Following the June 29 announcement that Novartis intends to spinoff Alcon, Steve Speares, American Society of Cataract and Refractive Surgery (ASCRS) Executive Director, spoke with David Endicott, Alcon CEO, about the next chapter for his company.
Steve Speares: How would you describe the impact or benefit Alcon customers will see following this decision [to spinoff Alcon from Novartis]?
David Endicott: For most surgeons who have been in practice for awhile, they have known Alcon, and most have noticed some change in how Alcon interfaced with them the past few years. Pharmaceutical businesses are very different from device businesses in several aspects, particularly in the responsiveness to customer needs. I think a lot of surgeons would tell you in the past couple of years we have made a strong effort to move back toward that old Alcon they know. This is a new chapter in the revitalization of Alcon, and what we’re trying to do is recapture some of that old Alcon DNA and let it re-express itself in a modern way. I think the piece that will always be there is our closeness with the surgeons and clinicians who use our products and our responsiveness to them. Independence will enhance that and give us the autonomy to develop our own processes, focus on our strategy, invest in the things that matter to us, and increase our energy on the device business.
This is a new chapter in the revitalization of Alcon, and what we’re trying to do is recapture some of that old Alcon DNA and let it re-express itself in a modern way.
Mr. Speares: Moving forward, will Alcon remain a device only firm, or will you look to re-enter the therapeutic space?
Mr. Endicott: In the very near term—the next 2 to 3 years—we have so much to do in the device space it would be unlikely we will re-enter the pharmaceutical space. Our priorities right now are to develop the Surgical product line and build out our Vision Care business, which we think have fabulous opportunities—high growth, large markets where most of our attention will stay. You never want to say never, but our priorities right now are to focus on devices.
Mr. Speares: Do you plan to continue a similar level of internal research and development spending, or will Alcon be more aggressive in the mergers and acquisitions space to fuel growth? As you begin the process of telling your growth story to the investment community, what are the categories Alcon sees as growth drivers over the coming 5 years?
Mr. Endicott: What should excite people in the surgical community is that as a focused player in this area and with our concentration on the surgeon, we’ll continue to invest at a substantial level. Today we invest more than our next two to three competitors combined, and we will continue to do that. If anything, it will get better. In the last 24 months or so, we have been approaching our pipeline with an agnostic view as to how technology reaches us. Because of the leadership position we hold, we are lucky in that we get to review pretty much every evolving technology out there, be it from a VC backed startup, university setting development, or individual surgeon idea, so we are more than happy to bring in ideas from the outside to augment what we do. There are some things we do internally better than anyone else in the world, but we recognize there are numerous university settings or VC/startup technologies that are doing world class work that are interesting to us, and we stay close to them. We have more than 100 internal research and development projects we’re working on today.
As for the growth drivers, some of the areas won’t surprise you, but some may. Our focus near term is to continue to develop advanced technology IOLs (ATIOLs) because we think there is more to be done there. Visual disturbances are still a riddle for some patients with multifocal lenses, and I think we have a couple of new products in our pipeline that will address that as well as negative dysphotopsia over the long term. There are a series of IOL technologies coming within the next 5 years that we feel good about. I would say we are well positioned in terms of competitive attributes. I would venture to say I don’t think there’s anything we haven’t thought about or seen that we’re not involved in with these projects. The ATIOL space, because it is a big part of our business, will continue to be a driver. Also remember it’s a market with a lot of growth opportunity sitting at only 12% or 13% penetration of total IOLs, and that’s just not right. That can’t be the way the world works in the long run, so we see that as a big growth opportunity not just for us but for the surgeons. If we can get good technology in their hands that is easier to use and delivers more predictable outcomes, I think they’re going to feel good about putting them in the eye and charging patients for them, and everyone wins.
We’re intrigued by the large dry eye market. We have a big market that we don’t play very much in, but we have a lot of eye drops that we have repatriated from the Novartis shop. We’re excited about Systane Complete, which has launched in the U.S. That product has a unique technology replacing all of the layers of the tear film. It’s the first one to do that. Potentially, the diagnostic space around dry eye is interesting to us. We’re not in it but we’re watching it carefully to see how practices adopt, and if we can offer something technologically superior to what is out there, we may enter.
Finally, if you look at the process of cataract surgery we think there is a lot that could be done to simplify the process. There are a lot of surgeons out there doing great work, but unfortunately it is not as easy for everyone, and what we’re trying to do is ask, “How can we simplify the whole process for people to make decisions so that 90% of procedures are 20/20 postop?” It’s a big project we’re working on internally.
Mr. Speares: Alcon has a widespread geographical commercial footprint. How might your organizational structure change or evolve as Alcon disengages from the Novartis infrastructure?
Mr. Endicott: The good news of where we are right now is that we’re re-emerging as a startup with $7 billion in revenue and 20,000+ employees around the world. Our footprint has only gotten bigger since we’ve been part of Novartis, so people who knew us before will not see any noticeable change in the way we operate. I do think we will be more focused, and that is where real value gets created. Wherever people are doing eye surgery, that’s where we’re shipping product.
Mr. Speares: In the past 2 years you have made a significant investment in your clinical support operations to aid customers. How satisfied are you with this initiative, and will it continue to expand following the spinoff from Novartis?
Mr. Endicott: We are proud of what we’ve done with the field services engineers and the clinical applications specialists. These are two groups that, when you step back and ask, “What is the real benefit of doing business with Alcon?” here is an example. We have by far the largest service organization in ophthalmology. We have more than 1,200 service engineers and another several hundred people in our clinical applications group. We have an exciting support vehicle for surgeons interested in getting into the newest technologies. We had some great equipment, but some of it we didn’t service as well as we needed to, we didn’t do as much hand holding with customers in the early phases, we didn’t do our training well enough, and sometimes we weren’t even deployed as well as we could have been, so that’s been a positive impact we’ve made in the last 2 years. We had an independent third party survey to measure customer satisfaction with service, and we’re best in class when it comes to both field service and clinical support.
Mr. Speares: We have recently seen news items question the true value of LASIK. Alcon enjoys the market leading position in refractive laser procedures in the U.S. Are there any plans to drive PR or other initiatives aimed at getting your message out to the broader public?
Mr. Endicott: Yes, in fact we think it is a responsibility for us getting out and getting more active, and having a larger voice about the benefits and the many positive stories we know are being experienced by LASIK patients. As we begin the process of becoming autonomous, we’re going to be able to dedicate more resources to these types of initiatives. Of course in LASIK the vast majority of the revenue sits with the physicians. I think it is incumbent upon all of us that we get the message out and we keep up the positive PR, especially from the surgeons performing this valuable procedure. We need the surgeons to take the lead on LASIK like they did in the past. This is a great story to tell, and we need everyone banding together to help tell it.
Mr. Speares: Another market dynamic is the growth in buying groups, and with more and more practices opting to be acquired by private equity, how will Alcon adapt to a larger number of clustered customer groups?
Mr. Endicott: We are aware of that trend and we are staying close to it. We have dedicated corporate sales groups and key accounts groups to support these larger customer groups. We see this trend as a positive. We think we can add value in efficiency metrics with OR time and patient throughput. Now to ignore the cost pressures would be a miss. These pressures will come whether customers band together or the government decides to pay less for a particular procedure. Most of the groups I have met with are very aware of the opportunity that presents with advanced technologies. They realize if they can train staff and enjoy a greater penetration of ATIOLs where we’re helping the patient and patients are getting the kind of outcome they’re looking for, that is a much bigger economic impact to those groups than anything else they could do.
Mr. Speares: Is there anything we have not covered that you’d like to communicate to the readers of EyeWorld?
Mr. Endicott: I think the most important thing I want to get across is that I am super excited about where we are at this point in time. We have the opportunity to remake this company as a separate entity now that we can focus on what we do best, which is innovation. The way we do innovation best is when we listen to customers. We’re talking with the nursing staff, technicians, and surgeons about how our products are working and what we can do to make our products work better. I am excited for that cycle because I grew up in ophthalmology and I remember it from years ago. I know what it looks like when you do it right and it runs well, and so do the employees of this company. The excitement in the employee base around the world for a reinvigoration of the new Alcon is high. I think people are excited to go back to the things we know and enjoying the relationship with the customer. In the end this is where it is. Our customers get up in the morning and they go to work to try to help people see better, and I think that’s a big deal. When we can work directly with the people who do that in a way that is productive, we can do extraordinary things together.