think about that EBITDA on.
On a year to year basis, I think a couple of factors here.
Inflation also.
Factoring that in.
Stand up of the company, we talked about the fact that 2022 for US is the year, where you actually have to pivoting year, because you're building up the infrastructure with <unk> and as you go forward you are not going to have to incur that same level of buildup in the infrastructure.
As you go forward.
And youll be able to get the benefit of those products that youre launching so youll be able to see that margin and the margin expansion. As you go forward. So we're seeing that play out exactly as we planned and.
In the first half of 2022, and we expect it to play out exactly as.
Our plan for the rest of the year and as we go forward.
In terms of R&D investment, we increased our R&D investment.
This quarter, we upped our guidance to about 8%, we ran but roughly about 8% to 9% in Q1.
And another 8% in Q2 and as we look through the second half of the year, we're projecting we're going to be an 8%.
About 100 basis points higher than what we had previously communicated which was about 7% of sales.
We're excited we have here.
Dr. <unk>, who has joined US he is really taking full charged with the R&D and accelerating many of our key.
Pipeline project to be able to bring it to market sooner and we're excited about that and youre seeing that level of excitement translate into the higher expense and investment within R&D.
We expect probably as you go forward, it's probably the 10% to 8% is probably good.
Range to think about for this year, we are going to be more leaning towards the 8% and within that category, you asked which products to focus our investment mainly focused around the surgical.
We pivoted R&D investment or surgical followed by ophthalmology and then our vision care segment. So thats the priority of the two of them.
And then you had one last question in terms of the restriction of the 90% ownership.
We are just as a reminder, we are still restricted sub.
However, it really we don't see that type of restriction.
Any impact on our operation on a day to day. So we still have the full freedom to operate and do investments as you've seen what we've done in the first half already in terms of the number of investments that we've done it through either license or partnerships that we've done in the different businesses. So we're seeing the flexibility and the freedom to operate so we've not seen.
A restriction.
Also in the 9%.
Sam I think you answered it very well may be the only thing I'd add from a big picture point of view to what Sam asked because it was a good answer is that.
What youre seeing I believe is that.
A more of a focus it being out on the eye care business.
Separated companies, we really give it a lot more focus into what we're working on at <unk> and I think thats one of the reasons why.
He has been able to advance the R&D projects and.
With that comes incremental investment, but importantly, we are advancing the projects, which we believe will make a difference in the lives of patients. So I do think that that's really just an example of some of the focus that you get as <unk> now separated out.
Health company, the only other comment I would add to what Sam said in terms of the margin comment is that once again, it's going to be about the new products as we launch these new products, we do think that.
We're seeing an opportunity to bring forth. These new product and then importantly, as we get more experience with our Si Hy daily lenses. For example, I expect the yield to continue to get better.
Capital equipment that we have and as we move that yield from a.
60% yield in the first year to a.
70% to 80% yield in the second year, and then 80 plus percent in years, three and four that type of yield also is going to help the margin to the comments that Sam is making but once again I think a large part of that back to this focus that we have as a company now that we have separate the BNS business.
Thank you so much.
Operator next question please.
Certainly the next question is coming from Doug <unk> from RBC capital markets.
Your line is live please go ahead.
Yes, thanks very much.
A couple housekeeping items.
Number one.
Is there a P&L now fully burden for all Standalone costs and then maybe you could also just.
Quickly chat about capex being maybe a little bit lower in this quarter. It looks like youre guiding to an unchanged number. So those are two housekeeping items and then finally.
In any event.
The parent didn't need a bit more cash and recognizing they still own.
90% of the company.
What is the mechanism by which they can transfer over.
Cash.
The necessary in the future and I'll leave it there. Thanks.
Hey, Doug Let me, let me take them in order here. So in the first one with the Tyndall on cost.
We guided about $70 million standalone costs for this year as compared to last year for the year.
'twenty one.
What we said is we are starting to ramp up into the stand alone costs throughout the year. So I think when you think about it right now you probably look at the P&L and you look at the P&L. It is what you will see in terms of being able to operate as a standalone company.
The cost is already factored in in terms of how we're thinking about from our guidance for the full year in terms of Capex.
You are right. There is about 34 million of Capex. This quarter just as a reminder, we did spend roughly about $42 million in Q1. So that gives you about $76 million. So so from a run rate through the 225. It is light, but the key factor is all about timing for US I think there's a couple of packages in terms of the capex.
It's tied to a number of projects within our supply chain and manufacturing tend to be timing and as we see it we see big element of that coming into the second half that we did not move or change our full year guidance of $225 million.
And then the last part I'll start here in terms about what mechanism any cash transfer.
No. It's an arm's length relationship between us and BHG. So there's no I'll call it.
But where we can actually just so.
<unk> cash.
So the cash that you see on the balance sheet, which has dropped to about $430 million for P&L, that's a P&L cash debt and by casualty of cash from operations that we generated which is about $165 million that the cash is within <unk>. So theres no sort of a requirement or a mechanism that we establish that we track.
The cash back and forth between <unk> radiant arm length, and independent point of view.
Thank you operator.
Next question please.
Certainly the next question is coming from guidance Ginger from Guggenheim Partners. Your line is live. Please go ahead.
Thank you congrats on a good quarter a couple of questions from me first on the pricing can you just talk about the level of price increase you are able to take at corporate level are there certain businesses, where you have more leverage versus the other.
And then what percent actually are you able to realize and whatever you've done in 2022 at knees are you able to offset dean.
Inflation in.
So that's first question broader on price the second one any update on Lucentis biosimilar filing.
Sure let me start.
On the pricing level increase in which businesses.
Maybe the first general comment as we reported in the quarter.
For the second quarter price was 2% of the 6% organic growth in volume was 4%. So we achieved a 2% price increase.
First comment second second comment I'd make on pricing is relative to what we've done.
Mind, you that we took pricing.
In January we took it for our vision products, our contact lens products and those prices took and in fact it was.
Mid single digit level, we did not take in every country around the world. We've looked at the inflationary pressures I think of it almost as a situational leadership, where we saw the inflation and where we saw the issues we did take pricing.
That occurred in the January timeframe, we did the same thing in the consumer side of pricing, but with the consumer business, especially as some some areas. What we what we had to do there is give advance notice to the individual customers and although the price was.
Taken in January we didn't actually realize that until really mark the March timing and Thats why youre seeing some of the.
The pricing stronger in the second quarter versus the first quarter as it would relate to what we're thinking about for the rest of this year and I think part of your question was next year as well we are looking at additional pricing for 2022, the answer that is yes.
We are looking at not just the I'd call. It the selling price, but we're also looking at discounts rebates et cetera, all of which contributes to the pricing side and we have reflected that our comments on our beliefs on pricing.
Forecast for the full year is how I would reflect that.
Do I think that theres going to be some additional pricing that we will look to take in 2023 at least as we sit here today with the the inflation factor somewhere in that 9% range. It's certainly what we're seeing on the energy side I do expect us to look at additional pricing in 2023, obviously the situation with <unk>.
What happens for the remainder of this year.
As it would relate to Lucentis Biosimilar, we do expect to resubmit. The Lucentis biosimilar by the end of 2022 to be clear thats going to be done by our partner, but yes, we do expect that to be resubmitted by the end of 2022.
I think I have other questions.
Okay. Thank you.
Okay.
Okay. The next question is from Cecilia furlong with Morgan Stanley fulfilling your line is live. Please go ahead.
Great. Good morning, and thank you for taking my question.
I wanted to ask if you could just talk a bit about your outlook for the balance of this year, where you are in the rollout of the training and then just kind of a higher level macro question.
On your surgical business side really what are you seeing today in terms of either stocking pressures other limitations.
Sure.
Dampening down what could have been perhaps greater growth in surgical procedure. So Paul Thank you.
Sure.
So first.
We're very excited about what we're seeing with <unk>, we had a chance to talk to a number of the key opinion leaders I guess it was a couple of weeks ago now they have their meeting annual meeting in New York City for retinal surgeons.
The reaction Tuesday appears from the key opinion leaders was very very strong. We have received now a J code, which is an important part of the reimbursement side of.
ZIP here that is now in hand, so we're very excited I don't want to over.
Play it though in the sense that the annual prevalence of treated patients in the United States for 18, pluses somewhere around 125000 patients and about accurate FX about 20% of these patients. So it gives you some sense of of the <unk>.
Magnitude.
Concept of using the Super Choroidal space for the eye to deliver medications is one that's been very well received and obviously, we're now thinking about not just what we've done here, but what additional opportunities we can use as I'm going to call. It a platform.
To use the Super Choroidal space of the eye and where we can go next with this opportunity. So very excited we're seeing reimbursement we're seeing the key opinion leaders talk about it and they like what Theyre seeing initially in helping these patients which unfortunately.
You can't help these patients they could potentially go blind. So we're excited what we're seeing in terms of the response to the product.
Very early obviously in our launch and the question of the surgical side.
Come back to it.
As mentioned before there still is a backlog we think on the <unk>.
Surgical cataract side of the business there is still.
We think about $10 million globally surgical procedures, specifically the cataract world that have been delayed because of Covid to your point. Some of this could have happened earlier, but there are some staffing issues that are part of it that is absolutely clear.
We do see this as being a tailwind for the surgical business for the remainder part of 'twenty, two 'twenty, three and going into the future.
People still have this cataract brownfield.
Notwithstanding the issues with Covid, therefore, there is going to be.
To help more patients in the future and importantly, we're excited because we've got new innovation coming.
Certainly on our new <unk> with the <unk>.
With our smart <unk>.
Portfolio, what we're launching so exciting opportunity to help more patients for as we look at it.
Operator.
Time for one more question here or two more questions.
Certainly the next question is coming from Vijay Kumar from Evercore Vijay.
Vijay Your line is live please go ahead.
Hey, guys congrats on the quarter here and thanks for taking the question, maybe I'll just limit myself too.
Two part one question.
One Sam on the guidance.
It looks like inflation portion by 50 basis points.
Not sure if pricing assumption change.
So that EBITDA.
$740 to $70 should we be perhaps looking at the lower end of that range.
And.
One for Joe.
What was the China headwind in the quarter and the contact lens up low singles I know you've been pretty excited about daily Si Hy. So maybe you could talk about some of the drivers here.
Sure Hi, Vijay.
Let me take actually the first I'll take the two parts of the question so on the guidance.
When do you think about the inflation in it it has an impact.
About 100 basis points, and you think about how that flows through to the EBITDA one of the things that we're working through is really taking a disciplined approach to our cost structure.
As we think and we're really focusing in terms of all of the spend at <unk>.
Advertising all the spend that feeds into the growth.
And making sure thats going through.
Everything else, we're trying to make sure that we are taking a very structured and disciplined approach to be able to mitigate as much of what we're seeing on headwind coming in from inflation.
To be able to.
Play within the ranges that we've seen of the EBITDA of $740 to 780. So thats on your first part in terms of the China headwind in the quarter, China had an impact pretty much across all of our three segments, but most pronounced in our lunch business.
When we talk about.
Comment on in my prepared remarks, when you think about the growth that we've seen in the lens business internationally that part grew 3% organically. If you take China out that would have been about 13% organically. So you see the magnitude on the international side and the lens business is quite significant the impact in terms of dollars.
Amounts.
Ill, probably in the range of about $15 million to $20 million impact.
And this Q2.
That's helpful. Thanks, guys.
Thank you for your question.
We have time for just one last question. Please.
Thank you. Our final question is coming from Zach liner from Jefferies exactly.
Zach Your line is live please go ahead.
Hey, Thanks for taking the question.
I just wanted to touch on the infused multifocal launch still on track for later this year and then if you could give any comments on <unk> island discounts through I guess, the rest of this year and maybe potentially into next year as we head towards a tougher economic environment. Thanks.
Yes.
Once again on the.
Overall infuse launch opportunity we are very excited that we're going into a lot more geographies with it. In addition to the geography part of the expansion opportunity. We're also going to launch the multifocal outlook to us the launch multifocal.
Probably end of this year early next year, probably I'd, probably focus a little bit more early next year one of the great things that we're seeing is a lot of demand for our existing spherical lenses. So we want to make sure that when we launched the multifocal we've got.
All of the.
Out of inventory, we need to get it to the marketplace and moving forward. So.
Look for that to happen end of this year early next year in terms of multifocal launch timing.
I wanted to comment or questions I guess, yes.
Discounts going into the recession.
We've actually been able to see.
That's been something we've been working very much to manage.
As I've mentioned before we view the overall health as being what I would refer to as.
Recession resistant or recession proof I'd, probably say.
Those are the characteristics. So we don't expect to see some significant increase in pricing and discounts.
It is clearly a competitive market and something that we're all going to.
Try to compete of course, but I don't see significant incremental discount, especially knowing that some of the input costs for contact lenses like polymers and things that we use ours couldnt be linked to the price of oil. So it's something that we're trying to manage our way through as we think about.
What's happening our view is we're going to stay competitive and make sure that we.
Look at ourselves versus the market player competitors out there.
We think we can compete especially with our new innovation on our infuse things I didn't talk about but I think it's an important comment is that we clearly think that are infused products has the ability to help a number of patients where they have some problems with other si Hy dailies, mostly because they are.
Still close contact lens join us at the end of the day. This is something by putting Electrolyzed moisturizers and we think that we found a way to help those patients to where they are lead us through the entire day still have great Opex and still have comfort. So that's why we're excited about what we're doing is just general comment on pricing we wanted to.
Hey, competitive compared to our competitors and we will do that but we don't see some major discounts going on in the recession at this time.
Operator that concludes our comments and we want to make for the day. Thank you very much everyone for joining us look forward to having additional conversations with you in the future have a great day everyone.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.