Q4 2022 Bausch + Lomb Corp Earnings Call
Speaker 1: Good morning and welcome to Bausch and Lomb's fourth quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone.
Speaker 1: To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Arch Shannon. Please go ahead. Your conference will be recorded after the tone. Apologies, just a technical issue. I am fixing. Thank you very much. Good morning, everyone, and welcome to our fourth quarter and full year. 2022 Financial Results, Carbons College.
Speaker 2: But just spending on today's call are Chief Executive Officer Mr. Joe Papa and Chief Financial Officer Mr. Sam El-Dosuke. Additionally, incoming Chief Executive Officer and Chair of the Board of Directors, Mr. Brent Saunders will provide remarks but will not address Q&A during the call today. 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 Investor Relations sections. Before we begin, we would 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 and ratios. For more information about these measures, please refer to slide 2 of the presentation. Non-gap reconciliations can be found on the appendix to the presentation posted on our website. Finally, the financial guidance in this presentation is a effective as of today only. It is our policy to generally not update guidance until the following quarter, unless required by law and not to-
Speaker 3: was the first company I led as CEO . So in many ways, this feels like coming home. Optimology and I-Health are two areas that I care deeply about and have stayed close to due to Allergan's presence in I-Care space. I strongly believe that there is a great need in the marketplace for an integrated company.
Speaker 3: that is solely focused on advancing eye health. And I'd like to thank the board for their trust that they have placed in me to grow this great company into the future. I would also like to thank Joe Papa and the entire team for their further strengthening Bachelama Strong Foundation and focusing on the company's strategic priorities. I joined Bachelama because I believe in this company. I believe in its products. I believe in its people. And I believe there is a tremendous unmet need in the eye health space along with the opportunity to make a real difference through innovation. The overall eye health market is growing driven by favorable demographic trends that are creating strong demand for eye health products around the world. As a company with great brand awareness and amazing team and a global footprint in approximately 100 countries,
Speaker 3: Bachelorm is well positioned to meet this demand by delivering on its mission to help people see better to live better. Bachelorm has always stood at the forefront of cutting edge scientific and technological optical advancements, and I believe continued innovation will be key to the company's success going forward. Finally, I want to recognize Joe Pappa and thank him for all he has done to advance the I help save the immoleness of patients around the world. I look forward to working close to which own the coming weeks to ensure that we have a seamless transition. I am grateful for the opportunity to once again lead this great company, and I'm eager to get started in just a few weeks.
Speaker 2: Thank you, Brent. I appreciate those kind words. Let me conclude by saying that my years here with Valiant, Bouch Health, and Bouch Alam have been a truly memorable journey for me. And the successes we have achieved since I joined the organization in May 2016 are credit to our outstanding colleagues around the world. Thank you for your tireless work, trust and support, and building Bouch Alam into a global company dedicated to protecting and enhancing the gifted site for millions of people around the world. Now let's come to the agenda for today's call. I will begin with an update on the separation process and a brief review of the 2022 highlights. Sam Mel D'Souki, our CFO , will then review the fourth quarter and full year financial results in detail and discuss our outlook. Finally, I will conclude by discussing the upcoming catalyst before opening the line for questions. Sam and I will be taking your question today and Brent will be available beginning on March 6th.
Speaker 2: Beginning with slide five. As the most integrated Ikea company operating today, Bouchalon is uniquely positioned in the Ikea Health Market, building on 170 years of success as a leading Ikea Health brand, Bouchalon is a company with the highest brand awareness in Ikea. And as the third largest Ikea Health company, Bouchalon is a global leader in consumer Ikea Health. Turning to slide six, we continue to see compelling opportunities for standalone Bouchalon as a pure play Ikea Health company. We believe the company is well positioned for growth in large durable markets. We continue to see potential margin expansion over the long term. And we expect to have balance sheet flexibility to expand investment in the business. So, the substantial progress was made in 2022 towards the completion of the separation process. After filing a registration statement and launching the road show, we completed the IPO, began trading at the public company on the New York and Toronto Stock Exchange on May the 6th, 2022.
Speaker 2: importantly, Bowshelom is not a guarantor of the debt of our parent Bowshelom and on November 29th, Bowshelom made Bowshelom an unrestricted under the Bowshelom debt covenant which helps provide us with greater potential flexibility and one more obstacle to full separation. And as a final comment, we understand that Bowshelom continues to believe that the separation of Bowshelom makes strategic sense and that the state is that they're going to thoughtfully evaluate all the factors related to the B&L separation. On slide 7, our revenue grew organically by 5% for the full year 2022 and in the fourth quarter, making this our 7th consecutive quarter of organic growth. A few highlights to cover. First, continue momentum and key portfolios. Reported revenue of occupy and preservation grew by 10% versus 2021. And we are pleased to report that occupy and preservation US market share grew by 170 and 120%
Speaker 2: the ACU focus acquisition. These transactions expanded our surgical portfolio, adding a minimally invasive surgical treatment for glaucoma and HICA Appthera premium intraocular lens, which I'll cover in more detail when we discuss our upcoming catalyst. In addition, we launched six new products in 2022, including Xyper and Revive, along with our geo-expansion of lumify and Vizolta, to summarize.
Speaker 2: Thanks to a great B&L team effort, we grew our organic revenue at a mid-single-digit growth rate in 2022. Our key brands have demonstrated their durability through challenging economic conditions, and we are making strategic investments in R&D and bolt-on acquisitions to exploit our future growth. Turning to slide 8, we have provided our guidance targets for 2022 along with key assumptions underlying them, and we are pleased to say that we have delivered against our latest guidance in 2022. And with that, I will turn the call over to Sam to cover the financial results in more detail. Thank you, Joe. Before we get into the details, I will remind listeners that when we talk about the organic revenue growth, we meet on a constant currency basis, adjust it to remove the impact of acquisitions, to investors and discontinuations.
Speaker 4: Turning the outdoor financial results on slide 9. Our fourth quarter results demonstrate the continued momentum of our business and the durability of our diverse portfolio. Throughout 2022, we continue to deliver predictable and consistent organic revenue growth, driven by the strength of our diversified IK platform. Toral company revenue of 996 million grew, ganged by 5% in the fourth quarter. Mark our seventh consecutive quarter will consolidate organic growth. For the full year, Toral company revenue of 3.768 billion also grew organically by 5%. The business has now demonstrated solid organic growth in each of the last two years following the COVID downturn in 2020. The fourth quarter was the second consecutive quarter where we saw organic growth in each of our three segments. Vision care, up 5%, surgical up 4%, and up to RX up 7%.
Speaker 4: This broad base growth reflects a strong, durable portfolio we have established across our segments, which enabled us to perform despite macroeconomic headwinds on market volatility. We have continued to see volatility in foreign exchange. During the fourth quarter, FX headwinds impacted revenue via approximately 54 million. Adjust the EBITDA was negatively impacted by approximately 80 million in the quarter. We are encouraged by the COVID policy changes in China and the consumer sentiment towards a full reopening. However, the mobility restrictions the early part of Q4 and the rising number of cases in the latter parts of the quarter have highlighted the tough and going nature we've seen throughout the year. Our tough and results were negatively impacted by 200 basis points in the fourth quarter and 150 basis points for the full year due to economic conditions in China as the country's COVID policies evolved. We will continue to master the pace of the recovery and now we believe that the China market has a past three turns of stable growth over time.
Speaker 4: Now, let's discuss the Q4 and full-year results in each of our segments. Vision Care Revenue was 626 million in Q4, up 5% organically driven by strong growth in our key franchises. So a revenue for the segment in 2022 was 2.373 billion up 6% organically year over year. The consumer portfolio continued its market leadership position with momentum in our strategic brands. Lumofi reported revenue grew by 25% in the fourth quarter and the brand achieved a market share of approximately 50% in the Redness Reliever category. We continue to execute our strategy to grow the Lumofi brand. The launching Canada's off-the-strong start and our plans for geostanctions and line extensions are on track. Fourth quarter revenue from our I vitamins, preservation and occupied grew by 13% on reported basis and 16% organically.
Speaker 4: This market leading franchise continues to demonstrate the ability to drive growth in the AMD market. We expect our recent launch of Preserve vision, Akisorb and our upcoming launch of Preserve vision, COQ-10 to continue the momentum. While consumers have faced pressure from higher inflation and potential economic uncertainty, we have not seen broad fundamental changes in the segment. Consumers continue to prioritize trusted brands and reward innovation.
Speaker 4: We have been able to leverage our strong consumer brand equity to execute on our pricing strategy, and we expect it to continue to balance the pricing and volume dynamic in the coming quarters. We also so continue growth in our key contact lens franchises. Reported revenue from our daily size high portfolio grew by 85% in the fourth quarter versus the prior year, and 46% on a sequential basis. Revenue re-excelerated towards the back end of Q4 following increased activities to expedite the lower than expected production output. So we have recently experienced. We're continuing to see a ramp up in production, which is in line with our expectations. And we expect the output to continue to increase going forward to meet strong market demand. We are also looking forward to our multifocal launch in the US to potentially accelerate momentum in 2023. Revenue from Baushan Lomb ultra grew by 2% in the fourth quarter on a reported basis and 9% organically. And revenue from Baithru one day grew organically by 6% in the quarter and was flat on the...
Speaker 4: so that demand for our consumables continue in the quarter up 3% organically, mainly driven by an increase in character and run-up procedures.
Speaker 4: Our equipment revenue is down to approximately 5% organically in the quarter. We continue to see strong market demand, especially for our Stellar system. However, growth was impacted by availability of supply of certain components. We are mitigating the supply constraints by spot buying certain components from secondary vendors and we expect an improvement in the coming quarters. Overall, the surgical segment grew organically by 8% in 2022 driven by the strong growth in consumables and implantables. The markets have continued to recover throughout 2022.
Speaker 4: and work through the substantial backlog of procedures created by COVID. We expect the backlog to continue to be a well-went for some time as the market manages staffing constraints and procedure volume capacity. Finally, we announced the acquisition of active focus in the beginning of this year, which brings breakthrough IOL technologies to our surgical portfolio. This acquisition was funded with cash on hand, approximately 31 million in cash was paid in the first score of 2023.
Speaker 4: Thank you for your focus, IOL, with launched earlier this year and allows us to build our portfolio in the premium IOL category. While we do expect a revenue contribution to grow over time, we do not anticipate it will have a material impact on our financial results in 2023. Last, revenues in the up to Rx segment were 182 million, representing organic growth of 7% driven by the U.S. portfolio. By the all the TRXs grew by 18% in the fourth quarter and we continued our geocpansions strategy by launching in Brazil, Turkey and the Middle East.
Speaker 4: We are approaching the first anniversary of Zipier's commercial launch in the US, and we have FODZIPier in Canada. We're actively capitalizing on compare supply issues within our US generics for folio, and we are continuing to progress towards the PEDUFA date of June 28 for NOAA 3. We expect to support the increase of launch activities throughout 2023, with the level of investments increasing during the third and fourth quarters to position NOAA 3 for optimal future growth. Similar to other parts of the BNL business, we have also seen that COVID recovery in China creates a headwind to revenue growth in our international optoporfolio. Growth in the Optomology segment for the full year was impacted by LUE-related headwinds in the earlier parts of 2022. We do not expect LUE's significant impact in our portfolio, but we expect the ProLender LUE in late 2023, which mostly will impact 2024. Now that we have covered revenue for each of the segments, we will be able to move forward to the next part of the year.
Speaker 4: Let me walk through some of the key non-gap line items on slide 11. As a reminder, given the timing of the IPO, the 2021 results were not fully burdened by all the standalone costs associated with the separation. I adjusted gross margin for the course approximately 58%, a decrease of 190 basis points compared to Q4 2021.
Speaker 4: The change in gross margin was driven by macro headwinds, including higher cost of energy, shipping and labor, along with pockets of limited supply availability that required spot buying from secondary vendors to meet market demand. Fourth-core gross margin was also impacted by an incremental cost of approximately $7 million, released accelerating output ramp up of data-side high lenses. This amount is in addition to the $15 million we previously estimated in the third quarter. The data-side high production output improves substantially in the latter part of Q4, which led to the 46% sequential data-side high revenue growth, and enabled us to be on track to reach our target production levels for 2023.
Speaker 4: As we continue to accelerate the production output, execute our planned geographic expansion, and the planned launch of the multifocal lens, we expect the days I had to be an important catalyst for growth in 2023 and beyond. Fourth quarter, just to eBud I was 181 million. The just to eBud I and Q4 was mainly impacted by currency headwinds of approximately 18 million, an incremental 8 million investment in R&D to accelerate our pipeline strategy.
Speaker 4: and gross margin headwinds, including the $7 million impact related accelerating the daily size high production. In the fourth quarter, adjusted SGE&A was flat year over year. While we continue to prioritize investment in value enhancing activities, we have also maintained a cost-discipline approach by taking steps to reduce our operating costs. Over the longer term, we maintain our strategy to drive margin expansion by expanding our portfolio of premium products, continuing to build scale, investing in our product launches, and leveraging our global infrastructure. Lastly, adjusted EPS for the quarter was 23 cents. Moving on to the cash flow and balance use summary on slide 15, adjusted cash flow from operations was 167 million in the fourth quarter, bringing full year adjusted cash flow to 383 million.
Speaker 4: This includes the impact of strategic inventory build throughout 2022 to mitigate potential supply chain disruptions. Fourth-core of capex was $50 million, bringing the full-year capex to $175 million.
Speaker 4: Our debt outstanding is 2.488 billion, which equates to a net leverage ratio of 2.93 times. As Joe mentioned, on November 29, Bouch Health announced that BNL became an unrestricted subsidiary of BHC.
Speaker 4: which means B&L is no longer subject to the debt covenants under BHC's outstanding debt. We view this as a positive step towards the expected full separation. Total interest expense for 2022 was 146 million. Our interest expense for the fourth quarter was approximately 47 million.
Speaker 4: We expect interest expense to be approximately 215 million for the full year 2023. The increasing interest expense reflects a rising interest rate environment. As a reminder, we have an interim capital structure in place, with interest expense at the variable rate of so far plus 3.25%. Upon full separation from BSC, we plan to refinance our debt and transition to a longer term capital structure.
Speaker 4: As a standalone company, we expect to have a more favorable credit profile and potentially lower cost of debt. Euron Cash and Cash equivalent and restricted cash was 380 million. We had undroneed revolver of 500 million at Euron and we had no borrowings under the revolver as of today. We are confident in our strong balance sheets and cash flow, which gives us the flexibility to pursue value enhancing investment opportunities. Finally, our adjusted tax rate for 2022 was 2.25%. We expect our adjusted tax rate to be roughly 6% in 2023. Turning now to slide 17. Given last week's announcement that brand funders will become our new CEO on March 6.
Speaker 4: We are planning to provide full year 2023 guidance when we report our first-corner earnings. This will give Brent the opportunity to provide input on our GoFour strategy and financial outlook once he transitions into his new role. Today I will share some color on our expectations for the first quarter of 2023. We expect Q1223 organic revenue growth to be in line with the overall IKR market growth. While we are not providing full year guidance at this time, we would note that we expect poorly facing to be an important consideration. We expect the first-corner to be lower than Q1222, meaning either by currency headwinds, the pace of recovery in China, and macro factors leading to growth margin pressure. Based on current exchange rates, we anticipate FX headwinds to the first-corner revenue of approximately 35 million. We also expect headwinds to adjust the EBITDA of approximately 10 million in Q1. The higher cost inventory we built in 2022 will increase pressure on growth margin as it flows through the PNL.
Speaker 4: meaning the first half of 2023. We expect our first quarter adjusted gross margin to be approximately 130 basis points, lower than in Q1 2022, meaning due to higher cost of inventory. Keep in mind that the comparability between 2023 and 2022 will be impacted by the timing of the BNL IPO. The 2022 first quarter of financial statements were prepared prior to the BNL IPO in May 2022 and do not reflect the full run rate standalone costs. These incremental costs are approximately 15 million in the first quarter. Along the same lines, the base of interest expense and taxes reported in the Q1 2022 financial statements also does not fully reflect the BNL operations as a standalone entity. In summary, we're pleased with our overall 2022 performance of 5% organic revenue growth, which was at the high end of our guidance range. The fundamentals in the IKR market continue to be strong, and we are excited to launch more than 15 products in 2023. We expect to support the incremental launch activities throughout 2023.
Speaker 2: with a key focus on accelerating our investment in Novo 3 during the third and fourth quarters to position it for optimal future growth. We look forward to providing our full-year guidance for 2023 when we report our first quarter results. Now back to you, Joe. Thank you, Sam. I'll now comment on some of the upcoming catalysts we are anticipating. On slide 19, LUMFI is a strong, established $125 million plus brand with reported revenue growth of 21% in 2022 compared to the prior year. In the US, LUMFI is the number one physician-recommended redness reliever in the category with approximately a 50% weekly market share building on the phenomenal success of this product and using the power of our B&L fully integrated IKIR platform, we are planning to expand the brand geographically and through line extensions. LUMFI is now launched in six countries and we recently acquired rights for 18 additional countries. In addition to geographic expansion into new markets, we're expanding LUMFI's beauty positioning to a specially IKIR and have a number of new products planned, including a line of scientifically developed for the sensitive eye area to help enhance the eye's natural beauty, which you expect to launch in the first quarter of 2023. We expect to submit our single dose, preservative-free eye drops in the second quarter of 2023, and a combination product with key to different for allergy symptom control in the first quarter of 2024. Turning to slide number 20, for an update on the expansion of our daily side high launch, we have launched the spherical lenses in approximately...
Speaker 5: First
Speaker 2: It feels like gap in our portfolio by providing us with our first EDOF lens in the US. Second, it fits strategically within our current infrastructure without requiring a lot of additional resources. And finally, it's the first IOL of its type used for aburated corneus, which brings additional doctors and their patients to our platform. On slide 22, we show the breakthrough design of the Invent Filter Ring component, which delivers high optical quality light to the retina and filters out distorted low optical quality light, providing a clear, continuous range of vision. We see a substantial market opportunities for this innovative design.
Speaker 2: The global premium-cateric IOL market is projected to grow at a 13% cater between 2022 and On July 23, we show the ongoing geographic expansion of our IOL portfolio and the expected timing of the upcoming premium IOL launches. Our near-cure and focus is on launching these premium IOLs in North America and the EU followed by the Asia Pacific region. In addition to the U.S. launch of the I.C. up there IOL, which is ongoing, we are preparing for the anticipated 2023 launch of the Bosch and Lamp Aspire, the Invisit Extended Rage Monofocal IOL and the U.S. and Canada followed by the EU launch expected in 2024. We are also planning for the anticipated 2020 launch of the Bosch and Lamp MV and VISTA Tri-Focal IOL in the United States, Canada and the EU as we further our strategy to grow in the higher margin categories.
Speaker 2: Turning now to slide 24, as we mentioned earlier, we now have a June 2023 Padoo for Day for NOVO 3, a potential first in-class treatment for dry eye disease associated with my BOMIUM gland dysfunction. If approved by the FDA, we expect to launch NOVO 3 in the second half of 2023. We also plan to file in Canada in the first quarter of 2023. Dry eye disease is one of the most common, ocular surface disorders, and while it affects approximately 36 million Americans, only about half are diagnosed. And all about 1.2 million patients are treated with a prescription medication. NOVO 3 is expected to address the Xapner Dry Eye, which is an unmet need, and approximately 90% of dry eye disease sufferers.
Speaker 2: This is a fast growing market with unmet patient needs. From 2016 to 21, the U.S. prescription dry eye market grew at a company in a growth rate of approximately 24% and expect double-digit growth from 2021 to 2027. Given the current market for dry disease treatments, the results of two phase three studies we believe that NOAA-3 has the potential to be a major future growth driver for our business. On slide 25, we have outlined the opportunities we have in high growth, high margin categories. First in vision care, we are adding to our well-known product lines and pursuing a geo-expansion opportunity for our key product franchises. In the OptoRX business, we are launching and expanding the launches of high margin pharmaceutical products like Zypyr, Bizolta, and NOAA-3. In surgical, we are shifting our portfolio to premium categories. On our investments in premium eye wells and technological advances, our employees to grow that portfolio. All this work is supported by our M&A strategy, which we have deployed to strategically enhance our portfolio and fill gaps. Since our IPO of May 2022, we have completed six acquisitions and licensing transactions to enhance our pipeline. And thanks to the efforts of R&D and business development teams.
Speaker 2: We expect to launch more than 15 products in 2023. Slide 26 outlines of three main areas of our strategic focus for the years ahead. Number one, continuing the momentum in our current portfolio. Number two, investing in categories that are growing faster than the overall I have market. And number three, expanding into brand new product categories. To highlight a few, we're expecting another year of organic revenue growth in fiscal year 23 driven by continued strong performance and key franchises, geo expansion and line extension opportunities and markets. We continue to invest in innovation and anticipate more than 15 launches and high growth markets in the coming year. These include the continued raw of our side high daily lenses and expected launch of Novo 3. And lastly, expanding to new categories with our new LUM of high products premium I wells and the 3D Microsoft and I tell just platform. To wrap up on slide number 27, our fourth quarter and full year 2022 results demonstrate that our business is continuing to deliver strong performance. Our team make focus on continuing to generate momentum and our key products, investing in fast growing categories and expanding into new product categories. Looking ahead.
Speaker 4: care segment just with our consumer business and we've seen a really good progress in terms of what the growth rates that we've seen in both the consumer brands and the expectation of what we will do from line extensions as well as your expansion in the consumer business. So you see that we've got IQI Preservation was going very nicely throughout 2022. We've seen also Lumify continue to demonstrate very nice growth in 2022. And you expect that momentum to carry forward with us as you go in 23 from a lens perspective. I think the probably the highlight is we talked a lot about daily side hyper we also seen nice growth in both ultra and by true and they're called they are the base brands as well. So we've seen growth on both.
Speaker 4: all three different brands or families that we have with our lens business. And we think about the side high side of it, the 46% sequential growth. I really highlight that because it's an important factor of how you start thinking about 2023 because you're seeing that we did have the challenge with the output and meeting the end market demand in the second half of 2022. So we're able to really do a nice job with supply chain team of done a fantastic job to be able to get us back. Sure we need to be and right now we're actually ramping up that demand and position us very well for 23 as we go forward.
Speaker 4: On the surgical front, really, when you think about surgical, about how I'll call it.
Speaker 4: 70% of the portfolios same between implantables and IOLs and those two parts have been growing very nicely. It's 22 and we expect with the comments that Joe made earlier regarding the backlog and the surgical procedures that that will continue. On the equipment front, we've seen down in 22, but I think we are working through.
Speaker 4: the number of the supply constraints that I highlighted in my remarks. I think that will continue to gradually improve as we go forward. So just on balance, you'll see between the two of them, you'll see that overall we expect the surgical business to continue to perform very well. And then the last one, the ophthalmology is...
Speaker 4: It's really a very good story in terms of pivoting from the L.E. And again, it's going to be an investment here for our ophthalmology. We're really, we launched that here last year. We are now expanding between that here and by Zolta on a geogpension and we're focused to push forward more.
Speaker 4: on expanding beyond that with the Nova 3 launch in the second half of 23.
Speaker 2: That's super helpful just to follow up on surgical and some of the launches that you talked about and creating a myelols towards the end of the year. I guess as we think about the cadence of those and the impact on...
Speaker 2: growth but also poorly margins. Two things I guess. One is how do you see yourself as positioning to sort of take share in a market that you've been a little bit behind in relative to your large competitors?
Speaker 2: in the US in particular. So what's the edge of the strategy or the product differentiation to do that in particular, and then is that a mid-24, late-24, where we start to see some of the margin data that these things coming through mix or work.
Speaker 2: What's the cadence of the margin look that you hope to achieve through these products? Thanks.
Speaker 2: Yeah, I'll start Sam's going to add in the thing I looked at left out, but I think it comes down to a couple things. Number one, as we launched these premium IOLs, we clearly believe that we're coming forward with new innovation. The easy, easy example is what we just did with
Speaker 2: acquiring the ACU focus, we're a very specific technology that we will have, that we will bring to the marketplace. And at least as we've seen so far, very early, I'll have you know, caveat that, but we've seen great response from the physicians, the KOL that have implanted the lens, but I think that's certainly one simple example.
Speaker 2: I remind you we've done the same thing with our looks smart or looks platform predominantly that's around the world but we put that forth outside the US and to Western Europe , Central Europe , Israel and then continue to add it to Latin America, Russia, Iran. A lot of things that we're doing there in terms of our...
Speaker 2: Luxe smart portfolio. I think we're in like 20 countries or thereabouts also clearly I think you know as part of this in terms of the margin I think you realize that the you know will fill a monofocal I will for somewhere in the hundred to hundred fifty dollars per lens
Speaker 2: Whereas the premium lenses are somewhere in the, let's call them $750,000 per lens, and that cost the goods is not that dramatically different. So that's how this is going to help that margin opportunity for the long term. But to the slide that I have in the deck, I'll give you the exact page here. But...
Speaker 2: There really is a focus there of what we're thinking about in terms of doing some things starting in 2023, bolting on these additional assets like the ACU focus, and then 24 and 25 will be the continue delivery on the platform.
Speaker 2: Our view is this integrated strategy we have at Bouchon Lomb. The reputation that Bouchon Lomb has will help us as we go forward with what we believe are quality lenses, quality IOLs for patients. I think those relationships with doctors will really help us over the long term.
Speaker 4: Yeah, and Matt, I just want to maybe remind you of comments I mean previously is what you think about launches as well as important to think about how that launch translates between top line from the time launch to the margin and on average.
Speaker 4: depending on what product you're launching and where you're launching that product. It's anywhere between 18 to 24 months before you start seeing the impact of that launch, start to translate to a meaningful impact on that margin because you're investing behind that launch as you prepare for and you go forward with it.
Speaker 2: Great, super helpful. Thank you. Operator, next question please.
Speaker 1: Certainly, your next question is coming from Vijay Kumar of Evercore ISI. Vijay, your line is live.
Speaker 4: Hey guys, thanks for taking my question. I had two partner and I'll ask them up front. First on margins here, Q1 gross margins, that's a pretty big sequential step out from Q4. What drives the Q1? What are you assuming for pricing and inflation?
Speaker 4: In my second, below the line items, when I look at interest expense, and effects losses, is that something that's...
Speaker 4: expect this is staying here or any changes below the line. Thank you.
Speaker 4: Yeah, so VJ, let me take the first part of your question first. When I think about the margins and I think about Q123, 4 and things I did highlight is we're seeing a couple of things on the margin is you're seeing the inventory working its way through that was built.
Speaker 4: In the second half of 22, you're seeing that working its way through the PNL. And because of just the way inflation played out, we've seen inflation ramp up throughout 22, it starts to moderate towards the end, but you're seeing at a higher rate, so you're building up inventory with higher cost, and you're working that inventory through the PNL.
Speaker 4: and that will give you an impact on the margin in Q1 as you start thinking through it from that perspective. There's other elements of CEC, you see the top line, we talked about the market growth in Q1, so we expect that and we expect also the fact that we're ramping up the benefits of the data somehow with the ramp up and skills.
Speaker 4: that's going on the flip side of the March impression giving an opportunity as you go forward in 23.
Speaker 4: The second part of your question regarding below the line, the most notable item that we've seen below the line in Q4 was the $18 million of currency headwind. That was something that really impact us in the later part of Q4.
Speaker 4: And what we saw in currency throughout 22 was read about tells you the currency and hitting the peak in the second half of 22. One unique factor we saw is that all currencies were relatively moving in the same direction with the USD. But then we start to see also the with the USD.
Speaker 4: So weakening towards the end of the year we start to see movement and currencies Happening and not all the same magnitude and not all in the same direction. So we've seen different currencies moving And as I reminded you in the past we are naturally hedge and starting currencies within our PNL
Speaker 4: So when you start seeing sub-of-movements across currencies, that does have an impact for us in the PLNL that will be more pronounced than the EVA dock than on the top line. That's why you see it on the bottom line.
Speaker 2: The only thing I'd add to VJ is that you asked about pricing and I did want to just comment that similar to 2022, we did take mid-single digit price increases in selected markets specifically for the OptoRx business, our contact lens business, and our consumer business.
Speaker 2: Mostly we looked at those markets that were impacted most by inflation as we looked through and made decisions on our pricing, but we did take what I referred to as mid-single-digit price increase. Now please realize that, for example, in our opto business, if we take a mid-single-digit price increase, not all that drops to the bottom line. Some of that, of course, does not.
Speaker 2: Usually I think about whatever price increase I take I usually get in the out those sides something about half of that It goes to the bottom line So just to give you some sense on that part of the question of pricing
Speaker 2: I've already had time maybe for one more question.
Speaker 1: Okay, no problem. Your next question is coming from Joanne Wunsch of City. Joanne, your line is live.
Speaker 6: Thank you very much and good morning. Now, let's break up a lot of attention. And I appreciate that the day of a date and June and the launch at the end of the year and the large market opportunity. But how do you think about it ramping and contributing to, you know, in the early days as well as how it will launch?
Speaker 6: And I'm looking for an idea of penetration rate and, you know, salespeople that may or may not be needed and is it just to switch that flips and sales go?
Speaker 2: So I think when we start with the first part of your question, we are very excited about NOVO 3. We think that the opportunity here for NOVO 3 to help millions of Americans who have dry eye disease, especially now that we have some data that shows the impact on the Mibolian gland dysfunction for dry eye disease.
Speaker 2: We think is very excited, so if we get approved by the FDA, we're really excited about what that opportunity will be for us. As it would relate to the question of ramping, I think as you know, with new product launches, there's always a some type of formulary process that we will go through. We've already started that process of working with the market access and manage care teams to think through.
Speaker 2: the opportunity. We do believe this, my bone maim glad dysfunction is an important part of that question simply because at this time there's no other product that has that specific pharmaceutical application of the vapour dysi-of dry eye disease where we believe somewhere about, I'd like something to call today, about 90% of patients have...
Speaker 2: the evaporative dry eye disease. So we do think there's a big opportunity. We will also state though that we will need to work through market access, manage care to gain that formula or position. But we think the data is compelling. The data says that the product works based on two phase three clinical trials and it could start working as early as day 15. We think that's important to patients. This will help??ngt de F course.
Speaker 2: So we're excited about that. Relative to the extra part of the question you're asked was the actual number of sales reps. And we feel good about the number we have today. We will reallocate them, of course, from other products. But we do feel very good about our capabilities and teams have been building up. My just.
Speaker 2: Sales rep capabilities could also working with key opinion leaders working on this my bohemian gland dysfunction in terms of a concept with the KOL so a lot of activity. It will take a while to ramp up but long term we see this being a very important product for us. Thank you very much. Thank you very much. Everyone that concludes our call today. Thank you very much for your interest.