Bausch + Lomb CEO Brent Saunders on growth outlook: Biggest contributor will be in surgical

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Key Concepts

• Financial Excellence: Bausch and Lomb's strategic focus on improving financial performance.
• Vision 27: A three-year plan aimed at profitable growth, market outperformance, and margin improvement.
• Margin Improvement: A target of approximately 600 basis points of margin expansion over three years.
• OpEx (Operating Expenses): Focus on discipline in operational spending.
• Manufacturing Network: Modernizing and optimizing the company's production facilities.
• Product Mix: Shifting towards higher-margin products through R&D and pipeline development.
• Surgical Business: Identified as the largest contributor to margin expansion due to opportunities in premium intraocular lenses (IOLs) and manufacturing modernization.
• Intraocular Lenses (IOLs): Premium implants used in cataract surgery.
• Capital Allocation: A disciplined approach to deploying financial resources.
• Leverage: Target of 3-3.5 times leverage or better by 2028.
• Investment Grade Credit Rating: Aiming to achieve a higher credit rating.
• Small M&A, Business Development, and Licensing: Focus on smaller strategic acquisitions and intellectual property development.
• Tariffs: Impact on the company's margins, estimated at 40 basis points (approximately $20 million) this year.
• Reciprocal Tariffs: Tariffs imposed by other countries in response to US tariffs, affecting Bausch and Lomb's exports.
• Global Manufacturing Footprint: The company's extensive manufacturing presence worldwide.
• US Manufacturing: Bausch and Lomb is a significant US manufacturer, producing all its medicines domestically.
• Regional Manufacturing: A shift back to producing goods regionally for specific markets (Europe and Asia).
• Rebranding (Ampersand to Plus): A symbolic change in 2010/2011 to modernize the company's image and signal partnership and innovation.
• Myopia Epidemic: A global concern regarding the increasing prevalence of nearsightedness in children, often linked to screen time.
• Therapeutic Contact Lenses for Kids: Development of contact lenses with built-in corrective features for children to manage myopia.

Bausch and Lomb's Three-Year Plan for Profitable Growth

Bausch and Lomb is implementing a comprehensive three-year plan, dubbed "Vision 27," aimed at achieving profitable growth and outperforming the market. The core objective is to significantly improve margins, targeting approximately 600 basis points of margin expansion over the next three years. This ambitious goal will be achieved through a multi-pronged approach focusing on discipline across operating expenses (OpEx), optimization of the manufacturing network, and a strategic shift in product mix towards higher-margin offerings from their research and development (R&D) pipeline.

Margin Expansion Drivers: The Surgical Business

The surgical business is identified as the primary driver for margin expansion, presenting the most significant opportunities. This is attributed to two key factors:

1. Premium Intraocular Lenses (IOLs): The company is focusing on the launch and adoption of higher-premium IOLs, which are already in progress.
2. Manufacturing Footprint Modernization: Bausch and Lomb, a 172-year-old company, has an opportunity to create efficiencies by modernizing its manufacturing and supply chain operations, which are described as somewhat antiquated. The synergy between these two initiatives is expected to yield powerful margin expansion for the surgical segment.

Capital Allocation and M&A Strategy

Bausch and Lomb is committed to a disciplined capital allocation approach. The company is setting a target to achieve 3 to 3.5 times leverage or better by 2028, with the aim of securing an investment-grade credit rating. Consequently, the focus for mergers and acquisitions (M&A) will be on small M&A, business development, and licensing, primarily for intellectual property to develop new medicines or products for patients, rather than large-scale acquisitions.

Impact of Tariffs and Shifting Manufacturing

Tariffs are having a tangible impact on Bausch and Lomb's profitability, estimated to reduce margins by 40 basis points this year, equating to approximately $20 million. As a significant US manufacturer that produces all its medicines domestically, the company is particularly affected by reciprocal tariffs. These tariffs on its exports to regions like China and Europe are a major concern. Despite discussions with the administration and trade associations, significant relief has not yet been achieved. The company is planning to shift some production to Europe and Asia to mitigate the impact of these reciprocal tariffs, moving back towards a regional manufacturing model from its previous global product-based manufacturing approach.

Perspective on Tariffs as a Long-Term Factor

Bausch and Lomb's CEO views the current tariff environment as a long-term baseline, baking it into their financial projections for 2026 and beyond. The reasoning is that the approximately 15% tariff revenue is unlikely to be relinquished by politicians from either party, suggesting that tariffs are a fixture for the foreseeable future.

Rebranding: From Ampersand to Plus

The company's logo has evolved from an ampersand (&) to a plus sign (+). This change, which occurred around 2010 or 2011 when the CEO was previously in charge, was largely symbolic. At the time, the company was private equity-owned, and the rebranding was intended to modernize the company's image, reset the culture, and signal a move out of a period of stagnation. Branding experts suggest the plus sign carries strong medical and health associations, signaling partnership and innovation. The cost of this rebranding was minimal due to the private equity ownership, with a directive to use existing stationery and signage until depleted.

Addressing the Myopia Epidemic

Bausch and Lomb is actively concerned about the global epidemic of myopia (nearsightedness) in children, exacerbated by increased screen time. The company plans to unveil new R&D programs at its Investor Day to address this issue. Instead of traditional methods like patching, they are developing contact lenses specifically designed for children. These lenses will incorporate therapeutic correction directly into their design, utilizing the company's latest technology for comfort. This approach is already seeing traction in markets like Asia, particularly China, where myopia rates are extremely high. The company believes its expertise in optic designs, a core specialty, positions it well to participate in future advancements, including potential augmented reality glasses.