cl update

2008 ANNUAL CONTACT LENS UPDATE

Our annual report points to growth in the overall contact lens market and a number of solid opportunities for optometric practices.

JENNIFER KIRBY, senior associate editor

Data gleaned on the contactlens (CL) market for the year 2006 to 2007 revealed three stories: silicone hydrogel (SiHy) CL use significantly increased, risk of infection may have played a role in wear schedule and modality choice, and the number of patients wearing enhancing CLs declined.

These insights are based on Health Products Research, Inc. (HPR) data. HPR is an inVentiv Health company, located in Somerset, N.J., that specializes in market research and analysis for the pharmaceutical, biotechnology and medical-products industries.

"We send our CL survey to ophthalmologists, optometrists, independent-retail outlets and national chains," says Chris Santin, director of Market Research at HPR. "When a consumer visits a particular location, we track the number of patient visits, the number of people the CL dispenser sees and the number of lenses distributed — both the revenue incurred from a sale and trial lenses dispensed. We can segregate the two. We're currently looking into expanding our data to include online-retail data."

CL manufacturers examine HPR's CL data for historical trends, market changes, pricing, their share in the market and segments in which they're interested in launching new brands, says Mr. Santin.

SiHy use increases

SiHy CL wear increased by almost 23% between 2006 and 2007, while non-SiHy lens wear decreased by 8.8%. (See "Silicone Hydrogel Use By Year", above.)

Optometrist Susan Resnick, who is a partner in a New York City practice that sees roughly 6,000 CL patients between its two locations, points to two reasons for this increase.

"First, because the newer designs have eliminated some of the shortcomings of the first generation of SiHy CLs, practitioners have embraced them more readily. The wider availability of parameters and designs, increases the likelihood that these materials will be a practitioner's first choice, as they are now an option for a greater number of new fits and refits," she says. "Secondly, I believe this upswing can, in part, be attributed to the fact that these materials are increasingly regarded as the new standard of care, and the modest cost differential is a small price to pay for offering patients products which deliver improved health benefits. As these materials replace older ones, the growth will level off to reflect the new ratios."

Optometrist Glenda Secor, of Huntington Beach, Calif., who has treated CL patients for roughly 30 years, adds that this growth reveals the cost of SiHy CLs are no longer an issue for patients or practitioners.

"More and more patients are realizing that the eye-health benefits of these lenses outweigh the costs, and more and more practitioners are less concerned with being viewed as 'picking the patient's pocket,'" she says. "This is because they have bought into the fact that these lenses are genuinely better than HEMA lenses for the eye health of the patient."

Kevin K. McCallum, chief marketing officer for 1-800 CONTACTS says his company's data on SiHy use were similar to the HPR data.

"Doctors are clearly more comfortable with this technology and as a result, are moving patients into this lens," he says.

Mr. Santin adds that because CL manufacturers recognize the fact that more practitioners are offering this lens, it will be at least a few more years before SiHy CLs reach their peak in the marketplace.

"I can't get into specifics, but practitioners can definitely expect to see more SiHy designs in the future," he says.

Extended wear declines among patients

The extended-wear schedule decreased 7.2% between 2006 and 2007, while the daily wear schedule increased by almost 3% (2.7%). (See "Wear Schedule By Year," below.)

Dr. Resnick says she thinks these numbers are due to the risk of infection associated with the extended-wear schedule.

"When extended-wear SiHy CLs first became available a few years ago, many of us thought these lenses would provide the long-awaited answer to the problem of corneal-infiltrative events. We anticipated being able to offer patients the option of extended-overnight wear and that these highly oxygen permeable lenses would decrease the risk of infection," she says. "Unfortunately, the medical literature and our clinical experiences did not reveal this. In addition, practitioners may also have been less inclined to offer this wear schedule because SiHy extended-wear has been linked with mechanical problems, such as giant papillary conjunctivitis."

Dr. Resnick says that as a result, most optometrists, including herself, have more or less "sat quietly on the extended-wear schedule" and have focused their dispensing efforts on SiHy CLs for daily wear, as both research and clinical experience has revealed that a daily wear schedule of a SiHy CL is healthier than extended wear.

"I don't think there was a particular event between 2006 and 2007 that caused this decline," she says. "Rather, these numbers represent the continuation of a very cautious approach."

The use of the 1-day disposable modality increased by 15.2%, and planned-replacement monthly modality lens use increased by 19% between 2006 and 2007. Further, two-week disposable-lens modality use decreased slightly (1.4%), while traditional/reusable lens modality use shrunk 36%, and planned-replacement quarterly lenses plummeted 63%. (See "Modality By Year," below.)

"I think that the catalyst for the significant growth in the use of the 1-day disposable modality CL was the lens-solutions recalls, which prompted many patients to seek a modality that didn't require a lens-care regimen," says Dr. Secor. "But, I also believe that once patients made the switch to the 1-day modality CL, many of them realized wearing new lenses every day actually felt better on their eyes than their prior lenses, and they valued the convenience of not having to clean their lenses. So, they decided to stick with this modality, even after the lens-solution scare blew over."

Mr. McCallum says that 1-800 CONTACTS data showed similar growth in the 1-day disposable category.

"Replacing lenses every day with a fresh new lens is reported to be a healthy practice — one that appears more eyecare providers are getting comfortable with," he says.

In reviewing the major growth in the use of the planned-replacement monthly modality CL between 2006 and 2007, Dr. Resnick says she believes patient compliance and cost-effectiveness are the reasons for this number.

"Recent studies have supported that compliance to the planned replacement monthly modality CL is excellent because patients find it more convenient and less expensive to buy new lenses after one month," she says. "As a result of these studies, many of the CL manufacturers introduced several new products in this category between 2006 and 2007, which I believe, in part, drove the increase."

The reason for the enormous dips in traditional/reusable and planned replacement quarterly modality CLs:

Drs. Secor and Resnick say it's simply a matter of evolving technology.

"The materials of these products are now out-dated, as they don't provide the breathability and comfort of the new products," says Dr. Resnick. "Because both patients and practitioners recognize this, many of the CL companies don't even provide trial lenses on these products anymore. In fact, many of the toric-lens prescriptions that were previously only available as quarterly replacement, are now available in two-week or monthly modalities as a result of 'expanded range' options."

Dr. Secor adds that the lens-solution recalls may have also played a role here, in that they probably resulted in practitioners having an opportunity to respond to non-compliance.

"It [the lens-solution recalls] may have brought patients back into doctors' offices sooner, and that may have allowed discussions regarding newer options," she says. "I would be curious to see whether patient return rates increased relative to the recalls. I can tell you that we certainly received more calls from patients."

Enhancing lenses: a short-term decline?

Enhancing lens wear dropped by 17.2% between 2006 and 2007, and the total category dropped 2.4%. (See "Lens Tinting By Year," below.)

"This data was a bit surprising to me," says Mr. Santin. "The CL companies introduced several new enhancing lenses to the market between 2006 and 2007, so I was actually expecting this segment of the market to increase."

Dr. Secor believes enhancing CL use severely declined because these CLs aren't available in SiHy materials — a category of lenses that, as discussed above — saw significant growth between 2006 and 2007.

"I think that unless the patient inquires about enhancing lenses, practitioners aren't offering them because most of us now buy into the concept that SiHy CLs are the healthiest CL choice," she says. "Therefore, if the CL manufacturers want to see this number rebound, I think they're going to have to offer these lenses in high-oxygen permeable materials."

Dr. Resnick says she thinks that practitioners may have contributed to the decline of patients who wear enhancing lenses.

"I think a lot of practitioners shy away from discussing these CLs with patients because doing so requires a great deal of practice time on the part of our CL technicians. Essentially, the patient sits in the chair and shops through the color wheel, which can take between 45 minutes to an hour," she says. "Even when the enhancing-CL candidate is finished looking, she may say, ‘I’m not sure they're for me, after all."

Dr. Resnick adds, however, that the enhancing CL number may upswing by next year as the result of CL-manufacturer Web sites that have enabled patients to upload their headshot and virtually try on CLs.

"Often, practitioners can link their own practice Web sites to these company sites, so they can refer patients to participate in virtual try-ons," she says. "This saves the CL technicians and other CL patients valuable time, while still allowing us to offer these lenses as an ‘add-on’ option."

The future

Overall, the CL market will remain strong for 2008, says Mr. Santin.

"Look for the soft CL market to experience continued growth," he says. "Further, the daily wear category will grow due to new 1-day disposable and planned-replacement lenses available on the market."

He adds that manufacturers will continue to concentrate on the SiHy CL market, which will result in the release of new brands (and new variations of classic hydrogels) in 2008.

"Cosmetic lens use should grow as the CL manufacturers release more SiHy Cls with tinting options," he says.

In addition, Mr. Santin says he believes the RGP segment will continue to decline as new soft lens modalities become more popular. (See "A Snap Shot of Speciality Lens Use," above.)

"I believe the spheric segment will plateau or decrease slightly while the toric and multifocal segments grow due to new lens brands planned for release in the upcoming year," he says.

Next, Jeffrey Johnson, O.D./Wall-Street research analyst, will discuss the financial aspects of the CL market.

A Wall-Street Perspective

Silicone-hydrogel, daily disposable lenses drive market growth.

JEFFREY JOHNSON, O.D., Milwaukee

The U.S. soft contact lens (CL) market grew at a mid- to single-digit pace in 2007, with an increase in sales of roughly 6% to $1.8 billion (manufacturer level sales) vs. a rise of just more than 4% in 2006.

On a worldwide basis, growth was likely just more than 9%, with sales topping $5 billion, although at least several points of this growth were due to the weak U.S. dollar. Excluding the impact of currency movements, we estimate the worldwide CL market likely grew roughly 5% to 6% in 2007, relatively in line with growth seen in the United States for the year.

Based on the data I've received from various industry contacts, the key growth drivers between the year 2006 and 2007 were silicone-hydrogel (SiHy) CL use and daily disposable CL use.

Here, I discuss these findings.

SiHy CLs continue growth

On a combined basis (including SiHy spherical, toric and multifocal categories), the SiHy soft CL category held onto its position of last year as the most rapidly growing segment of the U.S. CL market in 2007, with an estimated sales growth of 26% to approximately $878 million.

The sale of SiHy spherical CLs grew roughly 16% to $664 million in 2007. In addition, a total of 50% to 55% of patients fit in spherical CLs in 2007 were fit in SiHy spherical CLs, according to independent industry data. In 2006, a total of 45% to 50% of patients were fit in SiHy spherical CLs.

As has been the case in recent years, SiHy penetration continued to grow in the U.S. during 2007 for a variety of reasons, including improved oxygen transmissibility and what many practitioners and patients anecdotally report is improved comfort (especially at end of day) vs. standard hydrogel CL. While health and comfort are no doubt the leading reasons these CLs have grown in popularity in recent years, we continue to believe the higher price points at which these CLs sell also contribute to the increased marketing focus both practitioners and manufacturers place on these CLs vs. standard hydrogel CLs.

Toric SiHy CL sales increased approximately 62% to $182 million during the year, as just more than 40% of patients fit in toric CLs in the United States in 2007 were fit in SiHy CLs. This is a 30%+ increase more than the 30% penetration rates of SiHy CLs seen in the toric CL market throughout much of 2006.

Multifocal SiHy CL sales rose approximately 192% (multifocal SiHy sales in 2006 were $11 million in 2006 — a small base) to $32 million during the year. In related news, non-SiHy multifocal soft CL sales grew roughly 10%.

The rapid penetration of SiHy toric and multifocal CLs appear largely related to the fact that CL manufacturers didn't introduce these CLs until one to two years after SiHy spherical CLs gained significant practitioner attention.

As for the growth in multifocals outside the SiHy category, positive demographic factors (aging of the baby boomers) and the improved vision at both distance and near provided by today's non-SiHy multifocal CLs, vs. just three to five years ago, drove this number. Assuming that the non-SiHy multifocal designs move into Si-Hy material through the next several years, I expect this growth to decelerate and the growth in the multifocal SiHy CL category to accelerate.

Outside the U.S. market, SiHy CL use varies widely. For instance, practitioners in countries such as Canada, Australia and New Zealand tend to fit a high percentage (30% to 40%) of new patients in SiHy CLs, while practitioners in Japan, Hong Kong, Germany and Spain tend to fit fewer than 10% to 15% of new patients in SiHy CLs.¹

Because growth in SiHy CL sales on a country-by-country basis varies widely, it's difficult to estimate. Still, we believe it has likely been above growth rates seen in the United States through the last two to three years, given a much smaller base. The international SiHy CL market is likely valued at less than $400 million vs. nearly $900 million in the United States. So, while absolute dollar growth in these non-U.S. markets is smaller, growth rates are higher.

Daily disposable use rises

Outside the United States, daily disposable CLs account for nearly one-third of soft CL sales according to Robert W. Baird & Co., Inc. estimates. Further, in countries such as Japan, Hong Kong, the United Kingdom, Norway and Denmark, the share of daily disposable CLs is even larger, estimated at nearly 40% to 50% in several of these regions according to independent industry sources. The United States, however, has long been a two-week disposable CL market, and through the last three to five years, our country has quickly transitioned to a two-week disposable SiHy CL market.

For a variety of reasons, however, daily disposable CL use has begun to pick up in the United States. Consider that in 2007, domestic penetration of daily disposable CL wear likely reached the double-digit range for the first time. We estimate the U.S. daily disposable CL segment to be just more than $180 million in 2007, giving it a 10% share of the $1.8 billion domestic market vs. a 7% to 8% share in recent years.

I believe three reasons exist for the growth in demand for daily disposable CLs: First, I think that patients have become very leery of reusable CL wear as a result of both the fusarium and acanthamoeba keratitis-related CL-solution recalls. Second, through the last year or two, CL manufacturers have begun to offer more competitive price points on daily disposable CLs as opposed to through the last two years, making these CLs attractive. Third, daily disposable lens designs have improved in recent years.

Predictions

Looking forward, we believe that the revenue growth of daily disposable CLs will far outpace the U.S. market. Specifically, we model 25% growth in 2008 and 20% growth in 2009 for the U.S. daily disposable market vs. 8% growth both years for the overall domestic soft CL market. This translates to roughly one share point gain per year — a pace similar to that seen in 2007. (See "In The Pipeline," above.) OM

1. Mack, C. International Contact Lens Prescribing in 2007. Contact Lens Spectrum 2008 Jan; 23(1):36-41.

Dr. Johnson is a vice president and the senior medical technology research analyst covering orthopedic, ophthalmic and dental stocks at Robert W. Baird & Co., Inc., in Milwaukee, Wis.