Not Applicable.
Not Applicable.
3.D. RISK FACTORS
You should carefully consider the risks described below, together with all of the other information included in this Annual Report, in evaluating Alcon and our securities. The following risk factors could adversely affect our business, financial condition and results of operations and the price of our securities.
Risks Related to Our Business Generally
Significant cybersecurity breaches could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations.
We are heavily dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support our business processes. We are also increasingly seeking to develop technology-based products to improve patient welfare in a variety of ways, which could also result in us gathering personal information about patients and others electronically. Failure to update software that runs on our medical devices could increase the vulnerability of those devices to attacks by criminals, which could adversely impact a healthcare facility’s operations, patient safety, data confidentiality and data integrity.
The size and complexity of these information technology systems, and, in some instances, their age, make them potentially vulnerable to external or internal security incidents, breakdowns, malicious intrusions, cybercrimes, including state-sponsored cybercrimes, malware, misplaced or lost data, programming or human errors or other similar events. Furthermore, because cyber-threats continue to evolve and become more sophisticated, it is becoming increasingly difficult to detect and successfully defend against them, particularly because there is strong competition to hire a limited pool of individuals with a cybersecurity skill set. Consequently, there is a risk that a cybersecurity breach remains undetected for a period of time.
Like many companies, our technology landscape has become more complex as we also rely on our third party partners to be cyber-resilient. We have experienced certain adverse incidents and expect to continue to experience them in the future and, as the external cyber-attack threat only keeps growing, we may not be able to prevent future breakdowns or breaches in our systems (or those of our third party partners) and we may not be able to prevent such events from having a material adverse effect on our business, financial condition, results of operations or reputation.
A cybersecurity breach could negatively impact important business processes, such as the conduct of scientific research and clinical trials, the submission of the results of such efforts to health authorities in support of requests for product approvals, the functioning of our manufacturing and supply chain processes, our compliance with legal obligations and our other key business activities, including our associates' ability to communicate with one another and with third parties. These risks have been heightened recently as many of our office-based associates work from home part of the week. Such potential information technology issues could also lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. Furthermore, malfunctions in software or in devices that make significant use of information technology, including our surgical equipment, could lead to a risk of harm to patients.
Cybersecurity breaches, technology disruptions, privacy violations, or similar issues could cause the loss of trade secrets or other intellectual property, expose personal information and interrupt our operations, all of which could result in enforcement actions or liability, including potential government fines, claims for damages, remediation costs and shareholders' litigation. Any such events could require us to expend significant resources beyond those we already invest to further modify or enhance our protective measures, to remediate any damage and to enable the continuity of our business.
Data privacy, identity protection and information security compliance may require significant resources, and our failure to comply with applicable law could lead to significant liability.
Our routine business operations, including through the use of information technologies such as the Internet, social media, mobile technologies and technology-based medical devices like our surgical equipment, increasingly involve our collecting, storing, accessing, and processing personal data and other information about patients, vendors, customers, associates, collaborators and others that are subject to privacy and security laws, regulations and customer-imposed controls. Failure to protect that information could expose such people's personal information to unauthorized persons. Any such event could give rise to significant potential liability and reputational harm, including potentially substantial monetary penalties.
We are subject to certain privacy laws and regulations that continue to evolve, including Swiss privacy laws, the EU's General Data Protection Regulation and the California Consumer Privacy Act. In addition, there are different and potentially conflicting data privacy laws in effect in the various jurisdictions in which we operate and we must understand and comply with each law and standard in each of these jurisdictions while ensuring the data is secure. In addition, we
must make significant efforts to ensure that any international transfers of personal data are done in compliance with applicable law. Failure to comply with these laws could lead to significant monetary liability and reputational damage.
If we breach the Deferred Prosecution Agreement with the US Department of Justice, then resulting actions by the DoJ could have a material adverse effect on our business, financial condition, results of operations or cash flows.
On June 25, 2020, Alcon entered into a three-year Deferred Prosecution Agreement ("DPA") with the US Department of Justice ("DoJ") regarding a charge that Alcon Pte Ltd. conspired to falsify financial books and records in violation of the US Foreign Corrupt Practices Act of 1977, as amended ("FCPA"). The charge relates to payments made by a former distributor to health care providers in Vietnam between 2007 and 2014. Alcon agreed to pay the DoJ a penalty of $8.925 million, for which Novartis has indemnified Alcon.
Under the DPA, the DoJ has agreed to defer prosecution for three years of the facts acknowledged by us that occurred between 2007 and 2014, after which period the charges will be dismissed with prejudice if we do not violate the terms of the DPA. If the DoJ determines that we have breached the DPA, the length of the DPA could be extended, the terms could be modified, a monitor could be appointed and/or we could be subject to prosecution and additional fines or penalties, including the deferred charges. Criminal prosecution or sanctions could have a material adverse effect on our business, including reputational damage, financial condition, results of operations or cash flows.
Disruptions in our global supply chain or important facilities could cause production interruptions, delays and inefficiencies.
We are engaged in manufacturing and sourcing of products and materials on a global scale. Our operations and those of our suppliers could be disrupted by a number of factors, including: disruptions in logistics; strikes and other labor disputes; loss or impairment of key manufacturing sites; loss of key suppliers; supplier capacity constraints; raw material and product quality or safety issues; inflation; industrial accidents or other occupational health and safety issues; the impact on our suppliers of tighter credit or capital markets; epidemics and pandemics; and natural and man-made disasters, including climatic events (including any potential effect of climate change), power grid failures, acts of war or terrorism, workplace violence; political unrest, fires or explosions and other external factors over which we have no control.
In addition, we single-source or rely on limited sources of supply for some components, raw materials and production services, such as sterilization, used in the production of our products. The loss of one of these suppliers or the inability of any such supplier to meet performance dependsand quality specifications, requested quantities or delivery schedules could cause our sales and profitability to decline and have a negative impact on our customer relations. Moreover, a price increase from a supplier where we do not have a supply alternative could cause our profitability to decline if we cannot increase our prices to our customers. To ensure sufficient supply, we may determine that we need to provide financing to some subset of our supplier base, which could increase our financial exposure to such suppliers.
In the commercial successpast couple of years, we have incurred shortages of critical components. For example, in 2022, our contact lens care business was impacted by a shortage of components used to manufacture the bottles. In 2021, there was a global shortage of semiconductor chips, which are an essential component to the manufacture of our equipment. These types of shortages have resulted, and may continue to result, in delays in the manufacture of our products, increased costs to source alternative supplies, harm to our reputation, loss of business to competitors, and otherwise materially and adversely affect our business and operations.
Finally, in some cases, we manufacture our products at a single manufacturing facility. In many cases, regulatory approvals of our products are limited to a specifically approved manufacturing facility. If we fail to produce enough of a product at a facility, or if our manufacturing process at that facility is disrupted, we may be unable to deliver that product to our customers on a timely basis. Problems may arise during the manufacturing process for a variety of reasons, including technical, labor or other difficulties, equipment malfunction, contamination, failure to follow specific protocols and procedures, destruction of or damage to any facility (as a result of a natural or man-made disaster, use and storage of hazardous materials or other events), power grid failures or other reasons. In the event of a quality control issue, we may voluntarily, or our regulators may require us to, close a facility indefinitely. If any such problems arise, we may be unable to purchase substitute products from third-party manufacturers to make up any resulting shortfall in the production of a product, as such third-party manufacturers may only exist in limited numbers or appropriate substitutes may not be available. This risk is particularly relevant with respect to products for which we represent a substantial portion of the market, such as vitreoretinal equipment and other vitreoretinal-related products including viscoelastic. A failure to deliver products on a timely basis could lead to customer dissatisfaction and damage to our reputation. Significant delays in the delivery of our products or a delay in the delivery of a key product could also negatively impact our sales and profitability.
Continued energy supply constraints and increases in the cost of energy, including as a result of the ongoing conflict in Ukraine, could adversely impact our results of operations.
We use natural gas and electricity to operate our manufacturing plants, and these operations can be directly affected by volatility in the cost and availability of energy, which is often subject to factors outside of our control. The ongoing conflict between Russia and Ukraine has impacted global energy markets, particularly in Europe where we have several manufacturing plants, leading to high volatility and increased prices for natural gas and electricity. Reductions in the supply of natural gas from Russia to Europe have led to ongoing supply shortages in Europe, and European Union member states have recently agreed to a voluntary short-term reduction of natural gas usage as a result of these shortages. Continued natural gas supply shortages, or a shutdown of natural gas supply from Russia, could lead to additional price increases, energy supply rationing, or temporary reduction in operations or closure of our manufacturing plants leading to an inability to meet demand and harm to our reputation with healthcare providers and patients, all of which could have a material adverse impact on our business or results of operations.
Our inability to forecast demand accurately may adversely affect our sales and earnings and add to sales variability from quarter to quarter.
We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence because of changing customer requirements, fluctuating commodity prices, changes to our products, product transfers or the life cycle of our products. To successfully manage our inventories, we must estimate demand from our customers and produce products in sufficient quantity that substantially corresponds to that demand. If we fail to adequately forecast demand for any product, or fail to determine the optimal product mix for production purposes, we may face production capacity issues in manufacturing sufficient quantities of a given product. In addition, failures in our information technology systems or human error could also lead to inadequate forecasting of our overall demand or product mix.
As the number of unique products (SKUs) we offer grows, particularly an increasing number of IOL and contact lens styles with varying diopters, the demand forecasting precision required for us to avoid production capacity issues will also increase. Accordingly, the continued proliferation of unique SKUs in our surgical and vision care portfolios could increase the risk of product unavailability and lost sales. Moreover, an increasing number of SKUs could increase global inventory requirements, especially for consigned products such as IOLs, negatively impacting our working capital performance and leading to write-offs due to obsolescence and expired products.
Compounding the risk of inaccurate forecasts, the manufacturing process for our products has lengthy lead times to acquire and install new equipment and product lines to ramp up production. Thus, if we fail to adequately forecast demand, then we may be unable to scale production in a timely manner to meet unexpected higher demand.
Finally, a significant portion of our vision care products are sold to major healthcare distributors and major retail chains in certain markets. Consequently, our sales and quarterly growth comparisons, as well as our estimates for required inventory levels, may be affected by fluctuations in the buying patterns of such buyers. These fluctuations may result from seasonality, pricing, a recall of a competitor’s product, large retailers' and distributors' buying decisions or other factors. If we overestimate demand and produce too much of a particular product, we face a risk of inventory obsolescence, leaving us with inventory that we cannot sell profitably or at all. By contrast, if we underestimate demand and produce insufficient quantities of a product, we could be forced to choose between producing additional unexpected quantities of that product at a higher price or foregoing sales.
Environmental, social and governance matters may impact our business and reputation.
In addition to the importance of our financial performance, investors, investor advocacy groups, lenders, and other market participants are increasingly judging companies by their performance on a variety of environmental, social and governance ("ESG") matters, which are considered to contribute to the long-term sustainability of companies’ performance. To help judge a company’s ESG performance, a variety of organizations rate a company’s ESG performance based on a variety of ESG topics, and the results of these assessments are widely publicized. In addition, some investors now use ESG criteria to determine whether Alcon qualifies for inclusion in their investment portfolio while investment in funds that specialize in companies that perform well in ESG assessments are increasingly popular. Topics taken into account in such assessments include, among others, our efforts and impacts on climate change and human rights, diversity and inclusion, ethics and compliance with law, the role of our board of directors in supervising various sustainability issues and the public’s ability to access our products and solutions.
We are frequently asked by investors and other stakeholders to set ambitious ESG goals and provide new and more robust disclosure on goals, progress toward goals and other matters of interest to ESG stakeholders. In addition, a number of our customers, particularly EU and UK governments, have adopted, or may adopt, procurement policies that impose sustainability standards. Our ability to sell to these customers, including the ability to win public tenders, may depend, in part, on whether we can meet, and provide evidence of meeting, those sustainability standards. In response, we have
adapted the tracking and reporting of our corporate responsibility program to various evolving ESG frameworks, and we have established and announced goals and other objectives related to ESG matters. These goal statements reflect our current plans and aspirations and, due to various factors many of which are beyond our control, we may be unable to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal and other risks, any of which could have a material negative impact, including on our reputation and stock price.
The standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve. Our selection of disclosure frameworks that seek to align with various reporting standards may change from time to time and may result in a lack of consistent or meaningful comparative data from period to period. In addition, the US, Swiss, European, and other regulatory authorities may impose mandatory disclosure requirements with respect to ESG matters, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. In addition, enhancements to our processes and controls to reflect evolving reporting standards may be costly and require additional resources.
If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain associates, our ability to compete, and our attractiveness as an investment could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.
We may not successfully complete and integrate strategic acquisitions to expand or complement our business.
As part of our growth strategy, we regularly evaluate and pursue external investments, alliances, license arrangements, acquisitions and other transactions, which we collectively refer to as "BD&L" transactions, to expand or complement our business. For example, in 2022, we closed the acquisitions of Ivantis, Inc. and Aerie Pharmaceuticals, Inc., as well as the product acquisitions from Kala Pharmaceuticals, Inc. These and other ventures may bring new technologies, products or customers to enhance our position in the ophthalmic industry. We may be unable to identify suitable acquisition candidates at attractive prices or at all. Acquisition activities can be thwarted by overtures from competitors for the targeted candidates and governmental regulation (including market concentration limitations and other competition laws).
Further, even if we are successful in completing an acquisition, we could face risks relating to our ability to:
•successfully integrate the venture due to corporate cultural differences, difficulties in retaining key personnel, customers and suppliers, coordination with other products and changing market preferences;
•maintain uniform standards, controls, procedures and policies throughout acquired companies, including effective integration of acquired companies into our internal control over financial reporting;
•achieve expected synergies and obtain the desired financial or strategic benefits from acquisitions within the anticipated time periods, if at all; and
•successfully enter categories and markets in which we may have limited or no prior experience.
Moreover, acquisitions demand significant company resources and could divert management's attention from our existing business, result in liabilities being incurred that were not known at the time of acquisition or create tax or accounting issues. Furthermore, acquisitions or ventures could also result in potentially dilutive issuances of equity securities, the incurrence of debt, the assumption of contingent liabilities, an increase in expenses related to certain assets and increased operating expenses, all of which could adversely affect our financial condition and results of operations. Significant judgment is required to determine which transactions will result in optimal returns, and to the extent that the economic benefits associated with any of our acquisitions or investments do not meet our expectations, we may be required to record impairment charges related to goodwill, intangible assets or other assets associated with such transactions.
We often enter into option agreements to acquire early-stage technologies, which may fail in the development process or proof-of-concept stage. Even if such a failure occurs before we exercise our option to acquire the technology, we may have already made a significant investment in the failed technology. Further, if we complete the acquisition, we may not be able to successfully integrate the acquired technology into our business or otherwise use it to develop commercialized products. If we fail to timely recognize or address these matters or to devote adequate resources to them, we may fail to achieve our growth strategy or otherwise not realize the intended benefits of an acquisition.
We operate in a highly competitive industry and if we fail to innovate, we may be unable to maintain our position in the markets in which we compete and unable to build and expand our markets.
Our financial performance depends heavily onindustry is highly competitive and, in both our surgical and vision care businesses, we face intense competition. For example, in our surgical business, we face a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. Development by other
companies of new or improved products, processes or technologies may make our products or proposed products less competitive or obsolete. In contact lenses, we face intense competition from existing competitors' products and expect increased competition from contact lens manufacturers in Asia. New market entrants and existing competitors are also challenging distribution models with innovation in non-traditional, disruptive models such as direct-to-consumer, Internet and other e-commerce sales opportunities, which could adversely impact the commercial successimportance of our products. If any of our major products were to become subject to problems such as: decreases in growth rates for clinical procedures using our products; quality concerns; loss of intellectual property protection; pricing and reimbursement cuts; tax changes; supply chain issues or other product shortages; social or environmental concerns; regulatory actions; negative publicity affecting doctor,the traditional eye care professional or patient confidence("ECP") channel in which we have a significant presence and may lead to greater pricing pressure. Our vision care business also competes with manufacturers of eyeglasses and providers of other forms of vision correction including ophthalmic surgery. New drug discoveries have the product; unfavorable guidance from healthcare or other governmental agencies; material product liability litigation; pressure from new or existing competitive products; or if our products failpotential to meet consumer needs, the adverse impact on our revenue and profit could be significant. In addition, our revenue and profit could be significantly impacted by the timing and rate of commercial acceptancedisrupt core elements of our products.surgical and vision care businesses.
The adverse impact on our results of operations from these factors could be compounded to the extent that we need to make significant additional investments such as in marketing and sales to counter these factors.
Furthermore, whileWhile we currently enjoy leading positions within our industry, our success highly depends on our ability to maintain or build on those leading positions. We cannot predict the timing or impact of the introduction of competitive products, including new market entries, “generic” versions of our approved products, or private label products that treat the same conditions as those of our products. To compete effectively, we must continue to experience pressures acrosscreate, invest in or acquire advanced technology, incorporate this technology into our businesses dueproprietary products, obtain regulatory approvals in a timely manner where required and manufacture and successfully market our products. See “–We may not successfully complete and integrate strategic acquisitions to competitive activity, increased buying powerexpand or complement our business” and “–Our research and development efforts may not succeed in bringing new products to market or may fail to do so in a cost-efficient manner or in a manner sufficient to grow our business, replace lost sales or take advantage of new technologies.”
Shifts in industry market share can occur in connection with product issues, physician advisories, safety alerts and publications about our products. New products from our competitors may be safer or more effective, more convenient to use, have better insurance coverage or reimbursement levels or be more effectively marketed than our own products. Specifically in the case of pharmaceuticals, the generic versions of our healthcare industry customers and retail distributors, economic pressures experienced bycompetitors’ branded products or our own branded products may be sold at a substantially lower price than our own products. Further, in the end-users of our vision care products, trade disputes among the countries in which we operate or sell our products, and the impactcurrent environment of managed care, organizationsconsolidation among healthcare providers, increased competition and other third-party payors fordeclining reimbursement rates, unless we innovate, we must increasingly compete on the basis of price.
Finally, our surgical products. These and other factors may adversely impact market sizes, as well as our position in the markets in which we compete, and the medical procedure volumes or average selling prices for our products.
Our financial performance also depends on our ability to successfully build and expand our markets. For example, while we currently expect our key markets to grow, particularly in multifocal contact lenses and AT-IOLs, the size of the markets in which we compete may not increase above existing levels, we may not be able to regain or gain market share, expand our market penetration or the size of the market for our products or compete effectively, and the number of procedures in which our products are used may not increase above existing levels. Decreases in market sizes or our market share and declines in average selling prices or procedural volumes could materially adversely affect our results of operations or financial condition. Furthermore, our failure to expand our markets beyond existing levels could impact our ability to grow in line with or above current industry standards.
We operate in a highly competitive industry and if we fail to innovate, we may be unable to maintain Moreover, our position in the markets in which we compete.
Our industry is highly competitive and, in both our surgical and vision care businesses, we face a mixture of competitors and intense competition from competitors' products. To compete effectively, we must continue to create, invest in, or acquire advanced technology, incorporate this technology into our proprietary products, obtain regulatory approvals in a timely manner where required, and manufacture and successfully market our products. We may experience design, manufacturing, marketing or other difficulties that could delay or prevent our development, introduction or marketing of new products or new versions of our existing products. As a result of such difficulties and delays, our development expenses may increase and, as a consequence, our results of operations could suffer. Our failure to respond to competitive pressures in a timely manner could have a material adverse effect on our business, financial condition and results of operations.
For example, in our surgical business, we face a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products. Development by other companies of new or improved products, processes, or technologies may make our products or proposed products less competitive or obsolete. We also face competition from providers of alternative medical therapies such as pharmaceutical companies that have the potential to disrupt core elements of our business. Competitive factors include:
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▪ | disruptive product technology; |
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▪ | alternative treatment modalities; |
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▪ | breadth of product lines and product services; |
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▪ | ability to identify new market trends; |
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▪ | acceptance of equipment and other products by ophthalmic surgeons; |
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▪ | customer and clinical support; |
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▪ | regulatory status and speed to market; |
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▪ | product quality, reliability and performance; |
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▪ | capacity to recruit engineers, scientists and other qualified associates; |
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▪ | digital initiatives that change business models; |
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▪ | reimbursement approval from governmental payors and private healthcare insurance providers; and |
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▪ | reputation for technical leadership. |
Shifts in industry market share can occur in connection with product issues, physician advisories, safety alerts, and publications about our products. In the current environment of managed care, consolidation among healthcare providers, increased competition and declining reimbursement rates, we are increasingly required to compete on the basis of price.
In addition, our vision care business operates within a highly competitive environment. In contact lenses, we face intense competition from competitors' products and may face increasing competition as other new products enter the market, for example with increased product entries from contact lens manufacturers in Asia. New market entrants and existing competitors are also challenging distribution models, with innovation in non-traditional, disruptive models such as direct-to-consumer, internet and other e-commerce sales opportunities, which could adversely impact the traditional eye care professional ("ECP") channel in which Alcon has a significant presence. Our major competitors in contact lenses offer competitive products and differentiated materials, plus a variety of other eye care products including ophthalmic pharmaceuticals, which may give them a competitive advantage in marketing their lenses. Our vision care business also competes with manufacturers of eyeglasses and providers of other forms of vision correction including ophthalmic surgery. The market for contact lenses is intensely competitive and is characterized by declining sales volumes for older and reusable product lines and growing demand for daily lenses and advanced materials lenses. As the market for contact lenses shifts toward daily lenses, we expect our sales in daily lenses to, at least in part, cannibalize sales of our reusable contact lenses and contact lens care offerings. Furthermore, our ocular health product category is also highly competitive. We cannot predict the timing or impact of the introduction of competitive products, including new market entries, "generic" versions of our approved products, or private label products that treat the same conditions as those of our products. In addition, the introduction of alternatives in medical devices and medical prescriptions could also alter the dry eye product market and impede our sales growth. Our ability to respond to these competitive pressures will depend on our ability to decrease our costs, and maintain gross margins and operating results, and to introduce new products successfully and on a timely basis, and to achieve manufacturing efficiencies and sufficientmaintain manufacturing capacity and capabilities for such products.
With respect to all of our other businesses, competitive pressures could decrease sales volumes for existing products or require us to decrease prices to respond to competitive pressures.capacity.
Our research and development efforts may not succeed in bringing new products to market or may fail to do so in a cost-efficient manner or in a manner sufficient to grow our business, replace lost revenue and incomesales or take advantage of new technologies.
Our ability to continue to maintain and grow our business, to replace sales lost due to competition and to bring to market products that take advantage of new and potentially disruptive technologies depends heavily on the success of our research and development activities. Our success relies on our ability to identify and successfully develop cost-effective new products that address unmet medical and consumer needs. To accomplish this, we commit substantial financial, human and capital resources to product research and development, both through our internal dedicated resources and through external investments, alliances, license arrangements, acquisitions and other transactions, which we collectively refer to as BD&L transactions. Developing and marketing new products involves a costly, lengthy and uncertain process. Even when our new product development projects make it to market, there have been, and in future may be, instances where projects are subsequently discontinued for technical, clinical, regulatory or commercial reasons. In spite of our investments, our research and development activities and external investments may not produce commercially successful new products that will enable us to replace incomesales lost to our competitors or increase revenue to grow our business. We may not be able to successfully identify and obtain value from our external business development and strategic collaborative efforts. In addition, our new products may cannibalize a portion of the revenues we derive from existing products, therefore driving replacement revenue instead of incremental revenue.
Finally,Further, even if we are able to secure regulatory approval and achieve initial commercial success of our products, our products may abruptly cease to be commercially viable due to the discovery of adverse health effects. See"—WeSee "-We may implement product recalls or voluntary market withdrawals of our products" below.products."
If we are unable to maintain a cost-effective flow of successful new products sufficient to maintain and grow our business, cover any sales erosion due to competition and take advantage of market opportunities, this lack of innovation could have
a material adverse effect on our business, financial condition or results of operations. For a description of the government
approval processes which must be followed to market our products, see "—Regulatory"-Regulatory clearance and approval processes for our products are expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products" below and "Item 4. Information on the Company—4.B.Company-4.B. Business Overview—GovernmentOverview-Government Regulation".
Pricing pressure from changes in third-party payor coverage and reimbursement methodologies and potential regulatory price controls may adversely impact our ability to sell our products at prices necessary to support our current business strategy.
The prices, sales, and demand for some of our products, in particular our surgical products, could be adversely affected by the increased emphasis managed care organizations and governments continue to place on the delivery of more cost-effective medical therapies. For example, major third-party payors for hospital services, including government insurance programs, such as Medicare and Medicaid in the United States and certain private healthcare insurers, have substantially revised their payment methodologies during the last few years, resulting in stricter standards for, and lower levels of reimbursement of, hospital and outpatient charges for some clinical procedures. In addition, some third-party payors will not provide reimbursement for new products until we demonstrate the innovative value or improved patient outcome of the new product. If we are unable to demonstrate such innovative value or improved patient outcome, our products may not be eligible for reimbursement, which would severely impact our ability to grow the market for sales of those products. There have also been recent initiatives by third-party payors to challenge the prices charged for medical products. Physicians, eye care professionals and other healthcare providers may be reluctant to purchase our surgical products if they do not receive adequate reimbursement from third-party payors to cover the cost of those products and for procedures performed using those products. Reductions in the prices for our products in response to these trends could reduce our profit margins, which would adversely affect our ability to invest and grow our business.
Outside the US, governmental programs that typically reimburse at predetermined fixed rates may also decrease or otherwise limit amounts available through reimbursement. For example, in the EU, member states impose controls on whether products are reimbursable by national or regional health service providers and on the prices at which medical devices are reimbursed under state-run healthcare schemes. Some member states operate reference pricing systems in which they set national reimbursement prices by reference to those in other member states. Other governmental funding restrictions, legislative proposals and interpretations of policy may negatively impact amounts available through reimbursement, including by restricting payment increases to hospitals and other providers through reimbursement systems, or by restricting whether reimbursement is available for our products at all.
We expect that additional health care reform measures will be adopted in the future in the countries in which we operate, including those initiatives affecting coverage and reimbursement for our products, any of which could limit the amounts that governments will pay for health care products and services, which could adversely affect the growth of the market for our products or the demand for our products, or result in additional pricing pressures. We cannot predict the effect such reforms or the prospect of their enactment may have on our business.
Finally, the implementation of government price controls on our products or product categories in the jurisdictions in which we operate, or to which we may intend to expand in the future, could adversely affect the revenue we could obtain from sales of our products. For example, in India, the National Pharmaceutical Pricing Authority ("NPPA") controls the prices of drugs and medical devices listed under the National List of Essential Medicines and in 2017 imposed 75% to 85% price reductions on coronary stents (implantable medical devices intended to ensure an adequate flow of blood to the heart). The NPPA has begun to evaluate prices on other categories of medical devices, potentially including IOLs used in cataract surgeries. If the NPPA chooses to impose similar price reductions on IOLs from Alcon, this could have a negative impact on our surgical sales in India. It is also possible that regulatory agencies in other countries may consider similar or comparable price controls on our eye care products in the future, which could have an adverse impact on our business, financial condition and results of operations.
The unstableChanging economic and financial environmentenvironments in many countries and increasing global political and social instability may adversely impact our business.
We sell our products in more than 140 countries. As a result, local and regional economic and financial environments and political and social conditions throughout the world influence and affect our results of operations and business.
Unpredictable political and social conditions currently exist in various parts of the world, particularly in emerging markets, including a backlash in certain areas against free trade, anti-immigrant sentiment, social unrest, a refugee crisis, food and water shortages, COVID-19 related actions, terrorism and the risk of direct conflicts between nations. In addition, the current trade environment is extremely volatile, including the imposition of trade tariffs, trade or economic sanctions, or other restrictions. Changes in trade policy vis-à-vis countries that we operate in could affect our ability to sell products and/or increase the cost of doing business in such countries. For example, we expect that the ongoing trade disputesdispute between the United StatesUS and China, and Russia, respectively,which has been exacerbated over tensions involving Taiwan, could potentially have an adverse effect on the export of our surgical equipment to either or both countries. In the United States, the current presidential administration's opposition to free trade agreements
could cause barriers to be raised to international trade, and the elimination of the Affordable Care Act's individual mandate could have a negative impact on individuals' ability to afford health insurance.China. Similarly, following the UK's "Brexit" vote and with the rise of nationalist, separatist and populist sentiment in various countries, there is a risk that barriers to free trade and the free movement of people may rise in Europe. As we have a sizable commercial presence in the UK, the continuing uncertainty surrounding the implementation and effect of "Brexit" may impact our business in the UK and the rest of Europe, including our costs and the distribution of our products in those markets. In other cases, economic nationalism programs that require governments to purchase products made in their own country, such as the policies China has recently enacted, can make it difficult for us to compete. Further, significant conflicts continue in parts of the Middle East, including conflicts involving Saudi Arabia and Iran, and with respect to places such as North Korea.Korea, Ukraine, and Taiwan. Collectively, such difficult conditions could, among other things, disturb the international flow of goods and increase the costs and difficulties of international transactions.
In addition, local economic conditions may adversely affect the ability of payors, as well as our distributors, customers, suppliers and service providers, to pay for our products, or otherwise to buy necessary inventory or raw materials, and to perform their obligations under agreements with us. Although we make efforts to monitor these third parties' financial condition and their liquidity, our ability to do so is limited, and some of them may become unable to pay their bills in a timely manner, or may even become insolvent, which could negatively impact our business and results of operations. These risks may be elevated with respect to our interactions with fiscally-challenged government payors, or with third parties with substantial exposure to such payors. For example, we have significant outstanding receivable balances that are dependent upon either direct or indirect payment by various governmental and non-governmental entities across the world. The ultimate payment of these receivables is dependent on the ability of these governments to maintain liquidity primarily through borrowing capacity, particularly in the EU. If certain governments are not able to maintain access to liquidity through borrowing capacity, the ultimate payment of their respective portion of outstanding receivables could be at risk and impact profits and cash flow.
Further, in many emerging markets, average income levels are relatively low, government reimbursement for the cost of healthcare products and services is limited and prices and demand are sensitive to general economic conditions. These challenges may prevent us from realizing the expected benefits of our investments in such emerging markets, which could have an adverse impact on our business, financial condition and results of operations.
Economic conditions in our markets may also deteriorate due to epidemics or pandemics; natural and man-made disasters, including climatic events (including any potential effect of climate change), power grid failures, acts of war or terrorism, inflation, political unrest, fires or explosions; and other external factors over which we have no control. For example, an outbreak of a recent strain of coronavirus in China has resulted in thousands of cases in China and continues to spread in China and to other countries. As the Chinese government continues its attempts to contain the coronavirus by restricting the movement of goods and people in China, our business operations and ability to sell our products to customers and patients in China will be adversely impacted. In addition, if the coronavirus continues to spread outside of China, our activities worldwide could be adversely affected. These disruptions to our business could materially, adversely affect our revenues, financial condition, profitability, and cash flows. While we believe the coronavirus outbreak will have some negative impact on our near-term financial results as a result of a decline in surgical procedures and customer demand, the longer-term impact is difficult to assess or predict at this time.
To the extent that economic and financial conditions directly affect consumers, some of our businesses, including the elective surgical and contact lens businesses, may be particularly sensitive to declines in consumer spending, as the costs of elective surgical procedures and discretionary purchases of contact lenses are typically borne by individuals with limited reimbursement from their medical insurance providers or government programs. For example, while cataract surgery involving our monofocal IOLs is generally fully covered by medical insurance providers or government reimbursement programs, implantation of certain of our AT-IOL products may only be partially covered, with the individual paying out-of-pocket for the non-covered component. Accordingly, individuals may be less willing to incur the costs of these private pay or discretionary procedures or purchases in weak or uncertain economic conditions and may elect to forgo such procedures or products or to trade down to more affordable options.
If we fail to comply with applicable anti-corruption and anti-bribery laws, export control laws, trade sanction laws, or other global trade laws, we could be subject to penalties and civil and/or criminal sanctions and our business could be materially adversely affected.
We have extensive international operations and sell our product in more than 140 countries, including in countries that are perceived to have heightened levels of data securitypublic sector corruption. Operating in such jurisdictions subjects us to increased scrutiny and heightens the risk of violating worldwide anti-bribery laws, including those that prohibit companies and their intermediaries from making improper payments to government officials or disruptionsother third parties for the purpose of information technology systemsobtaining or retaining business, such as the FCPA, and the use of Internet, social medialaws that prohibit commercial bribery. Our internal control policies and mobile technologies could adverselyprocedures may not always protect us from reckless or criminal acts committed by our associates or agents.
In addition, we are required to comply with various global trade laws that apply to our worldwide operations, including import laws and export control and economic sanctions laws, which may affect our businesstransactions with certain customers. In certain circumstances, export control and expose people's personal information.
We are heavily dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support our business processes.economic sanctions regulations may prohibit the export of certain products or services. In addition, Alcon and our associates rely on the Internet, social media tools, and mobile technologies as a means of communication and to gather information, which can include people's personal information. We are also increasingly seeking to develop technology-based products to improve patient welfare in a variety of ways, which could also result in us gathering personal information about patients and others electronically.
The size and complexity of these information technology systems, and, in some instances, their age, make them potentially vulnerable to external or internal security incidents, breakdowns, power outages, malicious intrusions, cybercrimes, including state-sponsored cybercrimes, malware, misplaced or lost data, programming or human errors, or other similar events. Furthermore, because cyber-threats continue to evolve, it is becoming increasingly difficult to detect and successfully defend against them. Consequently, there is a risk that a breach remains undetected for a period of time.
We also currently rely on a number of older legacy information systems that are increasingly harder to maintain as we began implementing our new ERP system. By attempting to implement new systems while maintaining the legacy systems,circumstances, we may be unablerequired to integrate allobtain an export license before exporting the item.
Compliance with the various import laws that apply to our businesses can restrict our access to, and increase the cost of obtaining, certain products and at times can interrupt our systemssupply of imported inventory. Any noncompliance by us with applicable laws and regulations or the failure to work together. See the risk factor "-We may experience difficulties implementing our new enterprise resource planning system" below for more details on our ongoing implementation of a new ERP system.
Like many companies, wemaintain, renew or obtain necessary permits and licenses could result in criminal, civil and administrative penalties and could have experienced certain adverse incidents and expect to continue to experience them in the future and, as the external cyber-attack threat only keeps growing, we may not be able to prevent future breakdowns or breaches in our systems and we may not be able to prevent such events from having a materialan adverse effect on our business, financial condition, results of operationsoperations. For example, as a result of Russia's invasion of Ukraine, the US, Swiss, EU and UK governments, among others, have developed coordinated sanctions and export control measure packages including: comprehensive financial sanctions against major Russian banks (including SWIFT cut off); additional designations of Russian individuals with significant business interests, involvement in Russian military activities, or reputation. Our risks are heightened becausegovernment connections; and enhanced export controls and trade sanctions targeting Russia's imports of a wide range of goods as a whole. While not material to our overall sales, we are heavily reliant on our former parent company for operating and maintaining much of our information technology infrastructure until we are able to fully migrate our data and processes onto our own system. We must rely on our former parent company to invest in the latest security capabilities to protect our systems from threats and disruptions.
Any disruptive event could negatively impact important business processes, such as the conduct of scientific research and clinical trials, the submission of the results of such efforts to health authorities in support of requests for product approvals, the functioning of our manufacturing and supply chain processes, our compliance with legal obligations and our other key business activities, including our associates' ability to communicate with one another and with third parties. Such potential information technology issues could also lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. Furthermore, malfunctions in software or in devices that make significant use of information technology, including our surgical equipment, could lead to a risk of harm to patients.
In addition, our routine business operations, including through the use of information technologies such as the Internet, social media, mobile technologies, and technology-based medical devices like our surgical equipment, also increasingly involve our gathering personal information (including sensitive personal information) about patients, vendors, customers, associates, collaborators and others. Breaches of our systems or those of our third-party contractors, or other failures to protect such information, could expose such people's personal information to unauthorized persons. Any such event could give rise to significant potential liability and reputational harm, including potentially substantial monetary penalties. We also make significant effortshave continued to ensure that any international transfers of personal data are donepatients and eye care professionals in Russia and Belarus have sustained, equal access to our eye care products and services. Our business must be conducted in compliance with applicable law. Weeconomic and trade sanction laws and regulations, many of which are subject to certain privacy laws, including Swiss privacy laws,changed or strengthened frequently often without much notice. Any violation of the EU's General Data Protection Regulation and the California Consumer Privacy Act, which include operational and compliance requirements that are different than those previously in place and also includes significant penalties for non-compliance. Failure to comply with theseapplicable global trade laws could leadresult in government investigations, adverse media coverage and criminal or civil sanctions, which could disrupt our business and adversely affect our reputation and business, results of operations, cash flows and financial condition.
Changes in third-party payor coverage and reimbursement methodologies and potential regulatory price controls may adversely impact our ability to significant liability.sell our products at prices necessary to support our current business strategy.
The prices, sales and demand for some of our products, in particular our surgical and pharmaceutical products, could be adversely affected by the increased emphasis managed care organizations and governments continue to place on reducing health care costs. In addition, any additional restraints that maysome third-party payors will not provide reimbursement for a new product until we demonstrate the innovative value or improved patient outcomes of the new product, which could impact our ability to grow the market for sales of the product. For our pharmaceutical products, we must compete to be placed on our abilityformularies of managed care organizations. Exclusion of a product from a formulary can lead to transfer such data couldreduced usage in the managed care organization. There have a material adverse effect on our business, financial condition, results of operationsalso been recent initiatives by third-party payors to challenge the prices charged for medical products. Physicians, eye care professionals and reputation.
We also use Internet, social media and mobile tools as a meansother healthcare providers may be reluctant to communicate with the public, including aboutpurchase our products or aboutif they do not receive adequate reimbursement from third-party payors to cover the diseasescost of those products and for procedures performed using those products. This risk can be heightened in times of higher inflation if reimbursement rates do not keep pace with increasing costs. Reductions in the prices for our products are intendedin response to treat. However, such uses create risks, such as the loss of trade secrets or other intellectual property. In addition, there continue to be significant uncertainties as to the rules and regulations that apply to such communications, and as to the interpretations that health authorities will apply in this context to the rules that do exist. As a result, despitethese trends could reduce our efforts to comply with applicable rules and regulations, there is a significant risk that our use of Internet, social media and mobile technologies for such purposes may cause us to nonetheless be found in violation of them.
Breaches of data security, technology disruptions, privacy violations, or similar issues could cause the loss of trade secrets or other intellectual property, expose personal information, interrupt our operations, all ofprofit margins, which could result in enforcement actions or liability, including potential government fines, claims for damages, and shareholders' litigation. Any such events could require us to expend significant resources beyond those we already invest to further modify or enhance our protective measures, to remediate any damage, and to enable the continuity of our business.
We may experience difficulties implementing our new enterprise resource planning system.
We are engaged in a multi-year implementation of a new ERP system across our global commercial and manufacturing operations, which is intended to enhance and streamline our existing ERP system. ERP implementations are inherently complex and time-consuming projects that involve substantial expenditures on system software, implementation activities and business process reengineering. Any significant disruption or deficiency in the design and implementation of our new ERP system couldwould adversely affect our ability to invest and grow our business.
Governmental programs that typically reimburse at predetermined fixed rates may also decrease or otherwise limit amounts available through reimbursement. For example, in the EU, member states impose controls on whether products are reimbursable by national or regional health service providers and on the prices at which products are reimbursed under state-run healthcare schemes. Some member states operate reference pricing systems in which they set national reimbursement prices by reference to those in other member states. Countries implementing a volume-based procurement process, orders, shipsuch as the one initiated in China in 2018, can lead to decreased prices. The US recently passed the Inflation Reduction Act, which makes significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits and the introduction of government price-setting for certain Medicare Part D drugs starting in 2026. Other governmental funding restrictions, legislative proposals and interpretations of policy may negatively impact amounts available through reimbursement, including by restricting payment increases to hospitals and other providers through reimbursement systems, or by restricting whether reimbursement is available for our products provide services and customer support, fulfill contractual obligations or otherwise operate our business. Forat all.
We expect that additional information, see "Item 4. Information on the Company—4.A. History and Development of the Company—Significant Acquisitions, Dispositions and other Events".
Financial markets, including inflation and volatile exchange rates, are unpredictable.
Financial market issues may also adversely affect our earnings, the return on our financial investments and the value of some of our assets. For example, inflation could accelerate, which could lead to higher interest rates, increasing our costs of raising capital. Uncertainties around future central bank and other economic policies in the United States and EU, as well as high debt levels in certain other countries, could also impact world trade. Sudden increases in economic, currency or financial market volatility in different countries have also impacted, and may continue to unpredictably impact, our business and results of operations, including the value of our investments in our pension plans. See also "—We mayhealth care reform measures will be underestimating our future pension plan obligations" below.
Changes in exchange rates between the US dollar, our reporting currency, and other currencies can also result in significant increases or decreases in our reported sales, costs and earnings as expressed in US dollars, and in the reported value of our assets, liabilities and cash flows. Despite any measures we may undertakeadopted in the future to reduce,in the countries in which we operate, including those initiatives affecting coverage and reimbursement for our products, any of which could limit the amounts
that governments will pay for health care products and services, which could adversely affect the growth of the market for our products or hedge against, foreign currency exchange risks, because a significant portionthe demand for our products, or result in additional pricing pressures. We cannot predict the effect such reforms or the prospect of our earnings and expenditures are in currencies other than the US dollar, and the fact that our expenditures in Swiss francs and US dollars are significantly higher than our revenue in Swiss francs and US dollars, respectively, any such exchange rate volatilitytheir enactment may negatively and materially impact our business, results of operations and financial condition, and may impact the reported value of our net sales, earnings, assets and liabilities. The timing and extent of such volatility can be difficult to predict. Further, depending on the movements of particular foreign exchange rates, we may be materially adversely affected at a time when the same currency movements are benefiting some of our competitors. For more information on the effects of currency fluctuationshave on our Consolidated Financial Statements and on how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects—5.A. Operating Results—Effects of Currency Fluctuations" and "Item 11. Quantitative and Qualitative Disclosures About Market Risk".
Countries facing financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may impose controls on the exchange of foreign currency. Such exchange controls could limit our ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those countries.
Ongoing consolidation among distributors, retailers and healthcare provider organizations could increase both the purchasing leverage of key customers and the concentration of credit risk.
Increasingly, a significant portion of our global sales are made to a relatively small number of distributors, retail chains and other purchasing organizations, as consolidation and vertical integration have the potential to disrupt existing channels. The recent trend, which is present globally including in the United States (our largest market), has been toward further consolidation among distributors, retailers and other eye care industry customers, such as eye care professionals, including through the acquisition of consolidated ophthalmology practices by private equity and other venture fund investors. As a result, our customers are gaining additional purchasing leverage, which increases the pricing pressures facing our businesses.
In our surgical business, healthcare providers, physician practices, hospitals, and surgery centers around the world continue to consolidate in response to declining reimbursement rates and intensifying pressure to reduce healthcare delivery expenses. This consolidation is increasing the ability of large groups to negotiate price, accelerating the transition of the decision maker from physicians to cost-focused professional buyers, and potentially increasing price transparency or price referencing in instances of consolidation across borders. Such consolidation in the surgical market adds considerable downward pricing pressure to our product sales and margins.
In vision care, private label growth and retailer-branded lenses may drive the commoditization of contact lenses and further boost the bargaining power of our distributors and retailers. Moreover, we could become exposed to a concentration of credit risk as a result of any such concentration among our customers. If our customers consolidate and one or more of our major customers experienced financial difficulties, the effect on us would be substantially greater than in the past, and could include a substantial loss of sales and an inability to collect amounts owed to us.business.
If we fail to properly educate and train healthcare providers on our products, then customers may not buy our products.
We market our surgical and certain of our vision care products including pharmaceutical products to healthcare providers, including ECPs, public and private hospitals, ambulatory surgical centers, eye clinics and ophthalmic surgeons' offices and group purchasing organizations and our other vision care products to retailers and distributors. We have developed, and strive to maintain, strong relationships with members of each of these groups who assist in product research and development and advise us on how to satisfy the full range of consumer and surgeon needs. We rely on these groups to recommend our products to their patients and to other members of their organizations.
Contact lens and lens care consumers have a tendency not to switch products regularly and are repeat consumers. As a result, the success of these products relies on an ECP’s initial recommendation of our products, which may be based on our ability to educate the ECP on our products. Even if we are successful at educating ECPs on our products, ECPs may continue to lose influence in the consumer's selection of contact lenses, which would cause our business to become more dependent upon the success of educating consumers directly. If we had to increase our direct-to-consumer marketing, we could potentially face challenges in maintaining our good relationships with ECPs, who may view our direct-to-consumer marketing as a threat to their business.
In our surgical business and with our pharmaceutical products, ECPs, including ophthalmic surgeons, play a significant role in determining the course of treatment and, ultimately, the type of products that will be used to treat a patient for cataracts, vitreoretinal conditions, refractive errors, glaucoma and glaucoma,dry eye, among other things. As a result, it is important for us to properly and effectively market our surgical products to surgeons.ECPs. Acceptance of our surgical products also depends on our ability to train ophthalmic surgeonsECPs and their clinical staff on the safe and appropriate use of our products, which takes time. This training process may take longer than expected and may therefore affect our ability to increase sales. Following completion of training, we rely on the trained ophthalmic surgeonsECPs to advocate the benefits of our products in the broader marketplace. Convincing ophthalmic surgeonsECPs to dedicate the time and energy necessary for adequate training is challenging, and we may not be successful in these efforts. If we are not
successful in convincing ophthalmic surgeonsECPs of the merits of our products or educating them on the use of our products, they may not use our products and we will be unable to fully commercialize or profit from such products.
Our inability to forecast demand accurately may adversely affect our sales and earnings and add to sales variability from quarter to quarter.
We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence because of changing customer requirements, fluctuating commodity prices, changes to our products, product transfers or the life cycle of our products. To successfully manage our inventories, we must estimate demand from our customers and produce products in sufficient quantity that substantially correspond to that demand. If we fail to adequately forecast demand for any product, or fail to determine the optimal product mix for production purposes, we may face production capacity issues in manufacturing sufficient quantities of a given product, such as our IOLs, daily contact lenses or certain ocular health products. In addition, failures in our information technology systems, issues created by the implementation of our new enterprise resource planning ("ERP") system or human error could also lead to inadequate forecasting of our overall demand or product mix.
As the number of unique products (SKUs) we offer grows, particularly an increasing number of IOL and contact lens styles with varying diopters, the demand forecasting precision required for us to avoid production capacity issues will also increase. Accordingly, the continued proliferation of unique SKUs in our surgical and vision care portfolios could increase the risk of product unavailability and lost sales. Moreover, an increasing number of SKUs could increase global inventory requirements, especially for consigned products such as IOLs, negatively impacting our working capital performance and leading to write-offs due to obsolescence and expired products.
Compounding the risk of inaccurate forecasts, the manufacturing process for our products have lengthy lead times to acquire and install new equipment and product lines to ramp up production. Thus, if we fail to adequately forecast demand, then we may be unable to scale production in a timely manner to meet unexpected higher demand. For example, in 2016, we experienced shortfalls in our inventory that resulted in a temporary disruption in our ability to timely deliver sufficient amounts of our IOL products in the US, which had an adverse impact on our business and reputation.
In addition, the manufacturing process for our products is technically complex (such as sterile products that require sophisticated environmental controls), which heightens the risk of production failures. As a result, as the chance of production failures and lengthy supply interruptions is increased, the risk of inadequate supply increases.
Finally, a significant portion of our vision care products are sold to major healthcare distributors and major retail chains in the United States. Consequently, our sales and quarterly growth comparisons, as well as our estimates for required inventory levels, may be affected by fluctuations in the buying patterns of such buyers. These fluctuations may result from seasonality, pricing, a recall of a competitor’s product, large retailers' and distributors' buying decisions or other factors. If we overestimate demand and produce too much of a particular product, we face a risk of inventory obsolescence, leaving us with inventory that we cannot sell profitably or at all. By contrast, if we underestimate demand and produce insufficient quantities of a product, we could be forced to choose between producing additional unexpected quantities of that product at a higher price or foregoing sales.
Disruptions in our global supply chain or important facilities could cause production interruptions, delays and inefficiencies.
We are engaged in manufacturing and sourcing of products and materials on a global scale. Our operations and those of our suppliers could be disrupted by a number of factors, including: disruptions in logistics; strikes and other labor disputes; loss or impairment of key manufacturing sites; loss of key suppliers; supplier capacity constraints; raw material and product quality or safety issues; industrial accidents or other occupational health and safety issues; the impact on our suppliers of tighter credit or capital markets; epidemics and pandemics; and natural and man-made disasters, including climatic events (including any potential effect of climate change), acts of war or terrorism, political unrest, fires or explosions and other external factors over which we have no control.
In addition, we single-source or rely on limited sources of supply for many components, raw materials and production services, such as sterilization, used in the production of our products. The loss of one of these suppliers or the inability of any such supplier to meet performance and quality specifications, requested quantities or delivery schedules could cause our sales and profitability to decline and have a negative impact on our customer relations. For example, some of our products and product components are sterilized using ethylene oxide (“EtO”), which we purchase from large-scale suppliers. Recent concerns about the impact of EtO on the environment when released at unsafe levels have led to regulatory enforcement activities against EtO suppliers, including closures of their facilities. Any facility closures or disruption to the operations of these EtO suppliers could delay or prevent our ability to commercialize our products and lead to product backorders for our customers, which could have a materially negative impact on our sales and profitability. In addition, any regulatory enforcement activities against us for our use of EtO could result in financial, legal, business, and reputational harm to us. Moreover, a price increase from a supplier where we do not have a supply alternative could cause our profitability to decline if we cannot increase our prices to our customers. To ensure sufficient supply, we may determine that we need to provide financing to some of our single-source suppliers, which could increase our financial exposure to such suppliers.
Finally, in some cases, we manufacture our products at a single manufacturing facility. In many cases, regulatory approvals of our products are limited to a specifically approved manufacturing facility. If we fail to produce enough of a product at a facility, or if our manufacturing process at that facility is disrupted, we may be unable to deliver that product to our customers on a timely basis. Problems may arise during the manufacturing process for a variety of reasons, including technical, labor or other difficulties, equipment malfunction, contamination, failure to follow specific protocols and procedures, destruction of or damage to any facility (as a result of a natural or man-made disaster, use and storage of hazardous materials or other events) or other reasons. In the event of a quality control issue, we may voluntarily, or our regulators may require us to, close a facility indefinitely. If any such problems arise, we may be unable to purchase substitute products from third-party manufacturers to make up any resulting shortfall in the production of a product, as such third-party manufacturers may only exist in limited numbers or appropriate substitutes may not be available. This risk is particularly relevant with respect to products for which we represent a substantial portion of the market, such as vitreoretinal equipment and other vitreoretinal-related products. A failure to deliver products on a timely basis could lead to customer dissatisfaction and damage to our reputation. Significant delays in the delivery of our products or a delay in the delivery of a key product could also negatively impact our sales and profitability.
Our existing debt may limit our flexibility to operate our business or adversely affect our business and our liquidity position.
We incurred $3.5 billion in total indebtedness in connection with the Spin-off. In addition, we may incur additional indebtedness in the future for various reasons, including fluctuations in operating results, capital expenditures and potential acquisitions. Our existing (and any future) debt requires us to dedicate a portion of our cash flows to service interest and principal payments and, if interest rates rise, this amount may increase.
Our indebtedness may:
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▪ | make it difficult for us to satisfy our obligations, including making interest payments on our debt obligations; |
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▪ | require us to dedicate a portion of our cash flows to payments on our debt, reducing our ability to use our cash flows to fund capital expenditures, BD&L or other strategic transactions, working capital and other general operational requirements, or to pay dividends to our shareholders; |
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▪ | limit our flexibility to plan for and react to changes in our business; |
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▪ | negatively impact our credit rating and increase the cost of servicing our debt; |
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▪ | place us at a competitive disadvantage relative to some of our competitors that have less debt than us; |
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▪ | increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy; and |
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▪ | make it difficult to refinance our existing debt or incur new debt on terms that we would consider to be commercially reasonable, if at all. |
The occurrence of any one of these events could have a material adverse effect on our business, financial condition or result of operations or cause a significant decrease in our liquidity and impair our ability to pay amounts due on our indebtedness.
Certain debt under our Facilities Agreement has a variable interest rate based on LIBOR.
On March 6, 2019, we entered into a $0.8 billion unsecured five-year term loan facility ("Facility B") and a $1.0 billion unsecured five-year committed multicurrency revolving credit facility (the "Revolving Facility”). The Revolving Facility was undrawn as of December 31, 2019. Facility B bears an interest rate equal to the interest rate benchmark (USD prevailing London Interbank Offered Rate (“LIBOR”)), plus an applicable margin.
On July 27, 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the UK or elsewhere.
Our Facilities Agreement provides for an alternative reference rate in the event LIBOR is discontinued. The alternative reference rate is based on the rate for which each of three reference banks could fund itself in USD for the relevant period with reference to the unsecured wholesale funding market. This alternative reference rate may perform differently than LIBOR for a number of reasons, including the fact that LIBOR is calculated using a greater number of participating banks. As a result, we may incur significant costs to transition our borrowing arrangements from LIBOR, which may have an adverse effect on our results of operations.
We may need to obtain additional financing which may not be available or, if it is available, may not be on favorable terms and may result in a reduction in the percentage ownership of our then-existing shareholders.
We may need to raise additional funds to:
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▪ | finance unanticipated working capital requirements or refinance our existing indebtedness; |
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▪ | develop or enhance our infrastructure and our existing products and services; |
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▪ | engage in mergers and acquisitions or strategic BD&L transactions; |
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▪ | fund strategic relationships; and |
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▪ | respond to competitive pressures. |
If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our then-existing shareholders may be diluted, and holders of these securities may have rights, preferences or privileges senior to those of our then-existing shareholders.
Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses.
We outsource the performance of certain key business functions to third parties and invest a significant amount of effort and resources into doing so. Such outsourced functions can include research and development collaborations, clinical trial activities, manufacturing operations, human resources, warehousing and distribution activities, certain finance functions, submission of regulatory applications, marketing activities, data management and others. Outsourcing of services to third parties could expose us to suboptimal quality of service delivery or deliverables and potentially result in repercussions such as missed deadlines or other timeliness issues, erroneous data, supply disruptions, non-compliance (including with applicable legal or regulatory requirements and industry standards) and/or reputational harm, with potential negative effects on our results.
For example, some of our products are manufactured or assembled fully or in part by third parties under contract. Business conditions and regulatory actions may lead to recalls of products assembled or manufactured by these companies over which we have no control, may result in delays in shipments of such products or may cause these contractors to abandon their contract manufacturing agreements. Also, in many developing countries, we rely heavily on third party distributors and other agents for the sales, marketing and distribution of our products. Our reliance on outsourcing may reduce the potential profitability of such products.
In addition, we continue to rely on our former parent company for certain key business functions, including certain transitional services that are covered under the Transitional Services Agreement, certain manufacturing needs that are covered under the Manufacturing and Supply Agreement and certain transitional distribution services that are covered under a Transitional Distribution and Services Agreement. For example, we continue to rely on our former parent company for the production of our entire supply of viscoelastics. We currently sell viscoelastics on a standalone basis for procedures using our products and also use them as a component in our surgical pack offerings. As a result, a shortage in our supply of viscoelastics could not only cause a failure in our ability to meet our commitments to our customers, but could also have significant collateral impacts on other parts of our business due to related decreases in the rates of procedures requiring viscoelastics that feature our equipment or other products.
Ultimately, if the third parties, including our former parent company, fail to meet their obligations to us, we may lose our investment in the collaborations and fail to receive the expected benefits of these arrangements. Contractual remedies may be inadequate to compensate us for the damage to our business or lost profits. In addition, many of the companies to which we outsource key business functions may have more limited resources compared to us, and, in particular, may not have internal compliance resources comparable to those within our organization. Should any of these third parties fail to carry out their contractual duties or regulatory obligations or fail to comply with the law, including laws relating to anti-bribery laws and export and trade controls, or should they act inappropriately in the course of their performance of services for us, there is a risk that we could be held responsible for their acts, that our reputation may suffer and that penalties may be imposed upon us. Any such failures by third parties could have a material adverse effect on our business, financial condition, results of operations or reputation.
We may be unable to attract and retain qualified personnel.
We are highly dependent upon skilled personnel in key parts of our organization, and we invest heavily in recruiting, training and retaining qualified individuals, including significant efforts to enhance the diversity of our workforce. The loss of the service of key members of our organization-including senior members of our scientific and management teams, high-quality researchers and development specialists and skilled personnel in developing countries-could delay or prevent the achievement of major business objectives.
In addition, our ability to hire qualified personnel also depends on the flexibility to reward superior performance and to pay competitive compensation. Laws, regulations and customary practice on executive compensation, including legislation and customary practice in our home country, Switzerland, may restrict our ability to attract, motivate and retain the
required level of qualified personnel. For example, pay benchmarks for Swiss and other European companies may be inconsistent with the current market in the US, making it more difficult to recruit talent in the US, which has a large concentration of medical device talent. Further, certain associates are required to travel frequently between Switzerland and the US. These associates may be unwilling or unable to make such a commitment. Finally, changes to immigration policies in the numerous countries in which we operate, including the US, as well as restrictions on global travel as a result of local or global public health crises requiring quarantines or other precautions to limit exposure to infectious diseases, may limit our ability to hire or retain talent in, or transfer talent to, specific locations.
Finally, our business, particularly the manufacturing of our products, requires a substantial number of personnel. Any failure to retain stable and dedicated labor by us may lead to disruption to our business operations, including the manufacturing of our products. Due to the tight labor market, we have experienced, and expect to continue to experience, increases in labor costs to remain competitive in retaining talent. If we are unable to manage and control our labor costs, our business, financial condition and results of operations may be materially and adversely affected.
Unauthorized or illegal distribution may harm our business and reputation.
Our products may be subject to competition from lower priced versions of our products intended to be sold in countries where there are government imposed price controls or other market dynamics that make the products lower priced. Despite government regulations aimed at limiting such imports, the volume of imports may continue to rise in certain countries. This importation may adversely affect our profitability in the US and elsewhere and could become more significant in the future.
In addition, our industry continues to be challenged by the vulnerability of distribution channels to counterfeiting. Reports of increased levels of counterfeiting could materially affect consumer confidence in the authentic product and harm our business or lead to litigation.
Regulatory clearance and approval processes for our products are expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products.
Our businesses are subject to varying degrees of governmental regulation in the countries in which we operate, and the general trend is toward increasingly stringent regulation. The exercise of broad regulatory powers by the FDA continues to result in increases in the amounts of testing and documentation required for the commercialization of regulated products and a corresponding increase in the expense of product introduction. Similar trends are also evident in the EU and in other markets throughout the world. Compliance with these laws and regulations is costly and materially affects our business. Among other effects, health care regulations substantially increase the time, difficulty and costs incurred in obtaining and maintaining approval to market newly developed and existing products.
Most of our products are regulated as medical devices or pharmaceuticals and face difficult development and approval processes in most jurisdictions we operate in, particularly in the US and EU; however other products may be regulated as other categories such as lasers, dietary supplements and medical foods. We discuss these regulations more thoroughly "Item 4. Information on the Company-4.B. Business Overview-Government Regulation-Product Approval and Monitoring".
The process of developing new products and obtaining necessary FDA clearance or approval, CE marking, or other regulatory marketing authorization is lengthy, expensive and uncertain. Our potential products could take a significantly longer time than we expect to gain marketing authorization or may never gain such marketing authorization. Regulatory authorities may require additional testing or clinical data to support marketing authorization, delaying authorization and market entry of our products. Even if the FDA or another regulatory agency or notified body approves a product, the approval may limit the indicated uses for a product, may otherwise limit our ability to promote, sell and distribute a product or may require post-marketing studies or impose other post-marketing obligations.
We may be unable to successfully maintain the registrations, licenses, clearances or other authorizations we have received or may receive in the future. We also routinely make minor modifications to our products, labeling, instructions for use, manufacturing process and packaging that may trigger a requirement to notify regulatory authorities or to update such registrations or authorizations. This may subsequently require us to manage multiple versions of individual products around the world, depending on the status of any re-registration approvals. Managing such multiple versions may require additional inventory in the form of "bridging stock", extensive redress operations and inventory increases that could exceed our manufacturing capacity or supply chain ability at the time. This could result in prolonged product shortages that could negatively impact our sales, both in terms of any unavailable products and the potential loss of customers that opt for another supplier.
Even if we protect our intellectual property to the fullest extent permitted by applicable law, our competitors and other third parties could develop and commercialize products similar or identical to ours, which could impair our ability to compete.
We rely on a combination of patents, trademarks and copyrights to protect our intellectual property. The scope, strength and duration of those intellectual property rights can vary significantly from product to product and country to country. We also rely on a variety of trade secrets, know-how and other confidential information to supplement these protections. In the aggregate, these intellectual property rights are of material importance to our business.
The protections afforded by these intellectual property rights may limit the ability of competitors to commercialize products covered by the applicable intellectual property rights, but they do not prevent competitors from marketing non-infringingalternative products that compete with our products. In addition, these intellectual property rights may be challenged by third parties
and regulatory agencies, and intellectual property treated as trade secrets and protected through confidentiality agreements may be independently developed by third parties and/or subject to misappropriation by others. Furthermore, in certain countries, particularly in China,emerging markets, due to ambiguities in the law and enforcement difficulties, intellectual property rights may not be as effective as in Western Europe or the United States. US.
For our pharmaceutical products, we face challenges from third parties seeking to manufacture and market generic versions of our pharmaceutical products prior to the expiration of the applicable patents covering those products. In the US, manufacturers of generic versions of pharmaceutical products may challenge the validity, or claim non-infringement, of our pharmaceutical products through the Abbreviated New Drug Application, or ANDA, process with the FDA and related ANDA litigation. Loss of patent protection for one of our pharmaceutical products would generally lead to a significant and rapid loss of sales for that product as lower priced generic versions of that drug become available.
Therefore, even if we protect our intellectual property to the fullest extent permitted by applicable law, competitors and other third parties may nonetheless develop and commercialize products similar or identical to ours, which could impair our ability to compete and have an adverse effect on our business, financial condition and results of operations.
Unauthorized or illegal activity may occur withinFinancial markets, including inflation and volatile exchange rates, are unpredictable, which could lead to unexpected impacts to our earnings, the distribution channel forreturn on our products, which may result in loweringfinancial investments and the prices we receive for our products and could harm our business and reputation.
In the United States and elsewhere, our products are subject to competition from lower priced versionsvalue of some of our products and competing products from countries where there are government imposed price controls or other market dynamics that make the products lower priced. Despite government regulations aimed at limiting such imports, the volume of imports may continue to rise in certain countries. This importationassets.
Financial markets may adversely affect our profitabilityearnings, the return on our financial investments and the value of some of our assets. For example, inflation rates in the United StatesUS and elsewhere,EU ran at multi-decade highs in 2022, which have caused the cost to manufacture our products to increase. Specifically, in 2022, we experienced inflationary pressure on the costs of labor, electronic components, resins and could become more significantfreight. Our business results depend, in part, on our continued ability to manage these inflationary pressures through pricing actions and productivity initiatives, while maintaining and improving margins and market share. Increasing prices to match the levels of inflation we are currently experiencing may cause some of our customers, particularly in the future.elective surgical and contact lens businesses where patients typically do not receive reimbursement from their medical insurance providers or government programs, to decrease their purchases or opt for a lower cost alternative. Failure to manage these inflationary pressures could adversely impact our results of operations or cash flows.
In addition,Changes in exchange rates between the US dollar, our industry continues to be challenged by the vulnerability of distribution channels to counterfeiting. Reports of increased levels of counterfeiting could materially affect consumer confidencereporting currency, and other currencies can also result in significant increases or decreases in our reported sales, costs and earnings as expressed in US dollars, and in the authentic productreported value of our assets, liabilities and harmcash flows. As we experienced in 2022, if the US dollar strengthens relative to the currencies of the foreign countries in which we operate, our consolidated financial position and results of operations may be negatively impacted as amounts in foreign currencies will generally translate into fewer US dollars. Despite any measures we may undertake in the future to reduce, or hedge against, foreign currency exchange risks, because a significant portion of our earnings and expenditures are in currencies other than the US dollar, and the fact that our expenditures in Swiss francs and US dollars are significantly higher than our revenue in Swiss francs and US dollars, respectively, any such exchange rate volatility may negatively and materially impact our business, results of operations and financial condition, and may impact the reported value of our net sales, earnings, assets and liabilities. Additionally, some of our customers are required to pay us in US dollars. When the US dollar is particularly strong, our customer's debts to us are more difficult to repay, particularly if the customer is unable to obtain US dollars. For more information on the effects of currency fluctuations on our Consolidated Financial Statements and on how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects-5.A. Operating Results-Effects of Currency Fluctuations" and "Item 11. Quantitative and Qualitative Disclosures About Market Risk".
Countries facing financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may impose controls on the exchange of foreign currency. Such exchange controls could limit our ability to distribute retained earnings from our local affiliates or to pay intercompany payables due from those countries.
Our existing debt may limit our flexibility to operate our business or adversely affect our business and our liquidity position.
We have outstanding debt of $4.6 billion as of December 31, 2022, and we may incur additional indebtedness in the future for various reasons, including fluctuations in operating results, capital expenditures and potential acquisitions. For example, we increased our outstanding debt by $712 million in the fourth quarter of 2022 to finance the Aerie transaction.
Our indebtedness may:
•make it difficult for us to satisfy our obligations, including making interest payments on our debt obligations;
•require us to dedicate a portion of our cash flows to payments on our debt, reducing our ability to use our cash flows to fund capital expenditures, BD&L or other strategic transactions, working capital and other general operational requirements, or to pay dividends to our shareholders;
•limit our flexibility to plan for and react to changes in our business;
•negatively impact our credit rating and increase the cost of servicing our debt;
•place us at a competitive disadvantage relative to some of our competitors that have less debt than us;
•increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy; and
•make it difficult to refinance our existing debt or incur new debt on terms that we would consider to be commercially reasonable, if at all.
The occurrence of any one of these events could have a material adverse effect on our business, financial condition or result of operations or cause a significant decrease in our liquidity and impair our ability to pay amounts due on our indebtedness. Further, to lower inflation, governmental and regulatory agencies have been enacting changes to monetary policy and interest rates, which have led to, and can lead to litigation. In addition, it is possible that adverse events caused by unsafe counterfeit products could mistakenly be attributedfurther, increases to the authentic product. If a product of ours was the subject of counterfeits, we could incur substantial reputational and financial harm.borrowing costs.
We may not successfully complete and integrate strategic acquisitionsneed to expand or complement our business.
As part of our growth strategy, we regularly evaluate and pursue strategic BD&L transactions to expand or complement our business. Such ventures may bring new technologies, products, or customers to enhance our prominent position in the ophthalmic industry. We may be unable to identify suitable acquisition candidates. Acquisition activities can be thwarted by overtures from competitors for the targeted candidates and governmental regulation (including market concentration limitations and other competition laws). Further, even if we are successful in completing an acquisition, successful integration of the venture can be complicated by corporate cultural differences, difficulties in retention of key personnel, customers and suppliers, coordination with other products and processes, and changing market preferences. Moreover, acquisitions demand significant company resources and could divert management's attention from our existing business, could result in liabilities being incurred that were not known at the time of acquisition or could create tax or accounting issues. We often acquire early-stage technologies,obtain additional financing, which may fail in the development process or proof-of-concept stage, or which we may not be ableavailable or, if it is available, may not be on favorable terms and may result in dilution of our then-existing shareholders.
We may need to integrate intoraise additional funds to:
•finance unanticipated working capital requirements or userefinance our existing indebtedness;
•develop or enhance our infrastructure and our existing products and services;
•engage in mergers and acquisitions or other strategic BD&L transactions;
•fund strategic relationships; and
•respond to develop commercialized products. competitive pressures.
If we failraise additional funds by issuing equity or convertible debt securities, the percentage ownership of our then-existing shareholders may be diluted, and holders of these securities may have rights, preferences or privileges senior to timely recognizethose of our then-existing shareholders. Further, the use of financing to invest in research and development, business acquisitions, and capital expenditures may not generate the expected returns or address these matters orcash flows. Significant judgment is required to devote adequate resources to them,determine which investments will result in optimal returns, and we may fail to achieve our growth strategy or otherwisecould make investment that are ultimately less profitable than those investments we do not realize the intended benefits of any acquisition.select.
Litigation including product liability lawsuits, and governmental investigations may harm our business or otherwise distract our management.
We, from time to time, are, and may in the future be, subject to various investigations and legal proceedings that arise or may arise such as proceedings regardinginvolving product liability, sales and marketing practices, pricing, corruption, trade regulation and embargo legislation (including laws relating to export and trade controls), product liability, commercial disputes, employment, and wrongful discharge, business disputes,antitrust, securities, insider trading, occupational health and safety, environmental, tax, audits, cybersecurity, datainternational trade, privacy, and intellectual property, matters.
We also periodically receive inquiries from antitrustincluding Hatch-Waxman litigation, and competition authorities in various jurisdictions and, from time to time, are named as a defendant in antitrust lawsuits. For example, since the first quarter of 2015, more than 50 putative class action complaints have been filed in several courts across the US naming as defendants contact lens manufacturers, including Alcon, and alleging violations of federal antitrust law, as wellanti-bribery regulations, such as the antitrust, consumer protection and unfair competition laws of various states, in connectionFCPA, including compliance with ongoing reporting obligations to the implementation of unilateral price policies by the defendants in the sale of contact lenses. The cases have been consolidated in the Middle District of Florida by the Judicial Panel on Multidistrict Litigation and the claims are being vigorously contested.government resulting from any settlements. See "Item“Item 8. Financial Information—8.A.Information-8.A. Consolidated Statements and Other Financial Information—Legal Proceedings"Information-Legal Proceedings”.
In addition, from time to time, we are named as a defendant in product liability lawsuits and, to the extent we are, we may in the future incur material liabilities relating to such product liability claims, including claims alleging product defects and/or alleged failure to warn of product risks. The risk of material product liability litigation is increased in connection with product recalls and voluntary market withdrawals. We have voluntarily taken products off the market in the past, including global voluntary market withdrawal of the CyPass micro-stent. The combination of our insurance coverage, cash flows and reserves may not be adequate to satisfy product liabilities that we may incur in the future. Successful product liability claims brought against us or recalls of any of our products could have a material adverse effect on our business, results of operations or our financial condition.
Because of our extensive international operations, we could be adversely affected by violations of worldwide anti-bribery laws, including those that prohibit companies and their intermediaries from making improper payments to government officials or other third parties for the purpose of obtaining or retaining business, such as the U.S. Foreign Corrupt Practices Act (the “FCPA”), and laws that prohibit commercial bribery. Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our associates or agents. Violations of these laws, or allegations of such violations, could disrupt our business and adversely affect our reputation and our business, results of operations, cash flows and financial condition.
Substantial, complex or extended litigation could cause us to incur large expenditures, affect our ability to market and distribute our products and distract our management. For example, intellectual property litigation in which we are named as a defendant from time to time could result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments to continue to sell the affected products. In 2020, Johnson & Johnson Surgical Vision, Inc. ("JJSVI") filed a patent infringement action against us alleging that the manufacture, use, sale, offer for sale and/or importation of our LenSx Laser System willfully infringes their US and European patents. JJSVI subsequently amended its complaint to include copyright infringement claims relating to
source code used in the LenSx Laser System as well as regulatory and technical documentation pertaining to the LenSx Laser System. Prior to the trial on the copyright claims set for February 2023, JJSVI and Alcon entered into a confidential settlement agreement to resolve all of the pending legal proceedings related to femtosecond laser assisted cataract surgery devices, including the LenSx Laser System. As part of that resolution, JJSVI and Alcon exchanged cross-licenses of certain intellectual property and other mutually agreed covenants and releases, and we agreed to make a one-time payment to JJSVI of $199 million for those rights and to resolve the parties’ various worldwide intellectual property disputes concerning such devices. Also in 2020, Hoya Corporation filed suit against us alleging that our UltraSert Pre-Loaded Delivery System infringes their US patents. Trial is set for February 2024. Alcon intends to defend this case vigorously.
Lawsuits by associates, shareholders, customers or competitors, or potential indemnification obligations and limitations of our director and officer liability insurance, could be very costly and substantially disrupt our business. Disputes with such companies or individuals from time to time are not uncommon, and we may be unable to resolve such disputes on terms favorable to us.
Even meritless claims could subject us to adverse publicity, hinder us from securing insurance coverage in the future or require us to incur significant legal costs. As a result, significant claims or legal proceedings to which we are a party could have a material adverse effect on our business, prospects, financial condition and results of operations.
Failure to comply with law, legal proceedings and government investigations may have a significant negative effect on our results of operations.
We are obligated to comply with the laws of all of the countries around the world in which we operate and sell products. These laws cover an extremely wide and growing range of activities. Such legal requirements can vary from country to country and new requirements may be imposed on us from time to time as government and public expectations regarding acceptable corporate behavior change, and enforcement authorities modify interpretations of legal and regulatory provisions and change enforcement priorities. In addition, our associates, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, in violation of such laws and public expectations.
For example, we are faced with increasing pressures, including new laws and regulations from around the world, to be more transparent with respect to how we do business, including with respect to our interactions with healthcare professionals and organizations. These laws and regulations include requirements that we disclose payments or other transfers of value made to healthcare professionals and organizations, including by our associates or third parties acting on our behalf, as well as with regard to the prices for our products. We are also subject to certain privacy laws, including Swiss privacy laws, the EU's General Data Protection Regulation and the California Consumer Privacy Act, which include operational and compliance requirements that are different than those previously in place and also includes significant penalties for non-compliance.
In addition, we have significant activities in a number of developing countries around the world, both through our own associates and through third parties retained to assist us. In some of these countries, a culture of compliance with law may not be as fully developed as in other countries.
To help us in our efforts to comply with the many requirements that impact us, we have a significant global ethics and compliance program in place, and we devote substantial time and resources to efforts to conduct our business in a lawful and publicly acceptable manner. Nonetheless, our ethics and compliance program may be insufficient or associates may fail to comply with the training they received, and any actual or alleged failure to comply with law or with heightened public expectations could lead to substantial liabilities that may not be covered by insurance, or to other significant losses, and could affect our business, financial position and reputation.
In particular, in recent years, there has been a trend of increasing government investigations, legal proceedings and law enforcement activities against companies and executives operating in our industry. Increasingly, such activities can involve criminal proceedings and can retroactively challenge practices previously considered to be acceptable. For instance, in 2017 and 2018, Alcon and Novartis, as well as certain present and former executives and associates of Alcon and Novartis, received document requests and subpoenas from the US Department of Justice ("DoJ")DoJ and the SEC requesting information concerning Alcon accounting, internal controls and business practices in Asia and Russia, including revenue recognition for surgical equipment and related products and services and relationships with third-party distributors, both before and after Alcon became part of the Novartis Group. Alcon is cooperatingThe investigations by the DoJ and the SEC have concluded. Under our final settlement with this investigation. Alcon aggregate net sales for its surgicalthe DoJ, we are subject to a three-year deferred prosecution agreement. Our failure to comply with the terms of the deferred prosecution agreement with the DoJ could result in resumed prosecution and vision care businesses in the Asiaother regulatory sanctions and Russia region represented 25.8%, 24.2%, and 21.1% of Alcon total net sales during the years ended December 31, 2019, 2018 and 2017, respectively. could otherwise negatively affect our operations.
For additional information, including with respect to certain Novartis obligations to indemnify Alcon, see "Item“Item 8. Financial Information—8.A.Information-8.A. Consolidated Statements and Other Financial Information—Legal Proceedings".Information-Legal Proceedings” and “-If we breach the Deferred Prosecution Agreement with the US Department of Justice,
then resulting actions by the DoJ could have a material adverse effect on our business, financial condition, results of operations or cash flows.”
Such proceedings are inherently unpredictable, and large judgments or penalties sometimes occur. As a consequence, we may in the future incur judgments or penalties that could involve large cash payments, including the potential repayment of amounts allegedly obtained improperly and other penalties, including enhanced damages. In addition, such proceedings may affect our reputation, create a risk of potential exclusion from government reimbursement programs and may lead to civil litigation. As a result, having taken into account all relevant factors, we may in the future enter into major settlements of such claims without bringing them to final legal adjudication by courts or other such bodies, despite having potentially significant defenses against them, in order to limit the risks they pose to our business and reputation. Such settlements may require us to pay significant sums of money and to enter into corporate integrity or similar agreements intended to regulate company behavior for a period of years, which can be costly to operate under.
Any such judgments or settlements, and any accruals that we may take with respect to potential judgments or settlements, could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.
We may implement product recalls or voluntary market withdrawals of our products.
The manufacturing and marketing of medical devices,our products, including surgical equipment and instruments and pharmaceuticals, involve an inherent risk that our products may prove to be defective and cause a health risk. We are also subject to a number of laws and regulations requiring us to report adverse events associated with our products. Such adverse events and potential health risks identified in our monitoring efforts or from ongoing clinical studies may lead to voluntary or mandatory market actions, including recalls, product withdrawals or changes to the instructions for using our devices.products.
Governmental authorities throughout the world, including the FDA, have the authority to require the recall of certain of our commercialized products in the event of material deficiencies or defects in, for example, design, labeling or manufacture. In the case of the FDA, it has the authority to require a recall of a medical device if there is a finding of a reasonable probability that the device would cause serious adverse health consequences or death.
We may also voluntarily initiate certain field actions, such as a correction or removal of our products in the future as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. If a correction or removal of one of our devicesproducts is initiated to reduce a health risk posed by the device,product, or to remedy a violation of the Federal Food, Drug, and Cosmetic Act ("FDCA") caused by the deviceproduct that may present a risk to health, the correction or removal must be reported to the FDA. Similarly, field actions conducted for safety reasons in the European Economic Area ("EEA") must be reported to the regulatory authority in each country where the field action occurs.
We have voluntarily taken products off the market in the past, including the global discontinuation of the AcrySof Cachet phakic IOL, the voluntary recall of AcrySof IQ ReSTOR, AcrySof IQ ReSTORToric, and certain AcrySof IQ Toric IOLs manufactured specifically for the Japan market, and the global voluntary market withdrawal of the CyPass micro-stent. In the year ended December 31, 2018, we recognized an impairment charge of $337 million in relation to the CyPass micro-stent market withdrawal. Based on this experience, we believe that the occurrence of a recall could result in significant costs to us, potential disruptions in the supply of our products to our customers and adverse publicity, all of which could harm our ability to market our products. A recall of one of our products or a similar competing product manufactured by another manufacturer could impair sales and subsequent regulatory approvals of other similar products we market and lead to a general loss of customer confidence in our products. A product recall could also lead to a health authority inspection or other regulatory action or to us being named as a defendant in lawsuits. See "—Litigation, including product liability lawsuits, and governmental investigations may harm our business or otherwise distract our management" above.
We may be unable to attract and retain qualified personnel.
We highly depend upon skilled personnel in key parts of our organization, and we invest heavily in recruiting, training and retaining qualified individuals, including significant efforts to enhance the diversity of our workforce. The loss of the service of key members of our organization—including senior members of our scientific and management teams, high-quality researchers and development specialists and skilled personnel in developing countries—could delay or prevent the achievement of major business objectives.
Our future growth will demand talented associates and leaders, yet the market for talent has become increasingly competitive. In particular, emerging markets are expected to continue to be an important source of growth, but in many of these countries there is a limited pool of executives with the training and international experience needed to work successfully in a global organization like Alcon.
The supply of talent for certain key functional and leadership positions is decreasing, and a talent gap is visible for some professions and geographies—engineers in Germany, for example. Recruitment is increasingly regional or global in specialized fields such as clinical development, biosciences, chemistry and information technology. In addition, the geographic mobility of talent is expected to decrease in the future, with talented individuals in developed and developing countries anticipating ample career opportunities closer to home than in the past. This decrease in mobility may be worsened by anti-immigrant sentiments in many countries, and laws discouraging immigration.
In addition, our ability to hire qualified personnel also depends on the flexibility to reward superior performance and to pay competitive compensation. Laws, regulations and customary practice on executive compensation, including legislation and customary practice in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. For example, pay benchmarks for Swiss and other European companies may be inconsistent with the current market in the United States, making it more difficult to recruit US talent. Further, certain functions are now maintained in Switzerland, which may require certain US associates to relocate to Switzerland. Alternatively, certain associates will be required to travel frequently between Switzerland and the US These associates may be unwilling or unable to make such a commitment.
We may be underestimating our future pension and other post-employment benefit plan obligations.
We sponsor pension and other post-employment benefit plans in various forms. These plans cover a significant portion of our associates. While most of our plans are now defined contribution plans, certain of our associates remain under defined benefit plans. For these defined benefit plans, we are required to make significant assumptions and estimates about future events in calculating the present value of expected future plan expenses and liabilities. These include assumptions used to determine the discount rates we apply to estimated future liabilities and rates of future compensation increases. Assumptions and estimates we use may differ materially from the actual results we experience in the future due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants, among other variables. For example, in 2019,at December 31, 2022, a decrease in the interest rate we apply in determining the present value of expected future total defined benefit plan obligations (consisting of pension and other post-employment benefit obligations) of one-quarter of one percent would have increased our year-end defined benefit obligation by $46$23 million. Any differences between our assumptions and estimates and our actual experience could require us to make additional contributions to our pension funds. Further, additional employer contributions might be required if plan funding falls below the levels required by local rules.
OurWe are a multinational business that operates in numerous tax jurisdictions.
We conduct operations in emerging markets, particularly China, exposemultiple tax jurisdictions, and the tax laws of those jurisdictions generally require that the transfer prices between affiliated companies in different jurisdictions be the same as those between unrelated companies dealing at arm's length and that such prices are supported by contemporaneous documentation. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these jurisdictions were to successfully challenge our transfer prices as not reflecting arm's length transactions, they could require us to heightened risks associated with conditionsadjust our transfer prices
and thereby reallocate our income to reflect these revised transfer prices, which could result in those markets.a higher overall tax liability to us and possibly interest and penalties.
Economic, social and political conditions, laws, practices and local customs vary widely amongAdditionally, the integrated nature of our worldwide operations can produce conflicting claims from tax authorities in different countries particularly in emerging markets, in which we sell our products. Our operations in emerging markets, particularly China, are subjectas to a number of heightened risks and potential costs, including lower profit margins, less stringent protection of intellectual property and economic, political and social uncertainty. For example, many emerging markets have currencies that fluctuate substantially. If currencies devalue and we cannot offset with price increases, our products may become less profitable. Inflation in emerging markets also can make our products less profitable and increase our exposurethe profits to credit risks. We have previously experienced currency fluctuations, unstable social and political conditions, inflation and volatile economic conditions in emerging markets, which have impacted our profitabilitybe taxed in the emerging marketsindividual countries. The majority of the jurisdictions in which we operate and we may experience such impacts inhave double tax treaties with other foreign jurisdictions, which provide a framework for mitigating the future.
Further, in many emerging markets, average income levels are relatively low, government reimbursement for the costimpact of healthcare products and services is limited and prices and demand are sensitive to general economic conditions. These challenges may prevent us from realizing the expected benefits of our investments in such emerging markets, which could have an adverse impactdouble taxation on our business, financial conditionrevenues and resultscapital gains. However, mechanisms developed to resolve such conflicting claims are largely untested, can be expected to be very lengthy and do not always contain a mandatory dispute resolution clause.
In recent years, tax authorities around the world have increased their scrutiny of operations.
Regulatory clearancecompany tax filings and approval processeshave become more rigid in exercising any discretion they may have. As part of this, the Organization for our products are expensive, time-consumingEconomic Co-operation and uncertain,Development ("OECD") has proposed certain changes to the International tax standards that have resulted and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products.
Our businesses are subject to varying degrees of governmental regulation in the countries in which we operate, and the general trend is toward increasingly stringent regulation. The exercise of broad regulatory powers by the FDA continueswill continue to result in increases inlocal tax law changes under its Base Erosion and Profit Shifting ("BEPS") Action Plans to address issues of transparency, coherence and substance. Most recently, the amountsOECD released its plans for proposing further amendments to the international tax standards, including a new attribution of testing and documentation required for the commercialization of regulated productsright to tax corporate profits where customers are located and a correspondingmechanism ensuring that all corporate profits would be subject to a 15% minimum taxation level in each country in which they operate. These rules, if enacted, are likely to lead to an increase in the expense of product introduction. Similar trends are also evident in the EU and in other markets throughout the world. Compliance with these laws and regulations is costly and materially affects our business. Among other effects, health care regulations substantially increase the time, difficulty, and costs incurred in obtaining and maintaining approval to market newly developed and existing products.
Most of our products are regulated as medical devicestax expense and face difficult development and approval processes in most jurisdictions we operate in, particularlyeffective tax rate. Moreover, recommendations by the OECD could require companies to disclose more information to tax authorities on operations around the world, which could lead to greater audit scrutiny. On August 16, 2022, the Inflation Reduction Act was enacted in the US, which introduced, among other items, a new minimum corporate income tax on certain large corporations and EU; however other products may be regulated as other categories such as lasers, drug products, dietary supplements,increased funding for the Internal Revenue Service. Finally, Switzerland and medical foods. We discuss these regulations more thoroughly "Item 4. Informationthe various Swiss cantons in which Alcon is present have adopted their own corporate tax reform. The main elements of the Swiss tax reform became effective in 2020 and have resulted in an increase in Alcon’s tax burden and effective tax rate in Switzerland.
In general, tax reform efforts, including with respect to tax base or rate, transfer pricing, intercompany dividends, cross border transactions, controlled corporations and limitations on tax relief allowed on the Company—4.B. Business Overview—Government Regulation—Product Approval and Monitoring".
The process of developing new products and obtaining necessary FDA clearance or approval, CE marking, or other regulatory marketing authorization is lengthy, expensive, and uncertain. Our potential products could take a significantly longer time than we expect to gain marketing authorization or may never gain such marketing authorization. Regulatory authorities may require additional testing or clinical data to support marketing authorization, delaying authorization and market entry of our products. Even if the FDA or another regulatory agency or notified body approves a product, the approval may limit the indicated uses for a product, may otherwise limit our ability to promote, sell and distribute a product or may require post-
marketing studies or impose other post-marketing obligations. We may be unable to obtain the necessary regulatory clearances or approvals for any productinterest on a timely basis or at all. If a regulatory authority delays authorization of a potentially significant product, our market value and operating results may decline. Similarly, if we are unable to obtain regulatory approval or CE marking of our products, weintercompany debt, will not be able to market these products, which would result in a decrease in our sales.
We may be unable to successfully maintain the registrations, licenses, clearances or other authorizations we have received or may receive in the future. We also routinely make minor modifications to our products, labeling, instructions for use, manufacturing process and packaging that may trigger a requirement to notify regulatory authorities or to update such registrations or authorizations. This may subsequently require us to manage multiple versionscontinually assess our organizational structure and could lead to an increased risk of individual products around the world, depending on the status of any re-registration approvals. Managing such multiple versions may require additional inventoryinternational tax disputes, an increase in the form of "bridging stock", extensive redress operationsour effective tax rate and inventory increases that could exceed our manufacturing capacity or supply chain ability at the time. This could result in prolonged product shortages that could negatively impact our sales, both in terms of any unavailable products and the potential loss of customers that opt for another supplier.
The loss of previously received clearances or approvals, or the failure to comply with existing or future regulatory requirements could also have a materialan adverse effect on our business.financial condition.
Goodwill and other intangible assets on our books may lead to significant noncash impairment charges.
We carry a significant amount of goodwill and other intangible assets on our Consolidated Balance Sheet, primarily due to the value of the Alcon brand name, but also intangible assets associated with our technologies, acquired research and development, currently marketed products and marketing know-how. As a result, we may incur significant noncash impairment charges if the fair value of the intangible assets and the groupings of cash generating units containing goodwill would be less than their carrying value on our Consolidated Balance Sheet at any point in time. For example, in 2022, we offer custom surgical pack products that combine both Alcon and third-party products. Changesrecognized $62 million in local regulatory statutes, health authority practices, or local importation laws, or the failureimpairment charges.
For a detailed discussion of Alcon or our suppliers comply with them,how we determine whether an impairment has occurred, what factors could result in an impairment and the impact of impairment charges on our products being barred from importation into a given territory. Continued growthresults of operations, see "Note 2. Selected Accounting Policies-Goodwill and intangible assets" to our Consolidated Financial Statements included elsewhere in our sales and profits will depend, in part, on the timely and successful introduction and marketing of some or all of the products for which we are currently pursuing approval.this Annual Report.
The manufacture of our products is highly regulated and complex.
The manufacture of our product portfolio is complex and heavily regulated by governmental health authorities around the world, including the FDA. Whether our products are manufactured at our own dedicated manufacturing facilities or by third parties, we must ensure that all manufacturing processes comply with current Good Manufacturing Practices, quality system requirements and other applicable regulations, as well as with our own high quality standards. In recent years, health authorities have substantially intensified their scrutiny of manufacturers' compliance with such requirements.
Any significant failure by us or our third-party suppliers to comply with these requirements or the health authorities' expectations may cause us to shut down our production facilities or production lines or we could be prevented from importing our products from one country to another. Moreover, if we fail to properly plan for manufacturing capacity, the complexity of our manufacturing process could lead to a long lead time to increase capacity. Any of these events could lead to product shortages, or to our being entirely unable to supply products to customers and consumers for an extended period of time. Such shortages or shutdowns have led to, and could continue to lead to, significant losses of sales revenue and to potential third-party litigation. In addition, health authorities have in some cases imposed significant penalties for such failures to comply with regulatory requirements. A failure to comply fully with regulatory requirements could also lead to a delay in the approval of new products to be manufactured at the impacted site.
We may be subject to penalties if we fail to comply with post-approval legal and regulatory requirements and our products could be subject to restrictions or withdrawal from the market.
The research, development, testing, manufacturing, sale and marketing of our products are subject to extensive governmental regulation. Government regulation includes inspection of and controls over testing, manufacturing, safety
and environmental controls, efficacy, labeling, advertising, marketing, promotion, record keeping, tracking, reporting, distributing, import, export, samples, electronic records and electronic signatures.
Among other requirements, we are required to comply with applicable adverse event and malfunction reporting requirements for our products. For example, for our medical device products, in the US, we are required to report to the FDA any incident in which one of our marketed devices may have caused or contributed to a death or serious injury or has malfunctioned and the malfunction of the device or a similar device that we market would be likely to cause or contribute to death or serious injury if the malfunction were to recur. In addition, all manufacturers placing medical devices on the market in the EEAEuropean Economic Area are legally required to report any serious or potentially serious incidents involving devices produced or sold by the manufacturer to the relevant authority in those jurisdictions where any such incident occurred.
Our advertising and promotional activities are also subject to stringent regulatory rules and oversight. The marketing approvals from the FDA and other regulators of certain of our products are, or are expected to be, limited to specific uses. We are prohibited from marketing or promoting any uncleared or unapproved use of our product, referred to as "off-label" use. In addition to promoting our products in a manner consistent with our clearances and approvals, we must have adequate substantiation for the claims we make for our products. If any of our claims are determined to be false, misleading or deceptive, we could be subject to enforcement action. As Alcon and our associates increasingly use social media to communicate, and given the speed of dissemination of information online, there is a heightened risk that Alcon or one of our associates sends a message that may be deemed inappropriate or prohibited by a regulatory authority. In addition, unsubstantiated claims
also present a risk of consumer class action or consumer protection litigation and competitor challenges. In the past, we have had to change or discontinue promotional materials because of regulatory agency requests, and we are exposed to that possibility in the future.
Failure to comply with statutes and regulations administered by the FDA and other regulatory bodies or failure to adequately respond to any notices of violation or any similar reports could result in, among other things, any of the following enforcement actions:
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▪ | warning letters or untitled letters issued by the FDA; |
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▪ | fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution; |
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▪ | detention of imported products; |
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▪ | delays in approving, or refusal to approve, our products; |
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▪ | withdrawal or suspension of approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies; |
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▪ | product recall or seizure; |
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▪ | operating restrictions or interruption of production; and |
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▪ | inability to export to certain countries. |
•warning letters or untitled letters issued by the FDA;
•fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution;
•detention of imported products;
•delays in approving, or refusal to approve, our products;
•withdrawal or suspension of approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies;
•product recall or seizure;
•operating restrictions or interruption of production; and
•inability to export to certain countries.
If any of these items were to occur, it could result in unanticipated expenditures to address or defend such actions, could harm our reputation and could adversely affect our business, financial condition and results of operations.
We are subject to laws targeting fraud and abuse in the healthcare industry.
We are subject to various global laws pertaining to healthcare fraud and abuse, including state and federal anti-kickback laws and physician self-referral laws. For example, the US federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering, arranging for or recommending the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs.programs, and in some cases, private insurance. These US laws have been interpreted to apply to arrangements between medical device manufacturers, on the one hand, and prescribers, purchasers, formulary managers and other healthcare-related professionals, on the other hand. The US government may assertlaw provides that a claim includingfor federal healthcare program reimbursement for items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Pricing and rebate programs for covered outpatient drugs reimbursed under federal healthcare programs must comply with the Medicaid drug rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, the Veterans Health Care Act of 1992, as amended, and the Deficit Reduction Act of 2005, as amended. The statutes and regulations governing the various price reporting requirements are complex and have changed over time, and the US government has not given clear guidance on many issues. In addition, recent statutory and regulatory developments have not yet been applied by the government or courts to specific factual situations. We believe that we are in compliance with all applicable government price reporting requirements, but there is the potential that the Centers for Medicare & Medicaid Services ("CMS"), other regulatory and law enforcement agencies or a court could arrive at different interpretations, with adverse
financial or other consequences for us. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws. Some European Union bodies and most European Union member states and Japan impose controls and restrictions that are similar in nature or effect to those described above.
In recent years, the US government and several US states have enacted legislation requiring medical device companies to establish marketing compliance programs and file other periodic reports. Similar legislation is being considered in other US states. Many of these requirements are new and uncertain, and available guidance is limited. We could face enforcement action, fines and other penalties and could receive adverse publicity, all of which could harm our business, if it is alleged that we have failed to fully comply with such laws and regulations. Similarly, if the physicians or other providers or entities that we do business with are found to have not complied with applicable laws, they may be subject to sanctions, which could also have a negative impact on our business.
Depending on the circumstances, failure to meet these applicable legal and regulatory requirements can result in civil litigation, criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private "qui tam" actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into supply contracts, including government contracts, any of which could have a material adverse effect on our business, financial condition or results of operations.
Legislative and regulatory reforms may impact our ability to develop and commercialize our products.
The global regulatory environment is increasingly stringent and unpredictable. Unexpected changes can have an adverse impact on our business, financial condition and results of operations.
First, it couldhas been, and will continue to be, costly and onerous to comply with changes orand new requirements relating to the regulatory approval process or postmarket requirements applicable to our products in various jurisdictions. As discussed in "Item 4. Information on the
Company—4.B. Company-4.B. Business Overview—Government Regulation—ProductOverview-Government Regulation-Product Approval and Monitoring" the EU has made recent changes to its regulatory regime.regime (the "EU MDR"), which imposes stricter requirements for the marketing and sale of medical devices. As of May 2021, all new medical devices marketed in the EU require certification according to these new requirements. Devices certified pursuant to the Medical Device Directives before May 2020 with valid CE certificates have been given a timeline to meet the new requirements and can be placed on the market until May 2024. In addition, several countries that did not have regulatory requirements for medical devices have established such requirements in recent years, and other countries have expanded, or plan to expand, their existing regulations. While harmonization of globalcertain countries may harmonize their regulations has been pursued,in the future, requirements continue to differ significantly among countries. Further, the FDA is also pursuing various efforts to modernize its regulation of devices, including potential changes to the 510(k) pathway such as limiting reliance on older predicate devices and establishing an alternative 510(k) pathway that permits reliance on objective performance criteria. We expect this global regulatory environment to continue to evolve, which could impact the cost of, the time needed to approve and, ultimately, our ability to maintain existing approvals or obtain future approvals for, our products. Due to the number of medical devices we market, it is possible not all products will be certified by the current EU MDR deadline, and some products may be rationalized if considered too costly to certify.
Second, new legislation and new regulations and interpretations of existing health care statutes and regulations are frequently adopted, any of which could affect our future business and results of operations. For example, in the US, there have been a number of health care reform legislative and regulatory measures proposed and adopted at the federal and state government levels that affect the health care system generally and that have had significant impact on our business.
Third, changes to current regulations inif certain countries, including the United States, requiringUS, change their regulations to no longer require a prescription for the purchase of contact lenses could havethen there would be a significant impact on the way we market and distribute contact lens and contact lens care products, by limitinglenses because it would limit the role of the ECP as an intermediary in the sale of our vision care products.intermediary. Such changes could require us to incur significant costs to update our marketing and distribution methodologies and could adversely affect the sales of our vision care products.
Finally, within our surgical business, a considerable portion of our sales and sales growth rely on patient-pay premium technologies, in markets where access to these technologies has been established. For example, in the US, two landmark rulings issued by the CMS established a bifurcated payment system for certain of our AT-IOLs pursuant to which part of the cost of the cataract surgery with such AT-IOLs would be reimbursed under Medicare, with the remaining cost paid out-of-pocket. For more details, see "Item 4. Information on the Company—4.B.Company-4.B. Business Overview—Our Products—Surgical"Overview-Our Products-Surgical". To the extent regulatory bodies in the US, such as CMS, or other health authorities outside the US, decide to amend the regulations governing patient-pay reimbursement for advanced technologies, our sales and sales growth could be negatively impacted.
We are subject to environmental, health and safety laws and regulations.
We are subject to numerous national and local environmental, health and safety laws and regulations, including relating to the discharge of regulated materials into the environment, human health and safety, laboratory procedures and the generation, handling, use, storage, treatment, release and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these hazardous materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our generation, handling, use, storage, treatment, release or disposal of hazardous materials or wastes, we could be held liable for any resulting damages, and any liability could materially adversely affect our business, operating results or financial condition. Our insurance may not provide adequate coverage against potential liabilities. If we fail to comply with applicable environmental, health and safety laws and regulations, we may face significant administrative, civil or criminal fines, penalties or other sanctions. In addition, we may incur substantial costs to comply with current or future environmental, health and safety laws and regulations, which have tended to become more stringent over time, including any potential laws and regulations that may be implemented in the future to address global climate change concerns. Compliance with current or future environmental, health and safety laws and regulations may increase our costs or impair our research, development or production efforts.
We must comply with certain tax incentive agreements in Switzerland.
While operating as a division of Novartis, our subsidiary, Alcon Pharmaceuticals Ltd. (“APL”), benefited from an investment tax incentive granted by the Swiss State Secretariat for Economic Affairs in Switzerland (the “SECO”) and the Canton of Fribourg, Switzerland in respect of both Swiss federal taxes and Fribourg cantonal / communal taxes for the fiscal years ended December 31, 2007 through December 31, 2017. This tax incentive is subject to a five year "claw-back" period if Alcon does not continue to meet certain requirements related to its operations in Fribourg.
In connection with the Spin-off, our former parent retained certain assets of APL related to APL’s former pharmaceutical business. As a result, Novartis agreed with the Canton of Fribourg that each of APL and a subsidiary of Novartis (Novartis Ophthalmics AG, Fribourg) will have separate and standalone obligations and potential liabilities in connection with the five year claw-back period relating to the Fribourg investment tax incentive granted to APL. In particular, APL may be required to pay a "claw-back" amount of up to CHF 1.3 billion to the Fribourg tax authorities if APL fails to continue certain business activities in Fribourg and if Alcon Inc., APL, and Alcon Services AG fail to (1) remain tax resident in Fribourg, and (2) employ a certain minimum number of associates in Fribourg. Since December 31, 2018, our "claw-back" obligation has begun to be reduced each year by 20% of the original maximum amount and will expire on December 31, 2022.
We intend to conduct APL's operations so as to comply with these requirements in all respects; however, we may be unable to meet, or the Canton of Fribourg may successfully challenge our compliance with, these requirements. If the Canton of Fribourg successfully challenges our compliance with these requirements, we would be required to pay all or a portion of the "claw-back" amount.
We are a multinational business that operates in numerous tax jurisdictions.
We conduct operations in multiple tax jurisdictions, and the tax laws of those jurisdictions generally require that the transfer prices between affiliated companies in different jurisdictions be the same as those between unrelated companies dealing at arm's length, and that such prices are supported by contemporaneous documentation. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these jurisdictions were to successfully challenge our transfer prices as not reflecting arm's length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, which could result in a higher overall tax liability to us and possibly interest and penalties.
Additionally, the integrated nature of our worldwide operations can produce conflicting claims from tax authorities in different countries as to the profits to be taxed in the individual countries. The majority of the jurisdictions in which we operate have double tax treaties with other foreign jurisdictions, which provide a framework for mitigating the impact of double taxation on our revenues and capital gains. However, mechanisms developed to resolve such conflicting claims are largely untested, can be expected to be very lengthy, and do not always contain a mandatory dispute resolution clause.
In recent years, tax authorities around the world have increased their scrutiny of company tax filings, and have become more rigid in exercising any discretion they may have. As part of this, the Organization for Economic Co-operation and Development ("OECD") has proposed certain changes to the International tax standards that have resulted and will continue to result in local tax law changes under its Base Erosion and Profit Shifting ("BEPS") Action Plans to address issues of transparency, coherence and substance. Most recently, the OECD has released its plans for proposing further amendments to the international tax standards, including a new attribution of the right to tax corporate profits where customers are located and a mechanism ensuring that all corporate profits would be subject to a minimum taxation level.
At the same time, the EU Member States are implementing the European Commission’s Anti Tax Avoidance Directives I and II, which seek to prevent tax avoidance by companies and to ensure that companies pay appropriate taxes in the markets where profits are effectively made and business is effectively performed. The European Commission also continues to extend the application of its policies seeking to limit fiscal aid by Member States to particular companies, including by investigating Member States' practices regarding the issuance of rulings on tax matters relating to individual companies. Furthermore, new EU regulations introducing mandatory automatic exchange of information in relation to "reportable cross-border arrangements" entered into effect on June 25, 2018 and the Member States are required to transpose such regulation into their respective national legislation by December 31, 2019 and apply the new rules from July 1, 2020. The first automatic exchange of information in relation to "reportable cross-border arrangements" will have to take place by October 31, 2020. Over time, these new disclosure requirements may result in significant changes to the manner in which tax authorities and taxpayers view the application of established tax rules.
These OECD and EU tax reform initiatives require local country implementation, including in our home country of Switzerland, which may result in significant changes to established tax principles. Although we have taken steps to be in compliance with the evolving OECD and EU tax initiatives, and will continue to do so, significant uncertainties remain as to the outcome of these initiatives and their impact on us as a taxpayer.
Furthermore, Switzerland and the various Swiss cantons in which Alcon is present have adopted their own corporate tax reform. The main elements of the Swiss tax reform became effective in 2020 and will result in an increase in Alcon’s tax burden and effective tax rate in Switzerland.
In general, tax reform efforts, including with respect to tax base or rate, transfer pricing, intercompany dividends, cross border transactions, controlled corporations, and limitations on tax relief allowed on the interest on intercompany debt, will require us to continually assess our organizational structure and could lead to an increased risk of international tax disputes, an increase in our effective tax rate and an adverse effect on our financial condition.
Intangible assets and goodwill on our books may lead to significant impairment charges.
We carry a significant amount of goodwill and other intangible assets on our consolidated balance sheet, primarily due to the value of the Alcon brand name, but also intangible assets associated with our technologies, acquired research and development, currently marketed products, and marketing know-how. As a result, we may incur significant impairment charges if the fair value of the intangible assets and the groupings of cash generating units containing goodwill would be less than their carrying value on our consolidated balance sheet at any point in time.
We regularly review our long-lived intangible and tangible assets, including identifiable intangible assets, investments in associated companies and goodwill, for impairment. Goodwill, intangible assets with an indefinite useful life (such as the
Alcon brand name), acquired research projects not ready for use, and acquired development projects not yet ready for use are subject to impairment review at least annually. We review other long-lived assets for impairment when there is an indication that an impairment may have occurred.
For a detailed discussion of how we determine whether an impairment has occurred, what factors could result in an impairment and the impact of impairment charges on our results of operations, see "Note 3. Selected Accounting Policies—Goodwill and intangible assets—Impairment of goodwill, Alcon brand name and definite lived intangible assets" to our Consolidated Financial Statements included elsewhere in this Annual Report.
Our previously announced estimates for the costs we expect to incur in connection with our separation from Novartis and our previously announced transformation program may be inaccurate.
We have previously announced that we expect to incur costs of $500 million in connection with our separation from Novartis. We have also previously announced that we expect to incur costs of $300 million and realize savings of $200 to $225 million on an annualized run rate by 2023 in connection with our transformation program. While we believe that these estimates are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. In addition, we may not be able to obtain the estimated cost savings and benefits that were initially anticipated in connection with our transformation program in a timely manner or at all. Should any of these estimates or underlying assumptions change or prove to have been incorrect, it could adversely affect our results of operations.
Environmental, social and governance matters may impact our business and reputation.
Increasingly, in addition to the importance of their financial performance, companies are being judged by their performance on a variety of environmental, social and governance ("ESG") matters, which are considered to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law, and the role of the company’s board of directors in supervising various sustainability issues. In addition to the topics typically considered in such assessments, in the healthcare industry, issues of the public’s ability to access our products and solutions are of particular importance.
We actively manage a broad range of such ESG matters, taking into consideration their expected impact on the sustainability of our business over time, and the potential impact of our business on society and the environment. However, in light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our proper role. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and on our business, share price, financial condition, or results of operations, including the sustainability of our business over time.
Risks Related to the Separation from Novartis
Our ability to operate our business effectively may suffer if we do not, quickly and cost effectively, establish our own administrative and support functions necessary to operate as a standalone public company.
As a division of Novartis, we historically relied on financial (including financial and compliance controls) and certain legal, administrative and other resources of Novartis to operate our business. In particular, Novartis Business Services ("NBS"), the Novartis shared service organization, historically provided us with services across the following service domains: human resources operations, real estate and facility services, procurement, information technology, commercial and medical support services and financial reporting and accounting operations.
Since our separation from Novartis, we have continued to expand our own financial, administrative, corporate governance and listed company compliance and other support systems, including for the services NBS had historically provided to us, or have contracted with third parties to replace Novartis systems that we are not establishing internally. This process has been complex, time consuming and costly.
Novartis will continue to provide support for certain of our key business functions until April 2021 pursuant to a Transitional Services Agreement and certain other agreements. Any failure or significant downtime in our own financial, administrative or other support systems or in the Novartis financial, administrative or other support systems during the transitional period in which Novartis provides us with support could negatively impact our results of operations or prevent us from paying our suppliers and associates, executing business combinations and foreign currency transactions or performing administrative or other services on a timely basis, which could negatively affect our results of operations.
In particular, our day-to-day business operations rely on our information technology systems. For example, our production facilities utilize information technology to increase efficiencies and limit costs. Furthermore, a significant portion of the communications among our personnel, customers and suppliers take place on our information technology platforms. While the transfer of information technology systems from Novartis to us has commenced, we expect that the full transfer to be complex, time consuming and costly. There is also a risk of data loss in the process of transferring information technology. As a result of our reliance on information technology systems, the cost of such information technology integration and transfer and any such loss of key data could have an adverse effect on our business, financial condition and results of operations.
The transitional services Novartis has agreed to provide us may not be sufficient for our needs. In addition, we or Novartis may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
In connection with the separation, we entered into a Separation and Distribution Agreement and various other agreements with Novartis, including the Transitional Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Manufacturing and Supply Agreement and other separation-related agreements. See "Item 10. Additional Information—10.C. Material Contracts—Our Agreements with Novartis". Certain of these agreements will provide for the performance of key business services by Novartis for our benefit for a period of time after the separation. These services may not be sufficient to meet our needs and the terms of such services may not be equal to or better than the terms we may have received from unaffiliated third parties, including our ability to obtain redress.
We rely on Novartis to satisfy its performance and payment obligations under these agreements. If Novartis does not satisfactorily perform its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transitional agreements expire, we may not be able to operate our business effectively. In addition, after our agreements with Novartis expire, we may not be able to obtain these services at as favorable prices or on as favorable terms.
The separation and Spin-off could result in significant tax liability. In addition, we agreed to certain restrictions designed to preserve the tax treatment of the separation and Spin-off.
The relevant Swiss tax consequences of the separation and Spin-off have been taken up with the Swiss tax authorities. Novartis received written confirmations (the "Swiss Tax Rulings") from the Swiss Federal Tax Administration and from the tax administrations of the Canton of Basel-Stadt and the Canton of Fribourg addressing the relevant Swiss tax consequences of the separation and Spin-off. In addition, Novartis received a private letter ruling from the US Internal Revenue Service (the "IRS", and such ruling, the "IRS Ruling") and obtained a written opinion of Cravath, Swaine & Moore LLP, counsel to Novartis (the "Tax Opinion") to the effect that the separation and Spin-off should qualify for nonrecognition of gain and loss to Novartis and its shareholders under Section 355 of the Code.
If the separation and/or Spin-off were determined not to qualify for the treatments described in the Tax Rulings and Tax Opinion, or if any conditions in the Tax Rulings or Tax Opinion are not observed, then we could suffer adverse Swiss stamp duty and Novartis could suffer Swiss and US income, withholding and capital gains tax consequences and, under certain circumstances, we could have an indemnification obligation to Novartis with respect to some or all of the resulting tax to Novartis under the tax matters agreement (the "Tax Matters Agreement") we entered into with Novartis, as described in "Item 10. Additional Information—10.C. Material Contracts—Our Agreements with Novartis—Tax Matters Agreement".
In addition, under the Tax Matters Agreement, we agreed to certain restrictions designed to preserve the expected tax neutral nature of the separation and the Spin-off for Swiss tax and US federal income tax purposes. These restrictions may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that might be beneficial and could discourage or delay strategic transactions that our shareholders may consider favorable. See "Item 10. Additional Information—10.C. Material Contracts—Our Agreements with Novartis—Tax Matters Agreement" for more information.
Risks related to the Ownership of our Shares
Your percentage ownership in Alcon may be diluted in the future.
In the future, your percentage ownership in Alcon may be diluted because of equity issuances from acquisitions, capital markets transactions or otherwise, including equity awards that we may grant to our directors, officers and associates under our associate participation plans. These additional issuances will have a dilutive effect on our earnings per share, which could adversely affect the market price of our shares.
Our maintenance of two exchange listings could result in pricing differentials of our ordinary shares between the two exchanges.
Our shares trade on the NYSE in US dollars and on the SIX in Swiss francs, which may result in price differentials between the two exchanges for a variety of factors, including fluctuations in the US dollar/Swiss franc exchange rate and differences in trading schedules.
We may not pay or declare dividends.
Although Alcon expects that it will continue to recommend the payment of a regular cash dividend based upon the prior year’s core net income, we may not pay or declare dividends in the future. The declaration, timing and amount of any dividends to be paid by Alcon will be subject to the approval of shareholders at the relevant General Meeting of shareholders. The determination by the Board as to whether to recommend a dividend and the approval of any such proposed dividend by the shareholders will depend upon many factors, including our financial condition, earnings, corporate strategy, capital requirements of our operating subsidiaries, covenants, legal requirements and other factors deemed relevant by the Board and shareholders.
In addition, any dividends that we may declare will be denominated in Swiss francs. Consequently, exchange rate fluctuations will affect the US dollar equivalent of dividends received by holders of shares held via DTCDepository Trust Company ("DTC") or shares directly registered with Computershare Trust Company, N.A. in the US If the value of the Swiss franc decreases against the US dollar, the value of the US dollar equivalent of any dividend will decrease accordingly.
See "Item 8. Financial Information—8.A.Information-8.A. Consolidated Statements and Other Financial Information—DividendInformation-Dividend Policy" for more information.
We areAs a foreign private issuer, and, as a result, we are not subject to US proxy rules and are subject to different US securities laws and rules than a domestic issuer, which may limit the information publicly available to US shareholders.
We report under the Securities Exchange Act of 1934, as amended ("Exchange Act") reporting obligations that, to some extent, are more lenient and less frequent than those of a US domestic public company.
We report under the Exchange Act, as a non-US company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Swiss laws and regulations with regard to such matters and intend to continue to furnish quarterly financial information to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to US domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial year, while US domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers
from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
In addition, as a foreign private issuer, we are entitled to rely on exceptions from certain corporate governance requirements of the NYSE. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
Furthermore, we prepare our financial statements under IFRS. There are, and may continue to be, certain significant differences between IFRS and US Generally Accepted Accounting Principles, or US GAAP, including but not limited to potentially significant differences related to the accounting and disclosure requirements relating to associatedefined benefit pension plans and other post-employment benefits, nonfinancial assets, taxation, and recognition and impairment of long-lived assets. As a result, our financial information and reported earnings for historical or future periods could be significantly different if they were prepared in accordance with US GAAP, and you may not be able to meaningfully compare our financial statements under IFRS with those companies that prepare financial statements under US GAAP.
We may lose our foreign private issuer status.
We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to US domestic issuers. To maintain our status as a foreign private issuer, either (a) a majority of our shares must be directly or indirectly owned of record by non-residents of the United StatesUS or (b)(i) a majority of our executive officers or directors may not be United States citizens or residents, (ii) more than 50 percent of our assets cannot be located in the United StatesUS and (iii) our business must be administered principally outside the United States.US.
If we were to lose our foreign private issuer status, we would be required to comply with the Exchange Act reporting and other requirements applicable to US domestic issuers, which are more detailed and extensive than the requirements for
foreign private issuers. For instance, we would be required to change our basis of accounting from IFRS as issued by the IASB to US GAAP, which we expect would be difficult and costly and could also result in potentially material changes to historical financial statements previously prepared on the basis of IFRS. We may also be required to make changes in our corporate governance practices in accordance with various SEC and NYSE rules. The regulatory and compliance costs to us under US securities laws could be significantly higher than the costs we will incur as a foreign private issuer. As a result, a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time-consuming and costly. If we were required to comply with the rules and regulations applicable to US domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we could be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our Board of Directors.
Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.
Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, shareholders must approve the payment of dividends and cancellation of treasury shares. Swiss law also requires that our shareholders themselves resolve to, or authorize our Board of Directors to, increase, or decrease, our share capital. WhileAs part of the Swiss corporate law reform that entered into force on January 1, 2023, our shareholders may authorize share capital that can be issued by our Board of Directorsto increase or decrease our issued share capital without additional shareholder approval,approval. However, Swiss law limits this authorization to increase or decrease the share capital to 50% of the issued share capital at the time of the authorization. The authorization, furthermore, has a limited duration of up to twofive years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital. Additionally, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of shares and advance-subscription rights to subscribe for convertible bonds or similar instruments with conversion or option rights. A resolution adopted at a shareholders' meeting by a qualified majority of two-thirds of the votes represented, and the absolute majority of the nominal value of the shares represented, may restrict or exclude, or allow the Board to restrict or exclude, such pre-emptive or advance-subscription rights in certain limited circumstances. In addition to provide more flexibility in the structuring of the share capital, the Swiss corporate law reform also permits notably the payment of interim dividends and the denomination of the share capital in foreign currency, both subject to shareholders' approval. The changes provided for by the Swiss corporate law reform will require an amendment to Alcon’s articles of incorporation. Despite these changes, Swiss law alsostill does not provide as much flexibility in the various rights and regulations that can attach to different categories of shares as do the laws of some other jurisdictions. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders.
It may be difficult to enforce US judgments against us.
We are organized under the laws of Switzerland. As a result, it may not be possible for investors to effect service of process within the United StatesUS upon us or upon such persons or to enforce judgments against them judgmentsus obtained in US courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States.US. We have been advised by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement of judgments of US courts, of civil liabilities to the extent predicated upon the federal and state securities laws of the United States.US. Original actions against persons in Switzerland based solely upon the US federal or state securities laws are governed,
among other things, by the principles set forth in the Swiss Federal Act on Private International Private Law. This statute provides that the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result is incompatible with Swiss public policy. Also, mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise apply.
Switzerland and the United StatesUS do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition and enforcement of a judgment of the courts of the United StatesUS in Switzerland are governed by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland only if:
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▪ | the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law; |
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▪ | the judgment of such non-Swiss court has become final and non-appealable; |
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▪ | the judgment does not contravene Swiss public policy; |
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▪ | the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and |
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▪ | no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland. |
•the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;
•the judgment of such non-Swiss court has become final and non-appealable; •the judgment does not contravene Swiss public policy;
•the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and
•no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland.
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ITEM 4. | INFORMATION ON THE COMPANY |
ITEM 4. INFORMATION ON THE COMPANY | |
4.A. | HISTORY AND DEVELOPMENT OF THE COMPANY |
4.A. HISTORY AND DEVELOPMENT OF THE COMPANY
General Corporate Information
Alcon is a stock corporation (Aktiengesellschaft) organized under the laws of Switzerland in accordance with article 620 et seq. of the Swiss Code of Obligations and registered with the Swiss Registerregister of Commercecommerce of the Canton of Fribourg, Switzerland (“Commercial Register”) under registration number CHE‑234.781.164. Alcon is registered in the SwissCommercial Register of Commerce under each of Alcon AG, Alcon SA and Alcon Inc., all of which are stated in Alcon's Articles of Incorporation (our "Articles of Incorporation") as our corporate name. Alcon was formed for an unlimited duration, effective as of September 21, 2018, the date of the registration of Alcon in the Swiss Register of Commerce on September 21, 2018. As a result of Novartis’ Spin-off of Alcon and its consolidated subsidiaries onCommercial Register. On April 9, 2019, Alcon became an independent, standalone corporation. Alcon’s shares arewere listed on the SIX and the NYSE under the ticker symbol “ALC.”
Alcon is domiciled in Fribourg, Switzerland and our registered office is located at Rue Louis‑d’Affry 6, 1701 Fribourg, Switzerland. Our headquarters is located in Geneva, Switzerland at the following address: Chemin de Blandonnet 8, 1214 Vernier, Geneva, Switzerland. Our telephone number is +41 58 911 2110. Our principal website is www.alcon.com. The information contained on our website is not a part of this Form 20‑F.
General Development of Business
Alcon was originally founded in 1945 by pharmacists Robert Alexander and William Conner, who opened a small pharmacy under the “Alcon” name in Fort Worth, Texas. In 1947, Alcon Laboratories, Inc. was first incorporated and began manufacturing specialty pharmaceutical products to address ocular health needs. In the succeeding years, Alcon began operating internationally with the opening of an office in Canada and first formed its surgical division.
In 1977, Alcon was acquired by a Swiss subsidiary of Nestlé S.A. and, consequently, Alcon began operating as a wholly owned subsidiary of Nestlé until 2002. In 2001, the name of the entity was officially changed to Alcon, Inc. and, on March 20, 2002, Nestlé completed an initial public offering of approximately 25% of the outstanding common shares of Alcon, Inc. From March 20, 2002 until its 2011 merger into Novartis discussed below,upon which Alcon was publicly listed and traded on the New York Stock ExchangeNYSE under the symbol “ACL”.
On July 7, 2008, In a series of transactions, Nestlé then sold all of its remaining interest in Alcon to Novartis approximately 25% of thefrom 2008 to 2010, and Novartis then outstanding Alcon shares and granted Novartis an option for Novartis to acquire Nestlé’s remaining shares in Alcon beginning in 2010. On August 25, 2010, Novartis exercised its option and purchasedacquired the remaining approximately 52% of the total outstanding Alconpublicly held shares owned by Nestlé. Following this purchase, Novartis owned an approximate 77% interest in Alcon. On December 14, 2010, Novartis entered into a definitive agreement to acquire the remaining 23% of Alcon through a merger of Alcon, Inc. into Novartis in consideration for Novartis shares and a contingent value amount. The merger was consummated on April 8, 2011, creating the Alcon Division within Novartis.
In connection with the Novartis acquisition of Alcon, Novartis also merged its then‑existing contact lens and contact lens care unit, CIBA Vision, and certain of its ophthalmic pharmaceutical products into Alcon and moved the generic ophthalmic pharmaceutical business conducted by Alcon prior to the merger into the Sandoz Division of Novartis. In 2016, Novartis moved the management and reporting of Alcon ophthalmic pharmaceutical and over‑the‑counter ocular health products to the Innovative Medicines Division of Novartis. Subsequently, effective January 1, 2018, Novartis returned to Alcon the management and reporting of over‑the‑counter ocular health products and certain surgical diagnostic medications previously transferred from Alcon in 2016.
On June 29, 2018,April 9, 2019, Novartis announced its intention to seek shareholder approval forcompleted the Spin‑off of its Alcon Division, following the complete legal and structural separation of Alcon into a standalonestand-alone company consisting of Alcon Inc. and its consolidated subsidiaries. Novartis shareholders approved the Spin-off on February 28, 2019, and thethrough a Spin-off transaction, was consummated on April 9, 2019. Followingupon which Alcon became a stand-alone, independent company.
Since the Spin-off, Alcon became a standalone, independent company.has focused on launching innovative new products, investing in manufacturing line expansion, and pursuing adjacencies such as devices for minimally invasive glaucoma surgery (or MIGS) and pharmaceuticals.
Significant Acquisitions, Dispositions and other Events
Significant Investments
In 2012, we began a multi‑year software implementation project to standardize our processes, enhance data transparency and globally integrate our fragmented and aging information technology systems across our commercial, supply and manufacturing operations worldwide, through a new foundation of Systems, Applications and Products in Data Processing ("SAP"), which is an Enterprise Resource Planning, or ERP software platform. We expect to pay a total of approximately $850
$806 million relating to the implementation of the new ERP system. Throughsystem, the payment of which was substantially complete by December 31, 2019, the total amount paid with respect to the implementation was $584 million.2022.
In addition, we have made significant investments in certain of our manufacturing facilities to enhance our production capabilities. For more information, see “Item 4.D. Property, Plants and Equipment—Major Facilities”.
Acquisitions
In the past three years, we have also entered into certain acquisition transactions, including (i) the acquisition of 100% of the outstanding shares and equity of ClarVista Medical,Aerie Pharmaceuticals, Inc. (“Aerie”) on November 21, 2022, (ii) the acquisition of 100% of the outstanding shares and equity of Ivantis, Inc. on September 20, 2017, TrueVision Systems, Inc.January 7, 2022, and (iii) the acquisition of exclusive US commercialization rights to Simbrinza (brinzolamide/brimonidine tartrate ophthalmic suspension) 1%/0.2% from Novartis on December 19, 2018, Tear Film Innovations, Inc. on December 17, 2018 and PowerVision, Inc. on March 13, 2019.June 8, 2021. For further details on certain of our significant transactions in 2022, 2021 and 2020, see “Note 21 to the Consolidated Financial Statements."
Debt Issuances
In connection with the Spin-off, we borrowed an aggregate of approximately $3.2 billion under various unsecured loan facilities (the “Facilities”), including a 364-day bridge loan, a three-year term loan and two five-year term loans. In addition, we entered into a $1.0 billion unsecured five‑year committed multicurrency revolving credit facility (the “Revolving Facility”), the term of which has been extended through March 2026. We then paid to Novartis approximately $3.1 billion to satisfy certain intercompany indebtedness owed by Alcon and its subsidiaries to Novartis and its affiliates. Other than the Revolving Facility, none of the facilities are available to us for borrowings.
2019 2018 and 2017, see “Item 5. Operating and Financial Review and Prospects—5.A. Operating results—Factors Affecting Comparability of Period to Period”.US Bond Issuance
On September 23, 2019, we refinanced certain shorter-term borrowings throughAlcon Finance Company, an indirect wholly owned subsidiary of the issuanceCompany (“AFC”), issued senior notes ("Initial Notes") in the principal amounts of Senior Notes (“Notes”)$500 million, $1.0 billion and $500 million with maturity dates in 2026, 2029 and 2049.2049, respectively, which are guaranteed by the Company. The Initial Notes are unsecured senior obligations of AFC issued in a private placement. The total principal amount of the Initial Notes is $2.0 billion, and the proceeds were used to repay part of the Facilities. The Initial Notes consist of the following:
•Series 2026 Notes - $0.5 billion due in 2026 issued at 99.5%, 2.750% interest is payable twice per year in March and September, beginning in March 2020.
•Series 2029 Notes - $1.0 billion due in 2029 issued at 99.6%, 3.000% interest is payable twice per year in March and September, beginning March 2020.
•Series 2049 Notes - $0.5 billion due in 2049 issued at 99.8%, 3.800% interest is payable twice per year in March and September, beginning March 2020.
For more information on the Initial Notes, see Note 16 to our Consolidated Financial Statements.
2020 US Bond Issuance
On May 27, 2020, AFC issued senior notes due in 2030 (“Series 2030 Notes”), which are guaranteed by Alcon Finance Corporationthe Company. The Series 2030 Notes are unsecured senior obligations of AFC issued in a private placement and rank equally in right of payment with the Initial Notes. The total principal amount of the Series 2030 Notes is $750 million. The Series 2030 Notes were issued at 99.8% with 2.600% interest payable twice per year in May and November, beginning in November 2020. For more information on the Series 2030 Notes, see Note 16 to our Consolidated Financial Statements.
2022 Euro Bond Issuance
On May 31, 2022, Alcon Finance B.V., an indirect, wholly owned subsidiary of the Company ("AFBV"), issued Euro denominated senior notes due in 2028 (the "Series 2028 Notes"), which are guaranteed by the Company. The Series 2028 Notes are unsecured senior obligations of AFBV issued and closed in a public offering and rank equally in right of payment with the Initial Notes and the Series 2030 Notes. The total notionalprincipal amount of the Series 2028 Notes is $2.0 billion.500 million euros, and the proceeds were used to repay part of the Facilities. The Series 2028 Notes were issued at 99.476% with 2.375% interest payable annually in May, beginning in May 2023. For more information on the Series 2028 Notes, see Note 16 to our Consolidated Financial Statements.
2022 Bridge Loan Facility
On September 14, 2022, the Company and AFC entered into a discount totaling $7facility agreement with J.P. Morgan Securities PLC as arranger, J.P. Morgan Chase Bank, N.A., London Branch as original lender, bookrunner and underwriter, and J.P. Morgan SE as agent (the "2022 Bridge Loan Facility Agreement"). The 2022 Bridge Loan Facility Agreement provides for a $900 million which was recorded as a reduction tounsecured term loan facility (the "2022 Bridge Loan Facility") for the carrying valuepurposes of financing or refinancing (i) the
consideration payable for the Aerie acquisition, (ii) any existing indebtedness of Aerie and its subsidiaries and (iii) related fees and expenses in connection with the foregoing. The Company guarantees the borrowings of AFC, that is the borrower under the 2022 Bridge Loan Facility. On November 21, 2022, in connection with the consummation of the Aerie acquisition, $775 million of the financing commitments of the lenders under the 2022 Bridge Loan Facility were drawn, the proceeds of which were used for the Aerie acquisition. The 2022 Bridge Loan Facility was repaid in full with the proceeds of the 2022 Notes described below and is no longer available to us for borrowings. For more information on the 2022 Bridge Loan Facility, see Note 16 to our Consolidated Financial Statements.
2022 US Bond Issuance
On December 6, 2022, AFC issued senior notes (“2022 Notes”) in the principal amounts of $700 million and $600 million with maturity dates in 2032 and 2052, respectively, which are guaranteed by the Company. The 2022 Notes are unsecured senior obligations of AFC issued in a private placement and rank equally in right of payment with the Initial Notes and will be amortized to Interest expense over the termSeries 2030 Notes. The total principal amount of the Notes. AFC incurred $15 million of debt issuance costs, which2022 Notes is $1.3 billion, and the proceeds were recorded as a reductionused to repay the carrying value2022 Bridge Loan Facility and the remaining principal of the Notes and will be amortized to Other financial income & expense over the term of the Notes.Facilities. The 2022 Notes consist of the following:
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▪ | Series 2026 Notes - $0.5 billion due in 2026 issued at 99.5%, 2.750% interest is payable twice per year in March and September, beginning in March 2020 (“2026 Notes”). |
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▪ | Series 2029 Notes - $1.0 billion due in 2029 issued at 99.6%, 3.000% interest is payable twice per year in March and September, beginning March 2020 (“2029 Notes”). |
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▪ | Series 2049 Notes - $0.5 billion due in 2049 issued at 99.8%, 3.800% interest is payable twice per year in March and September, beginning March 2020 (“2049 Notes”). |
The funds borrowed through the issuance of the•Series 2032 Notes were used to refinance the $1.5- $0.7 billion Bridge Facilitydue in 2032 issued at 99.5%, 5.375% interest is payable twice per year in June and $0.5December, beginning in June 2023.
���Series 2052 Notes - $0.6 billion Facility A, both of which had been entered into on March 6, 2019. due in 2052 issued at 99.7%, 5.750% interest is payable twice per year in June and December, beginning June 2023.
For more information on the 2022 Notes, see Note 16 to our Consolidated Financial Statements.
Transformation Program
On November 19, 2019, we announced a multi-year transformation program includingto better align our organizational realignment, process simplification, andstructure with the creationscope of globalAlcon's business operations globally. We created four shared servicesbusiness centers designed to create efficiencies for reinvestment into key growth drivers. The transformation program was originally projected to deliver annual run-rate savings of approximately $200 to $225 million, to be reinvested into key growth drivers, with an original projected cost of the program of $300 million by 2023. On November 15, 2022, we announced additional transformation initiatives to deliver incremental efficiencies. As a result, we now expect incremental run-rate savings of approximately $100 million, with incremental program costs of approximately $125 million. We estimate thatcontinue to expect to complete the program by year-end 2023. Through December 31, 2022, the total expense recognized with respect to the transformation program willwas $288 million.
War on Ukraine
In February 2022, as a result of the war on Ukraine by Russia, economic sanctions and export controls were imposed by much of the world on Russian financial institutions and businesses. These sanctions could adversely impact net sales, create disruptions in total chargesthe global supply chain, increase the risk of cyber attacks, and potentially have an adverse impact on the global economy, financial markets, energy markets, currency rates and otherwise. As a result of the global impacts, we have experienced volatility in currency translation effects. Our manufacturing and procurement exposure in Russia and Ukraine is limited as our operations consist mainly of associates in local functions, including sales and customer support. Refer to "Item 3. Key Information—3.D. Risk Factors" - Changing economic and financial environments in many countries and increasing global political and social instability may adversely impact our business.
For the year ended December 31, 2022 and 2021, net sales in Russia and Ukraine amounted to approximately $3002% of consolidated net sales. Total assets in Russia and Ukraine amounted to $83 million as of December 31, 2022. As of December 31, 2022, operations previously impacted by 2023.the war on Ukraine continued operating to the extent practicable and permitted by law.
COVID-19 Pandemic
The COVID-19 pandemic had a significant impact on our financial results and operations in 2020 and continued to have an impact on our financial results and operations through 2021 with lingering impacts in select markets, notably China, in
2022. The financial impact and risks are discussed in more detail in this Annual Report, including under “Item 5. Operating and Financial Review and Prospects”.
Additional Information
The SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file documents electronically with the SEC. Our Internet website is www.alcon.com. The information included on our internet website or the information that might be accessed through such website is not included in this Annual Report and is not incorporated into this Annual Report by reference.
4.B. BUSINESS OVERVIEW
Overview
Alcon is the largestglobal leader in eye care company in the world, with $7.4$8.7 billion in net sales during the year ended December 31, 2019.2022. We research, develop, manufacture, distribute and sell a full suite of eye care products within two key businesses: Surgical and Vision Care. Based on sales for the year ended December 31, 2019,2022, we are the number one company by global market share in the ophthalmic surgical market and the number two company by global market share in the vision care market. We employ over 20,00025,000 associates from more than 90100 nationalities, operating in over 7060 countries and serving consumers and patients in over 140 countries. We believe our market leading position and global footprint allow us to benefit from economies of scale, maximize the potential of our commercialized products and pipeline and will permit us to effectively grow the market and expand into new product categories.
Our Surgical business is focused on ophthalmic products for cataract surgery, vitreoretinal surgery, refractive laser surgery and glaucoma surgery. Our broad surgical portfolio includes implantables, consumables and surgical equipment required for these procedures and supports the end-to-end needs of the ophthalmic surgeon. Our Vision Care business comprises daily disposable, reusable and color-enhancing contact lenses and a comprehensive portfolio of ocular health products, including devices and over-the-counter products for dry eye, over-the-counter products forocular allergies, glaucoma, and contact lens care, and ocular allergies, as well as ocular vitamins and redness relievers. Alongside our world-class products, Alcon provides best-in-class service, training, education and technical support for our customers.
Our Surgical and Vision Care businesses are complementary and benefit from synergies in R&D,research and development, manufacturing, distribution and consumer awareness and education. This allows us to position ourselves as a trusted partner for eye care products across the continuum of care from retail consumer, to optometry, to surgical ophthalmology. For example, in R&D,research and development, we can apply our expertise in material and surface chemistry to develop innovative next-generation products for both our IOL and contact lens product lines. Similarly, our global commercial footprint and expertise as a global organization provide us with product development, manufacturing, distribution and commercial promotion and marketing knowledge that can be applied to both of our businesses.
We are dedicated to providing innovative products that enhance quality of life by helping people see brilliantly. Our strong foundation is based on our longstanding success as a trusted brand, our legacy of industry firsts and advancements, our leading positions in the markets in which we compete and our continued commitment to substantial investment in innovation. With over 70more than 75 years of history in the ophthalmic industry, we believe the Alcon brand name is synonymous with innovation, quality, service and leadership among eye care professionals worldwide.
Our Markets
Overview
We currently operate in the global ophthalmic surgical and vision care markets, which are large, dynamic and growing. As the world population grows and ages, the need for quality eye care is expanding and evolving, and we estimate that the size of the eye care market in which we operate wasis approximately $25$32 billion and is projected to grow at approximately 4% to 5%mid-single digits per year from 20192022 to 2024.2027.
Although it is estimated that 80%90% of all visual impairments are currently preventable, treatable or curable, we operate in markets that have substantial unmet medical and consumer needs. For example, based on market research, it is estimated that there are currently 2065 million people globally that are blind from treatablewith moderate to severe vision impairment due to cataracts, 1.71.8 billion who suffer from presbyopia, 153 million with uncorrected refractive errors, 93146 million with diabetic retinopathy, 67103 million living with glaucoma and approximately 352 million affected by1.4 billion who suffer from symptoms of dry eye, among other unaddressed ocular health conditions. In addition, there are over 1 billion people living with some form of unaddressed visual impairment, as well as 70% of the global population needing basic vision correction.impairment. Below is a brief description of these ocular disorders.
Our Surgical and Vision Care products are targeted at addressing many of these unmet medical and consumer needs. We expect the surgical and vision care markets to continue to grow, driven by multiple factors and trends, including but not limited to:including:
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• | •Aging population with growing eye care needs: A growing aging population continues to drive the increased prevalence of eye care conditions worldwide, as the number of persons aged 60 years or over is expected to more than double by 2050, rising from 962 million globally in 2017 to 2.1 billion in 2050. •Innovation improving the quality of eye care: Technology innovation in eye care is driving an increased variety of products that more effectively treat eye conditions. The importance of vision correction and preservation, the high return on healthcare spend and the improved patient outcomes are leading to increased coverage and reimbursement opportunities from governmental and private third-party payors, expanding patient access to such eye care products. •Increasing wealth and growth from emerging economies: It is estimated that by 2030 the global middle class population could exceed 5 billion people with the majority of growth coming in emerging markets. This major demographic shift is generating a large, new customer base with increased access to eye care products and services along with the resources to pay for them. The expansion of training opportunities for eye care professionals in emerging markets is also leading to increased patient awareness and access to premium eye care products and surgical procedures, facilitating their growth. •: A growing aging population continues to drive the increased prevalence of eye care conditions worldwide, as the number of persons aged 60 years or over is expected to more than double by 2050, rising from 962 million globally in 2017 to 2.1 billion in 2050. |
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• | Innovation improving the quality of eye care: Technology innovation in eye care is driving an increased variety of products that more effectively treat eye conditions. Given the importance of vision correction and preservation, which can provide a high return on healthcare spend, the resulting better patient outcomes are leading to increased coverage and reimbursement opportunities from governmental and private third-party payers, expanding patient access to such eye care products.
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• | Increasing wealth and growth from emerging economies: It is estimated that between 2015 and 2030, the middle class population in emerging markets will grow by approximately 1.5 billion people, from 2.0 billion to 3.5 billion; this major demographic shift is generating a large, new customer base with increased access to eye care products and services along with the resources to pay for them. The expansion of training opportunities for eye care professionals in emerging markets is also leading to increased patient awareness and access to premium eye care products and surgical procedures, facilitating their growth.
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• | Increasing prevalence of myopia, progressive myopia and digital eye strain: It is estimated that by 2050, half of the world's population (nearly five billion people) will be myopic. Further, the modern work environment, along with leisure preferences, have increased the number of hours people spend in front of a screen, adversely impacting vision and increasing the risk of progressive myopia and digital eye strain. |
The Surgical Market
The surgical market in which we operate wasis estimated to be $10$12 billion and is projected to grow at 4%mid-single digits per year from 20192022 to 2024.2027. The surgical market includes sales of implantables, consumables and surgical equipment, including associated technical, clinical and service support and training. Surgical implantables are medical devices designed to remain in the eye, such as monofocal, AT-IOLs and AT-IOLsstents placed in the eye during cataract surgery. Consumables include hand-held instruments, surgical solutions, equipment cassettes, patient interfaces and other disposable items typically used during a single ophthalmic surgical procedure. Finally, surgical equipment includes multi-use surgical consoles, lasers and diagnostic instruments used across procedures to enable surgeons to visualize and conduct ophthalmic surgeries. Market growth is expected to be driven mainly by:
The major conditions of the eye for which surgical products and equipment are offered include cataracts, vitreoretinal disorders, refractive errors such as myopia, hyperopia and astigmatism, glaucoma and corneal disease. For cataracts, surgical removal of the clouded lens followed by insertion of a transparent artificial replacement lens, called an intraocular lens, is the standard treatment. Vitreoretinal surgery, which allows a surgeon to operate directly on the retina or on membranes or tissues that have covered the retina, is indicated for the treatment of various conditions such as diabetic retinopathy, trauma, tumors, complications of surgery on the front of the eye and pediatric disorders. Finally, for treatment of myopia, hyperopia
and astigmatism, laser refractive surgery targeting the cornea, such as LASIK, offers an alternative to eyeglasses or contact lenses.
Cataract, vitreoretinal, refractive and glaucoma surgeries are generally performed▪An aging population causing increased global demand in hospitals or ambulatory surgery centers and are supported through a network of eye clinics, ophthalmic surgery offices and group purchasing organizations. The primary ophthalmic surgical procedures for cataract, vitreoretinal, and glaucoma surgery are broadly reimbursed in most mature markets. Third-party coverage or patient co-pay options are also available for refractive laser correction and AT-IOLs. Finally, a growing private pay market for premium surgical devices provides a mutually beneficial environment for patients, providers and medical device companies by allowing patients to pay the non-reimbursable cost of a procedure associated with selecting premium devices, such as AT-IOLs.
The surgical market in which we participate is projected to grow at a compound annual growth rate of approximately 4% from 2019 through 2024. In particular, growth drivers in the surgical market include:
Global growth of cataract and vitreoretinal procedures, driven by an aging population;procedures;
Increased access to care, for example, in emerging markets and other markets outside the US where the cataract surgery rate is 3.2 procedures per 1,000 people as compared to 12.7 in the US;
▪Higher uptake of premium patient-pay technologies, for examplesuch as where AT-IOL penetration is only 7%11% outside the US versus 14%19% in the US;
▪Increased adoption of advanced technologies, for example,such as improved diagnostic instruments, surgical options for glaucoma management and the growing use of phacoemulsification during cataract removal, which is utilized in less than 50%over 65% of cases in emerging markets versus over 95% in the US; and
Eye disease as a comorbidity linked to the global▪The increasing prevalence of diabetes, the incidence of which has nearlymore than doubled from 4.7% in 1980 to 8.5%10.0% of adults in 2014, combined with improving diagnostics capabilities2021, and new product innovations, driving uptake of premium procedures.for which eye disease is a comorbidity.
The Vision Care Market
The vision care market in which we operate wasis estimated to be $15approximately $20 billion and is projected to grow at 5%mid-single digits per year from 20192022 to 2024.2027. The vision care market is comprised of products designed for ocularuse by eye care professionals and consumer use.consumers. Products are largely categorized across two product lines: contact lenses and ocular health.
Contact lenses are thin lenses placed directly on the surface of the eye that are commonly used Market growth is expected to treat refractive errors such as myopia, hyperopia, astigmatism and presbyopia. They are also often worn for additional reasons, such as aesthetic or cosmetic enhancement, to improve peripheral vision or to achieve spectacle independence. Contact lenses are frequently classified according to their modality, with daily and reusable modalities being the most common. Daily contact lenses are designed for one-time use and are disposed of every day. Reusable contact lenses are designed for periodic use and require daily cleaning and maintenance. Contact lenses may also be classified by their design, with spherical, multifocal and toric designs being the most common. The majority of contact lenses have a spherical design to address the most common visual acuity needs (e.g., myopia). Beyond the standard spherical designs, contact lenses also come in designs to address astigmatism (called toric designs), presbyopia (called multifocal designs) and to change the appearance of the eye (called cosmetic lens designs). The contact lens market was estimated to be approximately $9 billion.
Maintaining ocular health is also an essential part of people's daily lives. Ocular health products can address conditions such as dry eye, ensure effective contact lens care, supplement overall eye health, or provide temporary relief from allergies and related symptoms, such as red eye. The ocular health market was estimated to be approximately $6 billion.
Dry eye is a common condition that occurs when the eye's natural tear film is disturbed or insufficient. It leads to discomfort and potentially serious and chronic vision deterioration and loss, which and can be addressed by artificial tear products and thermal pulsation devices among other treatments. In addition, the increased use of diagnostic tools can help improve the treatment recommendations of eye care professionals for dry eye.
Effective contact lens care is important for any reusable contact lens user, and is a significant factor in reducing the risk of infection and irritation associated with contact lens use. It is also an important factor in maintaining visual acuity and increasing the comfort of wearing reusable contact lenses. When used correctly, contact lens care products remove contaminants from the surface of the contact lens. Lens rewetting drops may also be used to rehydrate the lens during wear and to clear away surface material.
Ocular health is frequently supported by the use of ocular vitamins, which are dietary supplements often sold over the counter and formulated to support eye health. Finally, ocular health products also address allergic conjunctivitis, which occurs when the conjunctiva of the eye becomes swollen or inflamed due to a reaction to pollen, dander, mold, or other allergy-causing
substances. 'Allergy eyes' can become red and itchy very quickly. Treatment for allergy eye includes medications, such as antihistamines, and combinations of antihistamines and redness relievers.
The primary customers of the vision care market include optometrists, ophthalmologists, and other eye care professionals, retailers, optical chains and pharmacies, as well as distributors that resell directly to smaller retailers and eye care professionals, who sell the products to end-users. The vision care market is primarily private pay, with patients substantially paying for contact lenses and ocular health products out-of-pocket. Partial reimbursement is available in some countries for visits to eye care professionals and a portion of either spectacle or contact lens costs.
The vision care market in which we participate is projected to grow at a compound annual growth rate of approximately 5% from 2019 through 2024, driven mainly by:
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•Fast growing daily disposable SiHy contact lens and premium reusable lens segment fueled by better material, improved health and comfort and enhanced vision acuity; •Advancements in specialty lenses combined with increasing demand for toric, multifocal and cosmetic lenses, which command an approximately 15-30% pricing premium over spherical lenses, allowing patients to continue wearing contact lenses as they become older and helping to expand the market; • | Continued modality shift to daily disposable lenses from reusable lenses and the resulting sales premium (an increase of 2-3x sales per patient, after customary rebates and discounts) associated with daily disposable wearers as compared to users of reusable lenses;
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• | Advancements in specialty lenses combined with increasing demand for toric, multifocal and cosmetic lenses, which command an approximately 15-30% pricing premium over spherical lenses, allowing patients to continue wearing contact lenses as they become older and helping to expand the market;
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A significant population of approximately 194 million undiagnosed1.4 billion people worldwide who suffer from symptoms of dry eye, patients, with an additional 42 million self-diagnosedbut do not have clinical signs of dry eye, patients using unsuitable products for treatment,over 750 million people who have both symptoms and advances in diagnostics and ocular health treatments, facilitating the increase in patient awarenessclinical signs of dry eye, and treatment;over 600 million people who are at risk of developing dry eye in that they have clinical signs, but are not yet suffering from dry eye symptoms;
•A rising number of elderly people worldwide such that primary open-angle glaucoma (POAG) now affects an estimated 68 million people and ocular hypertension, often a predecessor to POAG, is estimated to affect another 43 million people;
•Growing access and consumption of vision care products in emerging markets such as Asia, which had an estimated single-digit contact lens penetration as compared to double digits in the developed world; and
•Increasing consumer access through the expansion of distribution models, including internet sales and other direct-to-consumer channels.
Our Business
Overview
With $7.4$8.7 billion in net sales during the year ended December 31, 2019,2022, we are the number oneglobal leader in eye care company worldwide by revenues.care. Our broad range of products represents one of the most complete portfolios in the ophthalmic device industry and comprises high-quality and technologically advanced products across all major product categories in the surgical and vision care markets. Our Surgical and Vision Care products are used in treating multiple ocular health conditions and offer leading eye care solutions for patients throughout their lives.
Our leadership position across most of our product categories enhances our ability to extend our product offering through the launch of new and innovative products and to expand our geographic reach into ophthalmic markets worldwide. Our Surgical business had approximately $4.2$5.0 billion in net sales of implantables, consumables and equipment, as well as services and other surgical products, and our Vision Care business had approximately $3.2$3.6 billion in net sales of our contact lens and ocular health products, during the year ended December 31, 2019. The US accounted for 41% of our sales during the year ended December 31, 2019.2022.
We believe the Alcon brand name is synonymous with innovation, quality, service and leadership among eye care professionals worldwide. In each of our markets, we rely on our strong relationships with eye care professionals and consumers to attract and retain customers and expand the market. We customize our selling efforts with the goal of surrounding eye care professionals with Alcon representatives thatwho can help address each aspect of a customer's needs. Our field force supplements the direct promotion of our products by providing customers with access to clinical education programs, hands on training, data from clinical studies and technical service assistance.
We have 1819 state-of-the-art manufacturing facilities that employ our proprietary technologies and know-how. We believe our global footprint, knowledge base in manufacturing, state-of-the-art facilities and capacity planning enable us to handle
increased levels of product demand and product complexity. Furthermore, our global manufacturing and supply chain allows us to leverage economies of scale and reduce cost per unit as we ramp up production.
We believe we have also made one of the largest commitments to research and development of any surgical and vision care company, with over 1,2001,600 associates worldwide researching and developing treatments for vision conditions and eye diseases, and have sought innovation from both internal and external sources. In 2019,2022, we invested $656$702 million in research and development, representing 9% of our total 2019 net sales.development. In addition to our in-house R&Dresearch and development capabilities, we also consider external innovation opportunities and routinely screen for companies developing emerging technologies that we believe could enhance our existing product offerings or develop into innovative new products. We intend to continue to pursue acquisition, licensing and collaboration opportunities as part of our goal of remaining a market leader in innovation.
Our Surgical Business
We hold the number one position in the global surgical market, offering implantable products, consumables and equipment for use in surgical procedures to address cataracts, vitreoretinal conditions, refractive errors and glaucoma. Our Surgical business has the most complete line of ophthalmic surgical devices in the industry, creating a "one-stop shop" for our customers that we consider to be a key differentiator for our business. For the year ended December 31, 2019,2022, our Surgical business had $4.2$5.0 billion in net sales.
Our Surgical portfolio includes implantable devices, consumables and equipment, as well as services and other ancillary surgical products. We have the most extensive global installed base of surgical equipment in the industry, including the largest installed base of cataract phacoemulsification consoles and vitrectomy consoles. Our global installed equipment base drives pull-through sales of consumables specific to our equipment and helps cross-promote the sales of our implantable devices. Our key surgical equipment offerings include the Centurion vision system for phacoemulsification and cataract removal, our Constellation vision system for vitreoretinal surgery and our WaveLight refractive lasers used in LASIK and other laser-based vision correction procedures, including topography-guided procedures marketed under the Contoura brand. The key brands in our implantables portfolio include our AcrySof family of IOLs, with offerings from monofocal IOLs for basic cataract surgery to AT-IOLs for the correction of presbyopia, such as our PanOptix brand, and astigmatism at the time of cataract surgery. Our UltraSert and Clareon AutonoMe pre-loaded IOL delivery systems are intended to reduce lens handling and simplify the surgical procedure. Alongside our implantable business, we sell a broad line of consumable products that support ophthalmic surgical procedures, such as viscoelastic products, surgical solutions, incisional instruments, such as our MIVS platform, and dedicated consumables, including fluidics cassettes and patient interfaces, which work with Alcon equipment. The Alcon consumables portfolio also includes our Custom Pak surgical procedure pack, which can be custom built for the surgeon and which includes drapes, incisional instruments and all of the materials needed to perform a surgery.
Across our Surgical portfolio, we sell a tiered offering of products intended to meet the specific needs of customers in markets around the world at different price points. Newly launched offerings that bring considerable technology innovation to the market are typically introduced at a price premium to offset the cost of research and development. As these products age and/or competitive products advance, prices typically trend downward, requiring continuous innovation cycles to maintain and/or grow our margins. We also develop specific products to match customer needs in different customer segments, for example, premium-tier and mid-tier surgical consoles that can be manufactured and sold at different price points in different markets.
Our Vision Care Business
Our Vision Care business consists of an extensive portfolio of contact lens and ocular health products, aimed at helping consumers see better. Our product lines include daily disposable, reusable and color-enhancing contact lenses. We also offer a comprehensive portfolio of ocular health products, including devices and over-the-counter products for dry eye, over-the-counter products forglaucoma, contact lens care and ocular allergies, as well as ocular vitamins and redness relievers. With $3.2$3.6 billion in vision care net sales for the year ended December 31, 2019,2022, we aim to continue to innovate across our vision care portfolio to improve the lives of consumers and eye care professionals around the world.
We have a broad portfolio of daily disposable, reusable and color-enhancing contact lenses, including Dailies and Air Optix, two of our key brands. Our Dailies product line includes DAILIES AquaComfort PLUS and DAILIES TOTAL1, the first and only water gradient contact lens in the market, which is also offered in a multifocal design to address the fast growing presbyopia market. We designed DAILIES TOTAL1 to be a super-premium lens positioned to compete at a premium price point in the contact lens market. PRECISION1, recently launched in select markets, is a daily disposable lens priced in between the super-premium DAILIES TOTAL1 and the more value-conscious DAILIES AquaComfort PLUS. Our Air Optix monthly replacement product line features silicone hydrogel contact lenses in monofocal, astigmatism-correcting, and multifocal options, as well as Air Optix Colors and Air Optix plus HydraGlyde contact lenses. Our key brands in our ocular health portfolio include the Systane family of artificial tear and related dry eye products, as well as the Opti-Free and Clear Care lines of multi-purpose and hydrogen peroxide disinfecting solutions, respectively.
Sales of our contact lens and ocular health products are influenced by optometrist and other eye care professional recommendations, our marketing and consumer education efforts and consumer preferences. In addition to price, contact lenses compete on functionality, design and comfort, while ocular health products compete largely on product attributes, brand familiarity and professional recommendations. For our contact lens and ocular health products, we typically compete in the premium price segments of the market and we use improvements in functionality, design and consumer convenience to maintain our pricing position over time.
Our Strengths
We have a strong foundation based on robust industry expertise, leading brands and excellence in customer service, backed by more than 7075 years of history as a trusted brand. Our strengths include:
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• | •Global leader in highly attractive markets with the most complete brand portfolio. With $8.7 billion in net sales in the year ended December 31, 2022, we are the leader in an attractive eye care market, which is supported by favorable population megatrends and is expected to grow mid-single digits per year from 2022 to 2027. Our Surgical business is the market leader in sales of ophthalmic equipment used in the operating room and is supported by the largest installed base of equipment worldwide, which we use to cross-promote our surgical consumables and IOLs. In our Vision Care business, our extensive portfolio of contact lens and ocular health products includes well-recognized brands such as TOTAL, Precision, Systane, Pataday and Opti-Free. We believe our global leadership position and extensive brand portfolio allow us to benefit and build on the robust fundamentals driving growth in our markets. • With $7.4 billion in net sales in the year ended December 31, 2019, we are the leader in an attractive eye care market, which is supported by favorable population megatrends and is expected to grow at approximately 4% to 5% per year from 2019 to 2024. Our Surgical business is the market leader in sales of ophthalmic equipment used in the operating room and is supported by the largest installed base of equipment worldwide, which we use to cross-promote our surgical consumables and IOLs. In our Vision Care business, our extensive portfolio of contact lens and ocular health products includes well-recognized brands such as Dailies, Systane and Opti-Free. We believe our global leadership position and extensive brand portfolio allow us to benefit and build on the robust fundamentals driving growth in our markets. |
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• | Innovation-focused with market leading development capabilities and investment. We believe we have made one of the largest commitments to research and development in the eye care market, with proven research and development capabilities in the areas of optical design, material and surface chemistry, automation and equipment platforms. Currently, we employ over 1,600 individuals dedicated to our research and development efforts, including physicians, doctors of optometry and PhDs. In addition, we actively seek opportunities to collaborate with third parties on advanced technologies to support our eye care business. •Global scale and reach supported by high-quality manufacturing network. We have an extensive global commercial footprint that provides us with the scale and reach to support future growth, maximize the potential of new launches, enter new geographies efficiently and to take advantage of the large, dynamic and growing surgical and vision care markets. Our commercial footprint, which includes operations in 60 countries, reaches consumers and patients in over 140 countries and is supported by over 3,700 sales force associates, 19 state-of-the-art manufacturing facilities employing our proprietary technologies and know-how and our extensive global regulatory capability. Our extensive sales and distribution network, supported by our market leadership position and focus on innovation and customer experience, enhances our ability to expand our geographic reach and extend our product offerings through the launch of new and innovative products worldwide. •Outstanding customer relationships and a trusted reputation for customer service, training and education. We believe that maintaining the highest levels of service excellence in our customer experience is a critical success factor in our industry. In our Vision Care business, we regularly meet with eye care practitioners to
gain feedback and insights on our products and consumers' needs. We also provide training support at over 70 state-of-the-art interactive training centers around the world, as well as through numerous digital and event-based training programs that we provide for practitioners, clinical support staff, students, residents, patients and consumers. In each of our businesses, we have built and maintained our relationships with key stakeholders to establish our trusted reputation in the industry. •World leading expertise in eye care led by a first-class management team. Our expertise in eye care is driven by our more than 75-year history in the industry and is supported by a high-quality workforce of more than 25,000 associates. We believe our institutional knowledge provides a competitive advantage because our associates' industry expertise, relationships with our customers and understanding of the development, manufacture and sale of our products helps us to better identify new customer needs, assess markets for entry and identify promising technologies. In addition, we believe the diverse experience of our management team in running complex businesses allows them to add significant value to our company. In particular, we benefit from having a management team with an extensive background in the eye care market, with proven R&D capabilities in the areas of optical design, material and surface chemistry, automation and equipment platforms. Currently, we employ over 1,200 individuals dedicated to our research and development efforts, including physicians, doctors of optometry and PhDs. In addition, we actively seek opportunities to collaborate with third parties on advanced technologies to support our eye care business. |
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• | Global scale and reach supported by high-quality manufacturing network. We have an extensive global commercial footprint that provides us with the scale and reach to support future growth, maximize the potential of new launches, enter new geographies efficiently and to take advantage of the large, dynamic and growing surgical and vision care markets. Our commercial footprint, which includes operations in over 74 countries, reaches consumers and patients in over 140 countries and is supported by over 3,000 sales force associates, 18 state-of-the-art manufacturing facilities employing our proprietary technologies and know-how, and our extensive global regulatory capability. Our extensive sales and distribution network, supported by our market leadership position and focus on innovation and customer experience, enhances our ability to expand our geographic reach and extend our product offerings through the launch of new and innovative products worldwide.
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• | Outstanding customer relationships and a trusted reputation for customer service, training and education. We believe that maintaining the highest levels of service excellence in our customer experience is a critical success factor in our industry. In our Vision Care business, we regularly meet with eye care practitioners to gain feedback and insights on our products and consumers' needs. We also provide training support at our approximately 30 state-of-the-art interactive training centers around the world, as well as through numerous digital and event-based training programs that we provide for practitioners, clinical support staff, students, residents, patients and consumers. In each of our businesses, we have built and maintained our relationships with key stakeholders to establish our trusted reputation in the industry.
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• | World leading expertise in eye care led by a first-class management team. Our expertise in eye care is driven by our more than 70-year history in the industry and is supported by a high-quality workforce of more than 20,000 associates. We believe our institutional knowledge provides a competitive advantage because our associates' industry expertise, relationships with our customers and understanding of the development, manufacture and sale of our products helps us to better identify new customer needs, assess markets for entry and identify promising technologies. In addition, we believe the diverse experience of our management team in running complex businesses allows them to add significant value to our company. In particular, we benefit from having a management team with an extensive background in the medical device industry. Led by David J. Endicott, our Chief Executive Officer, our management team's deep knowledge of eye care has allowed us to build a more nimble medical device culture within Alcon and created excitement among our workforce for our mission.
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Our Strategy
Our going-forward strategy builds on five key pillars in order to generate sustainable and profitable growth:
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• | Maximize the potential of our near-term portfolio by growing key products. In Surgical, we plan to build on our leading position in the IOL market through the launch of new AT-IOLs, where premium pricing drives market value.•Maximize the potential of our near-term portfolio by growing key products. In Surgical, we plan to maintain our leading position in the IOL market as we continue to launch our AT-IOLs on our new Clareon platform. In addition, we expect improved diagnostics and new optical designs will address historical barriers to AT-IOL adoption to further grow this patient-pay market. We will also continue to invest behind our presbyopia-correcting products (e.g., PanOptix, Vivity), execute on the development of our next generation equipment ecosystem for the operating room and office, leading to integration and intra-operability, and expand our reach in surgical glaucoma with the recently acquired Hydrus microstent. In Vision Care, we intend to maintain and grow our leading position in most of our product categories through increased eye care professional and consumer education, supported by continuous production innovation. We intend to expand our position in the daily disposable category behind our DAILIES TOTAL1 and PRECISION1 family of products and trade patients up to a premium offering in the reusable segment with the TOTAL30 family of products. We also continue to pursue cuttingedge presbyopia solutions through new design lenses to existing multi-focal lenses to significantly improve visual performance and comfort for presbyopic patients and improve fitting and reduce chair time for the optometrist. Presbyopia segment could become an estimated $5 billion market in the future if we are able to reduce dropout rate of presbyopic patients. We also aim to expand the dry eye product market by leveraging our well-recognized Systane family of eye drops and increasing investment in dry eye education and awareness, as well as address the allergy relief market with the Pataday family of products, where we see a significant unmet need and an opportunity for robust market growth. •Accelerate innovation and deliver the next wave of technologies. We are committed to accelerating innovation by continuing to be one of the market leaders in investment in ophthalmic research and development. The research and development activities of our Surgical business are focused on expanding our AT-IOL portfolio to optimize the function of the IOL in restoring vision and reducing outcome variability, including through the use of advanced optics, adjustable materials and accommodating lenses. We are also developing next-generation lasers, robotics and other equipment for cataract, vitreoretinal and laser-refractive surgery, as well as improved visualization equipment. In our Vision Care business, our focus is on developing and launching new contact lens materials, coatings and designs to improve visual performance and to extend our product lines and improve patient comfort, as well as on new products to expand our portfolio of dry eye diagnostic and treatment, presbyopia and ocular health products. Finally, we expect to continue to supplement our internal innovation investments by identifying and executing on attractive BD&L opportunities with leading academic institutions and early-stage companies. •Capture opportunities to expand markets and pursue adjacencies. We believe there is a significant opportunity for growth in markets around the world due to under-penetration of both premium surgical devices, such as AT-IOLs, and of our Vision Care portfolio. We intend to facilitate this growth by continued investment in promotion and new optical designs will address historical barriers to AT-IOL adoption to further grow this patient-pay market. We will also continue to invest behind our presbyopia-correcting products (e.g. Panoptix), and will continue to invest in our vitreoretinal equipment and consumables, where we also see meaningful opportunities for near-term growth. In Vision Care, we intend to maintain and grow our leading position in most of our product categories through increased eye care professional and consumer education, supported by continuous production innovation. We intend to expand our position in the daily disposable category behind our DAILIES TOTAL1 and PRECISION1 family of products. We also aim to expand the dry eye product market by leveraging our well-recognized Systane family of eye drops and increasing investment in dry eye education and awareness, where we see a significant unmet need and an opportunity for robust market growth. |
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• | Accelerate innovation and deliver the next wave of technologies. We are committed to accelerating innovation by continuing to be one of the market leaders in investment in ophthalmic research and development. The R&D activities of our Surgical business are focused on expanding our AT-IOL portfolio to further improve surgical and refractive outcomes, including through the use of advanced optics, light adjustable materials, accommodating lenses and modular platforms. We are also developing next-generation lasers, robotics and other equipment for cataract, vitreoretinal and laser-refractive surgery, as well as improved visualization equipment. In our Vision Care business, our focus is on developing and launching new contact lens materials, coatings and designs to extend our product lines and improve patient comfort, as well as on new products to expand our portfolio of dry eye diagnostic and treatment, presbyopia and ocular health products. Finally, we expect to continue to supplement our internal innovation investments by identifying and executing on attractive acquisition, licensing and collaboration opportunities with leading academic institutions and early-stage companies.
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• | Capture opportunities to expand markets and pursue adjacencies. We believe there is a significant opportunity for growth in markets around the world due to under-penetration of both premium surgical devices, such as AT-IOLs, and of our Vision Care portfolio. We intend to facilitate this growth by continued investment in promotion and
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customer education across all of our markets. In emerging markets in particular, we believe that the growing number of eye care professionals and dedicated eye hospitals, increased levels of affluence, improving technology access and better patient awareness will increase the adoption of our products. By acquiring Ivantis, Inc. in early 2022, we expanded our Surgical portfolio to include the Hydrus microstent, a minimally invasive glaucoma surgery (or MIGS) device for the treatment of mild-to-moderate glaucoma. We are also expanding into the ophthalmic pharmaceutical space through the acquisitions of the exclusive US
commercialization rights for Simbrinza from Novartis in June 2021 and Eysuvis and Inveltys from Kala Pharmaceuticals, Inc. in July 2022, and most recently the acquisition of Aerie Pharmaceuticals, Inc. in November 2022. The Aerie transaction adds on-market products Roklatan and Rhopressa as well as pipeline of products, and R&D capabilities to expand our ophthalmic pharmaceutical presence. In addition, we believe we have significant opportunities to expand into adjacent product categories in which Alcon has not significantly participated in the past, through a combination of internal development efforts and potential bolt-on mergers and acquisitions activity. These opportunities include pharmaceuticals, office-based diagnostics, surgical visualization pharmaceuticals, solutions for myopia control and consumer driven ocular health products, where we expect our eye care expertise and global commercial footprint will allow us to attract and retain new customers.
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• | •Support new business models to expand customer experience. In Surgical, we intend to continue to identify new business models that benefit healthcare providers and improve access to leading Alcon products and technologies. For example, we are pursuing value-based business models that reward improved patient outcomes, as well as models that contract the entire procedure versus individual products. In Vision Care, where e-commerce entries have created some disruption of traditional sales channels, we believe that digital technology can address pain points experienced in existing paths to purchase. We intend to continue investing and innovating in digital capabilities to develop new business models in response to channel shifts and the increase in direct-to-consumer influence. •Leverage infrastructure to improve operating efficiencies and margin profile over time. With the significant organizational and infrastructure investments we have made over the last several years, we believe we have established a stable foundation that will allow us to continue to enhance the productivity of our commercial resources. We expect to drive significant top line growth and increase operating leverage through improved sales mix, further supply chain efficiency initiatives and support new lower-cost manufacturing platforms to meaningfully improve our core operating income margins over time. |
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• | Leverage infrastructure to improve operating efficiencies and margin profile over time. With the significant organizational and infrastructure investments we have made over the last several years, we believe we have established a stable foundation that will allow us to continue to enhance the productivity of our commercial resources and meaningfully improve our core operating income margins over time. Further, we intend to improve the mix of our products, implement further supply chain efficiency initiatives and support new lower-cost manufacturing platforms to drive future operating profit and cash flows.
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Our Industry
Selected Conditions That Arethat are Treated Byby Eye Surgery and Surgical Products
Below are the major conditions of the eye that are treated by surgeries for which we offer surgical products and equipment.
Cataracts
A cataract is the progressive clouding of the normally transparent natural lens in the eye. This clouding is usually caused by the aging process, although it can also be caused by heredity, diabetes, environmental factors and, in some cases, medications. As cataracts grow, they typically result in blurred vision and increased sensitivity to light. Cataract formations occur at different rates and may affect one or both eyes. Cataract surgery is one of the most frequently performed surgical procedures. According to the National Eye Institute, cataracts are the leading cause of blindness worldwide even though effective surgical treatment exists. Currently, surgical removal of the clouded lens followed by insertion of a transparent artificial replacement lens, called an IOL, is the preferred treatment for cataracts. The clouded lens is usually removed through a process known as phacoemulsification. During phacoemulsification, an ophthalmic surgeon makes a small surgical incision in the cornea (approximately 2-3 millimeters wide) and inserts an ultrasonic probe that breaks up, or emulsifies, the clouded lens while a hollow needle removes the pieces of the lens. Once the cataractclouded lens is removed, the surgeon inserts an intraocular lens through the same surgical incision. An AT-IOL is a type of IOL that also corrects for refractive errors, like presbyopia and astigmatism, at the time of cataract surgery.astigmatism.
Retinal Disorders
Vitreoretinal procedures involve surgery on the back portion of the eye, namely the retina and surrounding structures. Vitrectomy is the removal of the gel-like substance, known as vitreous, that fills the back portion of the eye. Removal of the vitreous allows a vitreoretinal surgeon to operate directly on the retina or on membranes or tissues that have covered the retina. These procedures typically treat conditions such as diabetic retinopathy, retinal detachment /or tears, macular holes, complications of surgery on the front of the eye, diabetic macular edema, trauma, tumors and pediatric disorders. Vitreoretinal surgery can also involve electronic surgical equipment, lasers and hand-held microsurgical instruments as well as gases and liquids that are injected into the eye.
Refractive Errors
Refractive errors, such as myopia, commonly known as near-sightedness, hyperopia, commonly known as farsightedness,far-sightedness, and astigmatism, a condition in which images are not focused at any one point, result from an inability of the cornea and the lens to focus images on the retina properly. If the curvature of the cornea is incorrect, light passing through it onto the retina is not properly focused and a blurred image results. For many years, eyeglasses and contact lenses were the only
solutions for individuals afflicted with common visual impairments; however, they are not always convenient or attractive
solutions. Laser refractive surgery offers an alternative to eyeglasses and contact lenses. Excimer lasers, which are low-temperature lasers that remove tissue without burning, are currently used to correct refractive errors by removing small amounts of tissue to reshape the cornea. These lasers remove tissue precisely without the use of heat and without affecting the surrounding tissue. In the LASIK procedure, the surgeon uses either a femtosecond laser or an automated microsurgical instrument, called a microkeratome, to create a thin corneal flap that remains hinged to the eye. The corneal flap is then folded back and excimer laser pulses are applied to the exposed layer of the cornea to change the shape of the cornea. The corneal flap is then returned to its normal position. LASIK has become the most commonly practiced form of laser refractive surgery globally.
Presbyopia
Presbyopia is another common refractive error in whichoccurs when the natural crystalline lens inside the eye becomes less flexible and loses the ability to focus on close objects. Presbyopia is a vision condition that accompanies the natural aging process of the eye. It cannot be prevented and affects nearly two billion people worldwide. Although the onset of presbyopia among patients may seem to occur suddenly, generally becoming noticeable when patients reach their mid- to late 30s or early to mid-40s, sight reduction typically occurs gradually over time and continues for the rest of the patient's life. Some signs of presbyopia include difficulty reading materials held close to the reader, blurred vision while viewing a computer screen and eye fatigue along with headaches when reading. Presbyopia can be accompanied by other common vision conditions, such as myopia, hyperopia and astigmatism. Presbyopia, while most commonly managed with reading glasses, can be addressed surgically by the implantation of an AT-IOL that allows for the correction of presbyopia at the time of cataract surgery.
Surgical Glaucoma
Glaucoma, a group of eye conditions that damage the optic nerve, is the second leading cause of blindness worldwide, estimated to affect more than 90 million people around the globe, with only an estimated 32 million people (or approximately 35% of patients) diagnosed.worldwide. While elevated intraocular pressure ("IOP") was historically considered to be synonymous with glaucoma, it is now known that many patients with glaucoma have normal IOP.intraocular pressure. Treating glaucoma is typically aimed at lowering IOPintraocular pressure for patients with normal or elevated pressure.
Most commonly, glaucoma is managed using medication (e.g., drops). For cases requiring additional intervention, laser-based procedures and conventional surgical techniques, such as filtration surgery and tube shunts, have typically been used to lower IOP. Filtration surgeries, such as trabeculectomy, involve the creation of a new channel to drain aqueous humor from inside the eye. Similarly, tube shunts establish a route for fluid to exit through an implanted device. More recently, a new category of device and procedure-based surgical intervention, known as Micro-Invasive Glaucoma Surgery ("MIGS"),MIGS, has emerged and is experiencing rapid adoption among both glaucoma and cataract specialists.
Selected Conditions and Eye Care Considerations That Arethat are Addressed Byby Vision Care Products
Below are the major eye care conditions and considerations that are addressed, treated or supported by our contact lens and ocular health products.
Refractive Errors
Refractive errors such as myopia, hyperopia, astigmatism and presbyopia are commonly addressed by the use of contact lenses. Presbyopia, for example, can be addressed by the use of multifocal and multifocal toric contact lenses.
Dry Eye Disease
Dry eye disease is a ubiquitous, complex and multifactorial condition, and its effect on patients ranges from intermittent and annoyingirritating discomfort to a serious, chronic, progressive and irreversible vision-threatening disorder. The incidence of dry eyes rises with age, and longer life spans and aging populations throughout the world are key contributors to increased demand for treatment. Evolving patterns of work and play also contribute to increased demand for treatment, as more people spend significant amounts of time working on computers and other digital devices. Wealthier, professional and urban population segments are expanding in rapidly emerging economies and other developing nations, and these populations have greater access to health care and more resources with which to acquire treatment. In addition, more sophisticated diagnostic tools and a greater variety of dry eye products and treatments, such as artificial tear products, are offering improved effectiveness and greater relief as they simultaneously stimulate demand.
Infections and Contamination due to Inadequate Contact Lens Care
Proper care of contact lenses through compliance with disinfection regimens is important in reducing the risk of infection and irritation associated with the use of reusable contact lenses, as contact lenses are subject to contamination from cosmetics, grease, bacteria, soaps, hand lotions and atmospheric pollutants, and from proteins contained in natural tears.
When used properly, contact lens care products remove such contaminants from the surface of the contact lens. In addition, lens rewetting drops may be used to rehydrate the lens during wear and to clear away surface material.
Ocular Allergies
Allergic conjunctivitis occurs when the conjunctiva of the eye becomes swollen from inflammation due to a reaction to pollen, dander, mold or other allergy-causing substances. When the eyes are exposed to allergy-causing substances, which can vary from person-to-person and are often dependent on geography, a substance called histamine is released by the body and causes blood vessels in the conjunctiva to swell. 'Allergy eyes'"Allergy eyes" can become red and itchy very quickly. Seasonal Allergic Conjunctivitis ("SAC") is the most common type of eye allergy. People affected by SAC experience symptoms during certain seasons of the year. Allergy eye can be treated with various ocular health products including medications, such as antihistamines, and combinations of antihistamines and redness relievers.
Glaucoma
Glaucoma is commonly managed using prescription eye drops to reduce intraocular pressure for patients with normal or elevated pressure.
Our Products
We research, develop, manufacture, distribute and sell eye care products. Our broad range of products represents one of the strongest portfolios in the eye care industry, with high-quality and technologically advanced products across all major product categories in ophthalmic surgical devices and vision care. We are organized into two global business segments: Surgical and Vision Care.
Surgical
We hold the number one position in the global ophthalmic surgical market, offering implantable products, consumables and equipment for use in surgical procedures to address cataracts, vitreoretinal conditions, refractive errors and glaucoma. Our Surgical portfolio includes equipment, instrumentation and diagnostics, IOLs and other implantables and a broad line of consumables, including viscoelastics, surgical solutions, incisional instruments, surgical custom packs and other products. For the year ended December 31, 2019,2022, net sales for our implantables, consumables and equipment and other surgical products were $1.2$1.7 billion, $2.3$2.5 billion and $0.7$0.8 billion, respectively.
Cataract, vitreoretinal, refractive and glaucoma surgeries are generally performed in hospitals or ambulatory surgery centers and are supported through a network of eye clinics, ophthalmic surgery offices and group purchasing organizations. The primary ophthalmic surgical procedures for cataract, vitreoretinal and glaucoma surgery are broadly reimbursed in most mature markets. Third-party coverage or patient co-pay options are also available for refractive laser correction and AT-IOLs. Finally, a growing private pay market for premium surgical devices provides a mutually beneficial environment for patients, providers and medical device companies by allowing patients to pay the non-reimbursable cost of a procedure associated with selecting premium devices, such as AT-IOLs.
Our installed base of equipment is core to our market leading position in our Surgical business, with best-in-class platforms in cataract and vitreoretinal equipment and the largest installed base of cataract phacoemulsification consoles, vitrectomy consoles and refractive lasers in the industry. These platforms each have long buying cycles that last approximately seven to ten years and act as anchoring technologies that drive recurring sales of our consumables and help cross-promote sales of our implantable devices.
Our cataractSustainable patient access to quality eye care is core to our business. Alcon has invested significant resources to innovate new technologies, expand reimbursement pathways (public and/or private insurance) and teach new skills to clinicians around the world to improve patient outcomes and eye care access. Across our Surgical portfolio, we sell a tiered offering of products intended to meet the specific needs of customers in markets around the world at different price points. Newly launched offerings includethat bring considerable technology innovation to the market are typically introduced at a price premium to offset the cost of research and development. As these products age and/or competitive products advance, prices typically trend downward, requiring continuous innovation cycles to maintain and/or grow our margins. We also develop specific products to match customer needs in different customer segments, for example, premium-tier and mid-tier surgical consoles that can be manufactured and sold at different price points in different markets. Likewise, we have introduced the CenturionLegion vision system forto help fill the gap in access to phacoemulsification and cataract removal,surgery. This affordable system brings some of the advanced features of the LenSxCenturion femtosecond laser used for specific steps in the cataract surgical procedure, the LuxOR ophthalmic microscope, the Verion imaged guided system, for cataract surgery planning and image guidance throughout the cataract procedure, and the ORA System for intra-operative measurements, guidance and outcomes analysis/optimization. Our AcrySof family of IOLs includes offerings ranging from monofocal IOLs for basic cataract surgery to AT-IOLs under our PanOptix and ReSTOR brands for the correction of presbyopia and/or astigmatism at the time of cataract surgery. We also offer a collection of pre-loaded optionscombined with the UltraSertgreater serviceability, durability and AutonoMe IOL delivery devices. Beginning in 2017, we launched a new IOL material under the Clareon CE Mark in the EU, Japan, Brazil, and Australia and we intendportability to continue to launch worldwide following receipt of the necessary regulatory approvals in other countries.developing markets.
Our vitreoretinal portfolio includes the Constellation vision system, Grieshaber DSP and MIVS instrumentation and Ultravit high speed vitrectomy probes, the Purepoint laser, and the NGENUITY 3D visualization system.
Our refractive surgery portfolio includes
WaveLight lasers and diagnostics used for LASIK and other laser-based vision correction procedures, including topography guided procedures marketed under the Contoura brand.
Our glaucoma portfolio includes the EX-PRESS glaucoma filtration device.
The following table lists certain key marketed Surgical products. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country:
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Cataract | | AcrySof family of IOLs, including:
AcrySof IQ monofocal IOLs
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| | UltraSert pre-loaded IOL delivery system with the AcrySof IQ monofocal IOL
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| AcrySof IQ Toric astigmatism-correcting IOLs
AcrySof IQ ReSTOR presbyopia-correcting IOLs
AcrySof IQ ReSTOR Toric presbyopia- and astigmatism-correcting IOLs
AcrySof IQ PanOptix presbyopia-correcting IOLs
AcrySof IQ PanOptix Toric presbyopia- and astigmatism-correcting IOLs
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| |
| | Clareon monofocal IOL with the automated, disposable AutonoMe pre-loaded IOL delivery system
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| | Cataract Refractive Suite by Alcon, including: |
| | Centurion vision system
LenSx femtosecond laser
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| | LuxOR ophthalmic microscope
ORA System for intra-operative measurements and guidance
Verion imaged guided system
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| | |
| | |
Surgical Procedure Packs | | Custom Pak surgical procedure packs
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Vitreoretinal | | Constellation vision system
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| | Grieshaber DSP and MIVS instrumentation
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| | Purepoint laser
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| | Ultravit high speed vitrectomy probes
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| | NGENUITY 3D visualization system
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Refractive | | WaveLight EX500 excimer laser for LASIK and other refractive correction procedures
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| WaveLight Topolyzer VARIO diagnostic device for measurement and planning before refractive surgery
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| | WaveLight FS200 femtosecond laser for refractive surgery
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| | |
Glaucoma | | EX-PRESS glaucoma filtration device
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Cataract Equipment
We maintain our market leadership in cataract surgical products by providing a comprehensive offering of surgical equipment, single-use and disposable products, viscoelastics, surgical solutions and surgical packs, all supported by our broad and experienced team of field service professionals. We currently market products for cataract surgery in substantially all of our markets.Our strong installed base of equipment and extensive clinician relationships drive sales of our IOLs and consumables. We consider the quality and breadth of our portfolio to be a key differentiator as a "one-stop-shop" offering for our customers, synonymous with quality, reliability and accessibility. Our Cataract Refractive Suite covers every stage of the surgical workflow from clinical planning to cataract removal and post-operative optimization.
In 2013, we launched ourWe sell Centurion, our vision system for cataract surgery.surgery in most major markets. This system includes Active Fluidics technology, an automated system that optimizes anterior chamber stability by allowing surgeons to proactively set and maintain target IOP within the eye during the cataract removal procedure, thereby delivering an unprecedented level of intraoperative control.
We also sell the LenSx laser system.system in select major markets. The first femtosecond laser to receive FDA clearance for use in cataract surgery, LenSx is used to create incisions in the cornea, create a capsulorhexis and complete lens fragmentation as part of the cataract procedure. This enables surgeons to perform some of the most delicate manual steps of cataract surgery with image-guided visualization and micron precision.
Our Verion reference unit and Verion digital marker together form an advanced surgical planning, imaging and guidance technology designed to provide greater accuracy and efficiency during cataract surgery. Our ORA System also provides key intra-operative measurements to improve the placement precision of an implanted IOL during cataract surgery, for example, by aligning the rotation of a toric IOL to the axis of astigmatism. Post-operatively, our ORA System aids with outcomes analysis and ongoing optimization for improved outcomes.
In addition,2019, we launched our Argos biometer, which offers an integrated image-guided solution for every step of the surgical process from post-operative measurement to surgical planning and intra-operative guidance for optimal IOL positioning. Argos biometer provides efficient measurement, simplified workflow, precise measurement via swept-source OCT (SS-OCT), and integration with the rest of our cataract refractive suite.
In 2021, we launched our first application, SMARTCataract, to our digital health platform, SMART Solutions, enabling remote cataract surgical planning and automated transfer of data from diagnostic devices to OR equipment, reducing time spent manually entering patient data into individual devices.
Finally, the NGENUITY 3D visualization system globally to provideprovides surgeons improved visualization by combining a high-dynamic 3D camera, advanced high-speed image optimization, polarizing surgeon glasses and an ultra-
highultra-high definition 4K OLED 3D display that offers improved depth perception. Within visualization, we also sell the LuxOR surgical ophthalmic microscope (acquired from Endure Medical Systems) with its proprietary ILLUMIN-i technology, which provides an expanded illumination field with a 6x-larger, highly stable red reflex zone.
Cataract IOLsAn IOL is a tiny, artificial lens for the eye, which replaces the eye's natural lens that is removed during cataract surgery. We have a longstanding record of innovation within the IOL market. Our AcrySof IOL is the most implanted intraocular lensIOL in the world. AcrySof IOLs are made of the first material specifically engineered for use in an intraocular lens.
We have a longstanding record of innovation within the IOL market. In 2005, we introduced a new class of IOLs to correct presbyopia with our multifocal AcrySof ReSTOR offering. In 2006, we also launched the AcrySof Toric IOL, designed to correct various levels of preexisting astigmatism in cataract patients. In 2009, we launched the AcrySof IQ Toric lens was launched globally, incorporating the aspheric technology into a toric design.
We have continued to grow our ReSTOR portfolio. In 2016, the AcrySof IQ ReSTOR 3.0D Toric IOL was approved by the FDA and launched in the US to address presbyopia and preexisting astigmatism at the time of cataract surgery in adult patients who desire improved near, intermediate and distance vision with an increased potential for spectacle independence. In 2017, the AcrySof IQ ReSTOR +2.5D Toric IOL was approved by the FDA and launched in the US
In recent years, presbyopia correction lenses have evolved to include trifocal designs. InBeginning in 2015, we launched the AcrySof IQ PanOptix trifocal IOL in select markets outside the US to complement our ReSTOR multifocal offering.markets. This novel diffractive optic sends light to three foci to support near, intermediate and distance vision. In 2017, the AcrySof IQ PanOptix Toric lens was launchedBeginning in select markets outside the US to address both astigmatism and presbyopia. We2019, we also launched the AcrySof IQ Vivity non-diffractive extended depth of focus ("EDoF") IOL in select markets. This optic design allows for extended range of vision and presbyopia correction
with the visual disturbance profile of a monofocal IOL. In 2022, we launched Clareon PanOptix and Clareon Vivity in North America, Asia, and the EU, combining our leading trifocal IOL in the US in 2019.and EDoF optic designs with a new material with an advanced design that enables sharp, crisp vision, low edge glare and unsurpassed optic clarity.
We have also introduced several innovations to the delivery device used for introducing an IOL into the capsular bag during cataract surgery. Our UltraSert pre-loaded IOL delivery system combines the control of a manually loaded device with the safety and convenience of a disposable, pre-loaded injector to optimize the implantation of the AcrySof IQ Aspheric IOL into the cataract patient's eye.
In 2017, we received a European CE Mark for the Clareon IOL with the AutonoMe delivery system.system followed by FDA approval in 2020. AutonoMe is the first automated, disposable, pre-loaded IOL delivery system that enables precise delivery of the IOL into the capsular bag in patients undergoing cataract surgery. The new device is being introduced with the Clareon IOL, a new material with an advanced design that enables sharp, crisp vision, low edge glare and unsurpassed optic clarity.IOL.
Our AT-IOLs (those that correct for refractive errors such as presbyopia and astigmatism) provide significant visual benefits to patients above standard monofocal IOLs. Accordingly, the price for these AT-IOLs is higher than the price for monofocal styles. This impacts the market penetration of AT-IOLs in the majority of countries, as patients must pay incremental charges above the cost of traditional cataract surgery to obtain an AT-IOL and, in some markets, must pay out-of-pocket for the entire surgical procedure and the AT-IOL.
In the US, our monofocal IOLs are generally fully covered by medical insurance providers or government reimbursement programs, whereas certain of our AT-IOLs may only be partially covered. This payment model was established by two landmark rulings issued by CMS in May 2005 and January 2007. The CMS rulings provide Medicare beneficiaries a choice between cataract surgery with a monofocal IOL, which would be reimbursed as a covered benefit under Medicare, or cataract surgery with an AT-IOL, such as our AcrySof ReSTOR lens and AcrySof Toric lens, which would be partially reimbursed under Medicare and partially paid out-of-pocket. Many commercial insurance plans mirror the CMS rulings, although commercial plans may vary based on third-party payor. The bifurcated payment for the implantation of AT-IOLs has increased the market acceptance of our AT-IOLs in the USUS. Outside the US, payment and reimbursement models vary widely from country to country, generally depending on the policy adopted by the relevant local healthcare authority on coverage and payment.
In addition to IOLs, we offer devices to treat glaucoma. In 2018, the Hydrus microstent device was launched in the US by Ivantis, which we acquired in 2022. Hydrus is approved and marketed in the US, UK, Germany, Canada, Australia, Singapore, Ireland and Malaysia. The microstent is implanted into the Schlemm's canal to enhance outflow, reducing eye pressure for the treatment of primary open angle glaucoma (POAG).
Surgical Procedure PacksOur EX-PRESS glaucoma filtration device is approved and marketed for refractory glaucoma in the US, Europe, Canada, Australia and several other markets. The device shunts aqueous from the anterior chamber to a subconjuntival reservoir in a similar fashion as a trabeculectomy without removal of any sclera or iris tissue.
To provide convenience, efficiency and value for ophthalmic surgeons, Alcon offers Custom Paksurgical procedure packs for use in ophthalmic surgery. Unlike conventional surgical procedure packs, our Custom Pak surgical procedure packs allow individual surgeons to customize the products included in their pack.pack, which results in less waste in the environment. Our Custom Pak surgical procedure packs include both our single-use products as well as third-party items not manufactured by Alcon. We believe that our Custom Pak offering allows ophthalmic surgeons to improve their efficiency in the operating room, while avoiding the complexity and cost of having to kit surgical items for each respective procedure. We offer more than 11,00010,000 configurations of our Custom Pak surgical procedure packs globally, using more than 2,500 components.globally.
Vitreoretinal Surgery
Our vitreoretinal surgical product offering is one of the most comprehensive in the industry for surgical procedures for the back of the eye. We currently market our vitreoretinal surgical products in substantially all of the countries in which we sell products. For vitrectomy procedures, we sell our Constellation vision system globally. We believe this system delivers a higher level of control to the physician through higher vitreous cutting rates and embedded laser technology. The Constellation vision system platform continues to drive our market share in the global premium segment of vitrectomy packs.
In addition to our Constellation vision system, we also sell a full line of vitreoretinal products, including procedure packs, lasers and hand-held microsurgical instruments, as well as our Grieshaber and MIVS lines of disposable retinal surgery instruments. We also sell a full line of scissors, forceps and micro-instruments in varying gauge sizes, as well as a range of medical grade vitreous tamponades, which replace vitreous humor during many retinal procedures.
We continue to advance our portfolio with smaller gauge (27+) instruments and higher cut speed vitrectomy probes. We also sell UltravitHypervit high speed vitrectomy probes, which operate at a speed of 7,50020,000 cuts per minute ("cpm"). This increased speed helps reduce traction that can cause iatrogenic tears and post-operative complications.
Refractive SurgeryOur refractive salesproducts include lasers, disposable patient interfaces used during laser vision correction procedures, technology fees and diagnostic devices necessary to plan the refractive procedure.procedures. Our WaveLight refractive suite includes the EX500 excimer laser, designed to reshape the cornea, and the FS200 femtosecond laser, designed to create a corneal flap and to deliver laser refractive therapy as part of the LASIK refractive procedure.
We also recently launched Contoura Vision, a topography-guided LASIK treatment designed to provide surgeons with the ability to perform more personalized laser procedures for patients with nearsightedness,near-sightedness, or nearsightednessnear-sightedness with astigmatism. This procedure is based on the unique corneal topography of each eye, as measured through the WaveLight Topolyzer VARIO diagnostic device.
Glaucoma Surgery
Our EX-PRESS glaucoma filtration device is approved and marketed in the US, Europe, Canada, Australia and several other markets. This shunt is implanted under the scleral flap to enhance outflow of aqueous humor and reduce intraocular pressure in patients with open-angle glaucoma. The EX-PRESS glaucoma filtration device creates consistent and predictable outcomes when used as part of a trabeculectomy.
Vision Care
Our Vision Care portfolio comprises daily disposable, reusable and color-enhancing contact lenses, as well as a comprehensive portfolio of ocular health products, including devices and over-the-counter products for dry eye, over-the-counter products forglaucoma, contact lens care and ocular allergies, as well as ocular vitamins and redness relievers. For the year ended December 31, 2019,2022, net sales of our contact lens and ocular health products were $2.0$2.2 billion and $1.2$1.4 billion, respectively.
We serve our customers and patients through optometrists, ophthalmologists and other eye care professionals, retailers, optical chains and pharmacies, as well as distributors that resell directly to smaller retailers and eye care professionals, who sell the products to end-users. The vision care market is primarily private pay, with patients substantially paying for contact lenses and ocular health products out-of-pocket. Partial reimbursement is available in some countries for visits to eye care professionals and a portion of either spectacle or contact lens costs.
Sales of our contact lens and ocular health products are influenced by optometrist, ophthalmologist and other eye care professional recommendations, our marketing and consumer education efforts and consumer preferences. In addition to price, contact lenses compete on functionality, design and comfort, while ocular health products compete largely on product attributes, brand familiarity and professional recommendations. For our contact lens and ocular health products, we typically compete in the premium price segments of the market and we use improvements in functionality, design and consumer convenience to maintain our pricing position over time.
Alcon is the number two company in the branded contact lens market based on market share in 2022. We are the number one manufacturer of daily disposable reusable and color-enhancing contactSiHy lenses includesin the US in 2022. This position is driven largely by our core brands TOTAL, PRECISION, DAILIESAquaComfortPLUS and Air Optix, and .
DAILIES AquaComfort PLUS. Our TOTAL product line includes DAILIES TOTAL1, the first and onlywith its water gradient contacttechnology reduces end-of-day dryness, as the water content approaches nearly 100% at the outermost surface of the lens, in the market, which is also offered in a multifocal design to address the fast growing presbyopia market. DAILIES TOTAL1and is designed to be a super-premium lens positioned to compete at the highest levels across the contact lens market. Our TOTAL product line includes DAILIES TOTAL1, the first and only water gradient disposable contact lens in the market. We launched TOTAL30, our premium offering in the reusable segment, in 2021 to encourage patients to trade up to a next generation, water gradient technology. DAILIES TOTAL1 in the multifocal offering provides a platform for expanding the presbyopia market, which we believe is a potential multibillion dollar opportunity for market participants.
PRECISION1,, our new mainstream daily disposable Silicone-Hydrogelsilicone-hydrogel ("SiHy") lens with aqueous extraction and surface treatment, was launchedis priced in select markets.between the super-premium DAILIES TOTAL1 and the more value-conscious DAILIES AquaComfort PLUS. PRECISION1 is designed for long lasting performance and delivers precise vision, dependable comfort and ease of handling. Following a successful introduction of PRECISION1 spherical lenses, we introduced PRECISION1 for Astigmatism, a toric lens designed for astigmatic patients. In the US and EU, PRECISION1 for Astigmatism features the PRECISIONBALANCE8|4 lens design for a stable lens-wearing experience. Studies show that 47% of patients have astigmatism that needs correction, but less than 15% wear toric contact lenses. As a result, we believe the launch of PRECISION1 for Astigmatism provides a significant opportunity to attract new contact lens wearers and maximize retention.
DAILIES AquaComfort PLUS, our most affordable daily disposable contact lens in monofocal, astigmatism-correcting and multifocal options, delivers dependable performance by working with tears to release moisture with every blink. This lens is designed to provide vision that lasts untilfor value-conscious wearers who want the endflexibility and simplicity of day and longer-lasting lens surface moisture with easier handling. Our a daily disposable lens.
Air Optix, our more affordable monthly replacement product line, features silicone hydrogelSiHy contact lenses in monofocal, astigmatism-correcting and multifocal options, as well as Air Optix Colors and Air Optix plus HydraGlyde contact lenses.
Our key brands in our ocular health portfolio include the Systane family of artificial tear and related dry eye products, including the SystaneiLux MGD thermal pulsation system, as well as the Opti-Free and Clear Care lines of multi-purpose and hydrogen peroxide disinfecting solutions, respectively. Select ocular health products include artificial tear and related dry eye products marketed under the Tears Naturale and Genteal brands, Naphcon-A and Zaditor eye drops for the temporary relief of ocular itching due to allergies, and vitamins for ocular health marketed under the ICAPS and Vitalux brands.
The following table lists certain key marketed vision care products. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country:
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Contact Lenses | | DAILIES TOTAL1
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| | PRECISION1 |
| | DAILIES AquaComfort PLUS |
| | Air Optix family of silicone hydrogel contact lenses (including Air Optix plus HydraGlyde and Air Optix Colors lenses)
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| | FreshLook family of color contact lenses
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Ocular Health | | Clear Care family of hydrogen peroxide contact lens care solution (AOSEPTPLUS outside of North America)
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| | Opti-Free family of multi-purpose disinfecting contact lens care solution
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| | Genteal family of artificial tears
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| | Systane family of artificial tears and related dry eye products
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| | Tears Naturale family of lubricant eye drops
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| | Systane iLux Thermal Pulsation System
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Contact Lenses
Alcon is the number two company in the branded contact lens market based on net sales in 2019. This position is driven largely by our core brands Dailies, and Air Optix. The growth of our portfolio is also driven by our market-leading soft contact lens technology DAILIES TOTAL1. Our market-leading multifocal offering provides a platform for expanding the presbyopia market, which we believe is a potential multibillion dollar opportunity for market participants, by combining the center-near precision profile aspheric design with DAILIES TOTAL1 water gradient technology. The recent launch of DAILIES TOTAL1 Multifocal has the potential to capture more presbyopes, including consumers who have traditionally dropped out of contact lenses due to discomfort. We continue to experience market growth due to trade-up to daily disposable lenses and premium silicone hydrogel ("SiHy") materials, uptake of toric and multifocal specialty lenses, as well as increasing penetration in emerging markets. We have a broad contact lens offering, ranging from entry-level disposable lenses to premium water gradient technology, in addition to colored options and reusable contact lenses. We continue to focus on core product performance
while increasing consumer investment behind a best-in-class innovation portfolio of key products, such as our DAILIES TOTAL1 water gradient SiHy, PRECISION1, Air Optix Colors, Air Optix plus HydraGlyde and FreshLook contact lenses.
In 2016, we launched Air Optix plus HydraGlyde in the US and the EU, which is an innovation upgrade to monthly SiHy contact lenses featuring the HydraGlyde moisture matrix technology for longer lasting lens surface wettability. These contact lenses bringbrings together two innovative technologies—SmartShield technology and HydraGlyde moisture matrix—for a unique combination of deposit protection and longer-lasting lens surface moisture.SmartShield technology is a patented, ultra-thin protective shield that helps the lens resist lipid deposits
We continue to experience market growth driven by trade-up to premium lenses, expansion of toric and delivers outstanding wettability. It also helps the lens resist changes from everyday cosmetic product use. HydraGlyde moisture matrix is a wetting agent specifically designed for SiHymultifocal specialty lenses, that helps attract lens surface moisture and retain lens surface hydration. This is the latest innovationas well as increasing penetration in emerging markets.
Our key brands in our ocular health portfolio include the Air OptixSystane family of monthly replacement contact lenses, whose comprehensive portfolio includes monthly replacement clearartificial tear and color contact lenses, overnight and flexible wear options, toric and multifocal lens correction.
In 2016, we launchedrelated dry eye products, DAILIES TOTAL1Pataday Multifocal contact lenses in the US and the EU to provide refractive correction for distance, intermediate and near vision for people with presbyopia. The DAILIES TOTAL1 water gradient technology reduces end-of-day dryness,family of eye allergy products, as well as the water content approaches nearly 100% at the outermost surfaceOpti-Free and Clear Care lines of the lens. The "hydrophilic" (water-loving) surface of the lens is almost as soft as the surface of the cornea (corneal epithelium) to enhance comfort, while the innovative optical design of this new multifocal lens offers a smooth progression of power designed to provide a seamless experience between distant, intermediatemulti-purpose and near vision.hydrogen peroxide disinfecting solutions, respectively.
We also expect to continue launching our new line of contact lenses, PRECISION1, in different jurisdictions in 2020. We launched PRECISION1 in the US in August 2019. PRECISION1 is a daily disposable, SiHy contact lens intended to compete within the mainstream subcategory of the global daily disposable contact lens market. We believe that PRECISION1 has been engineered for the highest visual clarity of any contact lens in its class.
Ocular Health
Alcon currently holds a market leading position in artificial tears. We continue to focus on core product performance while increasing promotion behind a best-in-class innovation portfolio under the brand leadership of Systane artificial tears. The Systane portfolio is a comprehensive offering of ocular health solutions, most of which are indicated for the temporary relief of burning and irritation due to dryness of the eye. The Systane portfolio includes products for daily and nighttime relief, as well as products for discomfort associated with contact lens wear. In 2021, we continued significant international expansion for Systane Ultra multi-dose preservative-free ("MDPF") and Systane Hydration MDPF. By adding the option of MDPF presentations to our portfolio, we address a key need by many eye care practitioners for effective dry eye relief without preservatives.
Previously available only by prescription, in 2020, we began to offer the Pataday family of allergy relief eye drops over-the-counter. Pataday Twice Daily Relief, Pataday Once Daily Relief and Pataday Once Daily Extra Strength eye drops each contains olopatadine, the number one doctor-prescribed active ingredient for eye allergy relief.
In 2017,2021, we began our expansion into the ophthalmic pharmaceutical space by acquiring the exclusive US commercialization rights to SystaneSimbrinza, COMPLETE lubricant eye drops received a CE Mark. This additionfixed combination of a carbonic anhydrase inhibitor and an alpha-2 adrenergic receptor agonist indicated for the reduction of elevated intraocular pressure ("IOP") in patients with open-angle glaucoma or ocular hypertension. We then acquired Eysuvis, a corticosteroid indicated for the short‑term (up to two weeks) treatment of the Systane product line offers fast hydrationsigns and long-lasting, optimal relief from various typessymptoms of dry eye problems with nano-droplet technologydisease, and Inveltys, a corticosteroid indicated for enhanced coverage. We launchedthe treatment of post-operative inflammation and pain following ocular surgery, from Kala Pharmaceuticals, Inc. in July 2022. In November 2022, to complement our previous acquisitions, we acquired Aerie Pharmaceuticals, Inc. The Aerie transaction adds on-market products SystaneRhopressa, a once-daily eye drop that contains netarsudil, a Rho kinase (ROCK) inhibitor specifically designed to target a diseased trabecular meshwork believed to be the main cause of elevated IOP in open-angle glaucoma and ocular hypertension, and Rocklatan, COMPLETE in the US, Canadaa once-daily eye drop that is a fixed-dose combination of latanoprost, a prostaglandin analog (PGA), and the EU in 2018.
In 2018, we added Systane iLux thermal pulsation dry eye devices to our ocular health portfolio. We intend to continue to add to our portfolio to address large unmet needsnetarsudil, as well as a pipeline of products, including AR-15512, a Phase 3 product candidate for dry eye disease, and meibomian gland dysfunction patients.R&D capabilities to expand our ophthalmic pharmaceutical presence.
Alcon is also a market leader in contact lens care in both multi-purpose (Opti-Free PureMoist) and hydrogen peroxide solutions.solutions (Clear Care and AOSEPT PLUS). The vast majority of our contact lens care products are comprised of disinfecting solutions to remove harmful micro-organisms on contact lenses, with a smaller amount of sales coming from cleaners to remove undesirable film and deposits from contact lenses and lens rewetting drops to improve wearing comfort for contact lenses. We also benefit from strong synergies between our contact lens business and our contact lens care products; however, we expect demand for disinfecting solutions to continue to decrease as contact lens wearers shift their preference from reusable contact lenses to daily disposable lenses.
In 2011, we received approval in the US to market Opti-Free PureMoist, our fastest growing multi-purpose disinfecting solution, which is approved for SiHy and all other soft contact lenses. PureMoist contains our patented HydraGlyde moisture matrix technology to provide long lasting comfort to contact lens wearers and is now our flagship brand in most key markets. In 2015, we received approval to add HydraGlyde moisture matrix technology to Clear Care, our market leading hydrogen peroxide contact lens care solution. Clear Care is branded AOSEPT PLUS in many markets outside of the US. We currently market these product in most major markets throughout the world.products.
Finally, our ocular health portfolio also includes artificial tear and related dry eye products marketed under the Tears Naturale and Genteal brands, products for the temporary relief of ocular itching due to ocular allergies marketed under the Naphcon-A and Zaditor brands and vitamins for the maintenance of general ocular health marketed under the ICAPS and Vitalux brands.
Our ocular health portfolio is typically over the counter, but in a small number of our markets, certain of our ocular health products are regulated as pharmaceuticals and require a prescription.
Principal Markets
Alcon serves consumers and patients in over 140 countries worldwide. The US is our largest market with 41%45% of our net sales in 2019,2022, see Note 5.4. Segment information to the Consolidated Financial Statements for net sales by geography. US sales of the vast majority of our products are not subject to material changes in seasonal demand. However,demand; however, sales of certain of our vision care products, including those for allergies and dry eye, are subject to seasonal variation. In addition, sales of our surgical equipment are also subject to variation based on hospital or clinic purchasing cycles.
Research and Development
Alcon hasWe believe we have made one of the largest commitments to research and development in the eye care market, with proven R&Dresearch and development capabilities in the areas of clinical research and development, optical design, material and surface chemistry, software development, automation and equipment platforms. Currently, our research and development organization employs over 1,3001,600 individuals dedicated to our research and development efforts, including physicians, doctors of optometry and PhDs. Our researchers have extensive experience in the field of ophthalmology and frequently have academic or practitioner backgrounds to complement their product development expertise.
We organize cross-functional development teams to drive new innovations to our customers and our patients around the world. New projects for our Surgical and Vision Care pipelines originate either from concepts developed internally by staff scientists and engineers, ideas from eye care professionals, in ophthalmology, or through strategic partnerships with academic institutions or other companies. In 2022, we launched the Alcon Seed Fund, a mechanism that enables collaboration with external partners to progress even more new product ideas in a way that is complementary to our existing internal ideation processes. We have designed our research and development organization to achieve global registration of products through the efforts of a global clinical and regulatory affairs organization.
In 2019, weWe invested $656approximately $702 million, $842 million and $673 million in research and development representing 9% of our total 2019 net sales,in 2022, 2021 and we invested approximately $587 million in 2018 and $584 million in 2017.2020, respectively. In addition to our in-house R&Dresearch and development capabilities, as part of our efforts to pursue strategic R&Dresearch and development partnerships with third parties, our dedicated business development team has completed approximately 3075 BD&L transactions since 2016. For example, in 2018 we acquired US-based PowerVision, Inc., which is developing fluid-based accommodating IOLs for cataract patients.2017. In addition, in 2021, we expectannounced the launch of our recent partnership with Philips Healthcarefirst application, SMARTCataract, to create a newour digital health platform, to supportSMART Solutions, which leverages the open, cloud-based
infrastructure and services of Philips HealthSuite. We believe that this new platform furthers our cataract equipment that will allow us to deliver fully integrated information to ophthalmic surgeons.leadership in clinic-to-operating room (OR) integration with image-guided technologies and cloud-based planning. We continually review and refine our operating model to optimize for efficiency and productivity. Recent improvements in productivity coupled withIn 2022, we delivered several new innovations to address patient and customer needs including Dailies TOTAL1 for Astigmatism, a numbernew preservative-free formulation of strategic partnerships have collectively led to more than 60% growth in the number of projects within ourSystane Complete and a new portfolio of internal and external innovation over the past four years.Clareon intraocular lenses. Across our Surgical and Vision Care pipelines, we have more than 110100+ pipeline projects in process as of December 31, 2019,2022, including over 3571 that have achieved positive proof of concept or are undergoing regulatory review.
In 2022, as part of the Aerie acquisition, we added significant technical expertise to our R&D capabilities enhancing our drug formulation expertise and our drug delivery capabilities. For example, we added AR-15512, a Phase 3 product candidate for dry eye disease, which is a highly selective TRPM8 (transient receptor potential melastatin) agonist. TRPM8 receptors are associated with the detection of ocular surface dryness and are activated by evaporative cooling and hyperosmolarity, leading to the stimulation of tear production. In addition, TRPM8 agonists promote a cooling sensation that may reduce ocular pain and discomfort. Thus, AR-15512 may lead to treatment of dry eye by stimulating tear production and reducing ocular discomfort. Beyond AR-15512, through the Aerie transaction, we acquired worldwide ophthalmic rights to a bio-erodible polymer technology and PRINT implant manufacturing technology, which is a proprietary technology capable of creating precisely-engineered sustained-release products utilizing fully-scalable manufacturing processes. Using these technologies, we believe we have created a sustained-release ophthalmology platform and are currently developing sustained-release implants focused on retinal diseases, and in the future we believe this technology may be useful as we explore additional sustained-release applications using existing molecules. In connection with the product acquisition from Kala Pharmaceuticals, we also acquired AMPPLIFY, a drug delivery technology that helps solve the problem faced by conventionally formulated ophthalmic drugs, which have their potency rapidly decreased when the active drug substance is eliminated via the tear film, by achieving a higher concentration of the active drug on the surface of the eye. Finally, we are conducting some limited earlier stage research related to diabetic macular edema (DME) and wet age-related macular degeneration (AMD).
We recently launched a multi-year strategic initiative focused on evolving research and development capabilities to continue our growth and success. We have shifted to a capability-oriented research and development model that enables more standardization, consistency, agility and knowledge sharing into our processes. In addition, we initiated an enterprise-wide effort to modernize ways of working and adopt industry-leading technologies to enable accelerated product development.
Our research and development organization maintains an extensive network of relationships with top-tier scientists in academia and with leading healthcare professionals, surgeons, inventors and clinician-scientists working in ophthalmology. The principal purpose of these collaborative scientific interactions is to supplement our internal pipeline and leverage technological advancements in academia and the clinical setting.
While our primary focus is on delivering new products to our patients and customers, we also support the advancement of basic science through the Alcon Research Institute, which seeks to encourage, advance and support vision research. The Alcon Research Institute is one of the largest corporately funded research organizations devoted to vision research in the world. The Institute's activities are planned and directed by an autonomous Executive Steering Committee that is comprised of distinguished ophthalmologists and vision researchers. The instituteInstitute has worldwide representation and operates under the premise that improvements in the diagnosis and treatment of ocular diseases are dependent upon advances in basic science and clinical research carried out by independent investigators in institutions throughout the world. The institute has also awarded more than 350 awards and research grants over the past 38 years.
Research and development activities within our Surgical business are focused on expanding intraocular lens capabilities to further improve surgical and refractive outcomes and on developing equipment and instrumentation for cataract, vitreoretinal, refractive and glaucoma surgeries, as well as new platforms for diagnostics and visualization. Our focus within the Vision Care business is on the research and development of new manufacturing platforms and novel contact lens materials, coatings and optical designs for various lens replacement schedules, with the ultimate goal of improving patient outcomes. In addition to our efforts to develop next-generation contact lens technologies, we are strengthening our ocular health portfolio with new products and novel technologies that safely provide relief from symptoms of eye disorders and disease, including dry eye, and ocular allergies.
We continue to seek opportunities to collaborate with third parties on advanced technologies for various ophthalmic conditions. These include the potential to provide accommodative contact and intraocular lenses for patients living with presbyopia.
Marketing and Sales
Alcon conducts sales and marketing activities throughout the world. During the year ended December 31, 2019, 41%2022, 45% of our sales were in the US. We are present in every significant market in the world where ophthalmology and optometry are practiced, with operations in over 7460 countries supported by over 3,0003,700 associates dedicated to direct sales and with products sold in over 140 countries.
Our global commercial capability is organized around sales and marketing organizations dedicated to our Surgical and Vision Care businesses and we customize these efforts to the medical practice needs of each customer. In addition to direct promotion of our products, our sales representatives provide customers with access to clinical education programs, data from clinical studies and technical service assistance. Our selling models also include focused efforts in key channels, including strategic accounts, key accounts and pharmacies.
In each of our markets, we rely on our strong relationships with eye care professionalsECPs to attract and retain customers. We engage healthcare professionals to serve as clinical consultants, to participate on advisory boards and to conduct presentations regarding our products. In addition, we have established or sponsor several long-standing programs that provide training and education to eye care professionals, including providing training support at our approximately 30over 70 state-of-the-art interactive training centers around the world. These facilities introduce ophthalmologists to our surgical equipment and cataract products through hands-on training in surgical techniques while exposing them to leading ophthalmologists.
In our Surgical business, our marketing efforts are supported by global advertising campaigns, claims from clinical registration and post-approval studies and by the participation of marketing and sales representatives in regional and global medical conferences. Technical service after the sale is provided using an integrated customer relationship management system in place in many markets. All of our technical service in the US, and a high percentage of that service outside the US, is provided by service technicians employed directly by Alcon. In countries where we do not have local operations or a scientific office, we use distributors to sell and handle the physical distribution of our products. Within our Surgical business, the practices of our marketing and sales representatives continue to change to meet emerging market trends, namely consolidation of providers, increasing pricing pressures, proliferation of smaller competitors, increasing demands for outcome evidence and a shift from relationship-based selling orientated toward physicians versus professional economic buyers focused on cost.
In our Vision Care business, we support our products with direct-to-consumer and ECP-oriented marketing campaigns, including advertising, promotions and other marketing materials, and with retailer-focused marketing and promotional materials. The fast-evolving landscape for our Vision Care business varies significantly by country. Three key trends in marketing and sales help drive the continuing evolution of our Vision Care business: (1) internet-based
•Internet-based purchasing is increasing, as online players grow and the internetInternet plays a bigger role as a source of consumer information and a platform for price referencing, (2) channelreferencing;
•Channel consolidation is accelerating, as chains grow in size and vertically integrate,integrate; and (3) independent
•Independent eye care professionals vary in influence, as many align more closely with retailers.
We see an opportunity to leverage digital technology to address pain points experienced by consumers and patients in existing paths to purchase. We also intend to continue investing and innovating in digital capabilities to develop new business models and practice implementation support in response to channel shifts and increases in direct-to-consumer influence.
While we market all of our products by calling on medical professionals, direct customers and distribution methods differ across our business lines. Surgical products are sold directly to hospitals and ambulatory surgical centers, although we sell through distributors in certain markets outside the US where we do not have local operations or a scientific office. In many countries, contact lenses are available only by prescription. Our contact lenses can be purchased from eye care professionals, optical chains and large retailers, subject to country regulation. Our ocular health products can be found in major drugstores, pharmacies, food stores and mass merchandising and optical retail chains globally, with access subject to country regulations, including free-sale, pharmacy-only and prescription regulations. No single customer accounted for more than 10% of our global sales in 2019.2022.
Manufacturing, Quality and Supplies
Manufacturing
We generally organize our manufacturing facilities along product categories, with most plants being primarily dedicated to the manufacture of either our Surgical or Vision Care product offerings. As of December 2019,2022, we employed approximately 4,0004,100 people to manufacture surgical products at ten10 facilities in the US, Belgium, Switzerland, Ireland, Germany and Israel and approximately 5,3005,600 people to manufacture Vision Care products at eightnine facilities in the US, Germany, Singapore, Malaysia, Indonesia and Indonesia.Ireland. Our functional division of plants reflects the unique differences in regulatory requirements governing the production of surgical medical devices as well as the different technical skills required of associates in these manufacturing environments. AllExcept for our manufacturing site in Athlone, Ireland, which was acquired in late 2022, all of our manufacturing plants are ISO 1348513485:2016 and ISO 14001:2015 certified. Currently, we manufacture
approximately 90% of our products internally and rely on third-party manufacturers (including Novartis) for a limited number of products.
The goal of our supply chain strategy is to efficiently produce and distribute high quality products. To that end, we employ cost-reduction programs, known as continuous improvement programs, involving activities such as cycle-time reductions, efficiency improvements, automation, plant consolidations and procurement savings programs as a means to reduce manufacturing and component costs. For example, in Vision Care, in an effort to reduce the cost per contact lens, we have implemented programs designed to reduce the time it takes to ramp to peak production levels for the newly installed manufacturing lines. To comply with good manufacturing practices and to improve the skills of our associates, we train our direct labor manufacturing staff throughout the year. Our professional associates are trained in various aspects of management, regulatory and technical issues through a combination of in-house seminars, local university classes and trade meetings.
The manufacture of our products is complex, involves advanced technology and is heavily regulated by governmental health authorities around the world, including the FDA.world. Risks inherent to the medical device industry, specifically as they relate to Class III devices,and pharmaceutical industries are part of our operations. If we or our third-party manufacturers fail to comply fully with regulations, there could be a product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events.
Quality
Product quality and patient safety are vitally important for Alcon and our industry. Our customers and patients must always feel safe when using our products. Our Quality Management Systems group ("QMS") is responsible for establishing and maintaining a robust and compliant quality control system across Alcon. QMS regularly monitors industry trends, as well as global and regulatory changes, and adjusts our processes and procedures to adhere to current standards and best practices. In addition, our Quality Compliance group audits our internal processes and suppliers for compliance with approved processes and procedures.
Supplies
The components used in certain of our Surgical products, such as viscoelastics, and our ocular health products, such as our products for dry eye and pharmaceuticals, are sourced from facilities that meet the regulatory requirements of the FDA or other applicable health regulatory authorities. Because of the proprietary nature and complexity of the production of these components, a number of them are only available from a single or limited number of FDA-approvedhealth regulatory authority-approved sources. The majority of active chemicals, biological raw materials and selected inactive chemicals used in our products are acquired pursuant to long term supply contracts. The sourcing of components used in our Surgical products differs widely due to the breadth and variety of products, with a number of the components sourced from a single or limited number of suppliers. When we rely upon a sole source or limited sources of supply for certain components, we try to maintain a sufficient inventory consistent with prudent practice and production lead-times and to take other steps necessary to ensure our continued supply. The prices of our suppliesraw materials are generally not volatile.stable; however, we continue to monitor established indices for key raw materials and negotiate any price impact with the supplier.
Human Capital Management
Alcon's culture is summarized in the Alcon Blueprint. The Alcon Blueprint includes Alcon's foundational principles and values and behaviors and serves as the bedrock for how we attract, develop and retain top talent. We seek diverse talent and perspectives that embody our values and contribute to our mission to help people to see brilliantly. Our talent acquisition process encompasses all facets of sourcing, attracting, assessing, selecting and onboarding of new associates. Alcon focuses on the care and growth of associates through learning and development, performance feedback, career progression and a focus on associate engagement – all while ensuring competitive compensation and benefits. Our Chief Human Resources Officer, working with the Global Heads of Talent Acquisition and Talent Management and Organization Development and Diversity and Inclusion develops systems and processes to support Alcon's ability to attract and retain the best talent and promote diversity and a culture of inclusion.
Intellectual Property
We strive to protect our investment in the research, development, manufacturing and marketing of our products through the use of patents, trademarks, copyrights, trade secrets and other intellectual property. We own or have rights to a number of patents, trademarks, copyrights, trade secrets and other intellectual property directly related and important to our businesses. businesses. As of December 31, 2019,2022, we owned or had rights to approximately 1,9002,100 patent families consisting of approximately 2,300 US patents and pending US patent applications and approximately 8,600 corresponding patents and patent applications outside the US.families.
We believe that our patents are important to our business but that no single patent, or group of related patents, currently is of material importance in relation to our business as a whole. Our strategy is to develop patent portfolios for our research and development projects in order to obtain market exclusivity for the innovative features of our products in our
major markets. The scope and duration of protection provided by a patent can vary significantly from country to country. However, even after the expiration of all patents covering a product, we may continue to derive commercial benefits from such product.
We routinely monitor the activities of our competitors and other third parties with respect to their use of our intellectual property. When appropriate, we will enforce our intellectual property rights to ensure that we are receiving the protections they afford us. Similarly, we will staunchly defend our right to develop and market products against unfounded claims of infringement by others. We will aggressively pursue or defend our position in the appropriate courts if the dispute cannot otherwise be promptly resolved.
In addition to our patents and pending patent applications in the US and selected non-US markets, we rely on proprietary know-how and trade secrets in our businesses and work to ensure the confidentiality of this information, including through the use of confidentiality agreements with associates and third parties. In some instances, we also acquire, or obtain licenses to, intellectual property rights that are important to our businesses from third parties.
All of our major products are sold under trademarks that we consider in the aggregate to be important to our businesses as a whole. We consider trademark protection to be particularly important in the protection of our investment in the sales and marketing of our vision care and contact lens care and ocular health products. The scope and duration of trademark protection varies widely throughout the world.
We also rely on copyright protection in various jurisdictions to protect the software and printed materials our business relies upon, including software used in our surgical and diagnostic equipment. The scope and duration of copyright protection for these materials also varies widely throughout the world.
Competition
The eye care industry is highly competitive and subject to rapid technological change and evolving industry requirements and standards. We compete with a number of different companies across our two business segments-Surgicalsegments—Surgical and Vision Care. Companies within our industry compete on technological leadership and innovation, quality and efficacy of their products, relationships with eye care professionals and healthcare providers, breadth and depth of product offerings and pricing. The presence of these factors varies across our Surgical and Vision Care product offerings. Our principal competitors also sometimes form strategic alliances and enter into co-marketing agreements in an effort to better compete. We face strong local competitors in some markets, especially in developed markets, such as the US, Western Europe and Japan.
Surgical
The surgical market is highly competitive. Superior technology and product performance give rise to category leadership in the surgical market. Service and long term relationships are also key factors in this competitive environment. Surgeons rely on the quality, convenience, value and efficiency of a product and the availability and quality of technical service. We primarily compete with Carl Zeiss Meditec AG, Bausch Health Companies Inc.,& Lomb Incorporated, Hoya Corporation, Glaukos Corporation and Johnson & Johnson in the surgical market.
We expect to compete against companies that offer alternative surgical treatment methodologies, including multifocal, tunable and accommodating AT-IOL approaches, and companies that promote alternative approaches for responding to the conditions our products address. At any time, our known competitors and other potential market entrants may develop new devices or treatment alternatives that may compete directly with our products. In addition, they may gain a market advantage by developing and patenting competitive products or processes earlier than we can or by obtaining regulatory approvals / clearances or market registrations more rapidly than we can.
We believe that the principal competitive factors in our surgical market include:
•disruptive product technology;
•alternative treatment modalities;
•breadth of product lines and product services;
•ability to identify new market trends;
•acceptance by ophthalmic surgeons;
•customer service and clinical support;
•regulatory status and speed to market;
•price;
•product quality, reliability and performance;
•capacity to recruit engineers, scientists and other qualified associates;
•digital initiatives that change business models;
•reimbursement approval from governmental payerspayors and private healthcare insurance providers; and
•reputation for technical leadership.
Shifts in industry market share can occur in connection with product issues, physician advisories, safety alerts and publications about our products. In the current environment of managed care, with consolidation among healthcare providers, increased competition and declining reimbursement rates, there is also increasing pressure on price.
Vision Care
The vision care market is also highly competitive, and our primary competitors are Johnson & Johnson, Bausch Health Companies, Inc.& Lomb Incorporated and The Cooper Companies, Inc. ForAbbVie, Inc. (Allergan) and Novartis AG are competitors in ocular health, our largest competitor is Allergan, Inc.health.
In contact lenses, all companies continue to focus on growing the daily disposable SiHy segment due to the price trade-up opportunity from non-SiHy and reusable lenses. We believe our DAILIES TOTAL1 provides the most advanced daily disposable SiHy contact lens with its advanced "water gradient" technology but currently only catersand PRECISION1 provides a new mainstream daily disposable SiHy lens with aqueous extraction and surface treatment. While daily disposable contact lenses remain appealing to many lens wearers, approximately two-thirds of contact lens wearers globally choose reusable lenses. Despite this preference, innovation within the reusable lens segment has lagged behind daily disposable lenses over the past 10 years. TOTAL30 is designed to change that by delivering a premium market given its higher price point.offering within the reusable space. We also compete with manufacturers of eyeglasses and with surgical procedures that correct visual defects. We believe that there are opportunities for contact lenses to attract new customers in the markets in which we operate, particularly in markets where the penetration of contact lenses in the vision correction market is low. Additionally, we compete with new market entrants with disruptive distribution models that could potentially innovate to challenge traditional models, including the eye care professional channel in which we have a significant presence. We also believe that laser vision correction
is not a significant threat to our sales of contact lenses based on the growth of the contact lens market over the past decade and our involvement in the laser vision correction market through our Surgical business.
In ocular health, the market is characterized by competition for market share through the introduction of products that provide superior effectiveness and reduced burden for treating eye conditions. Recommendations from eye care professionals and customer brand loyalty, as well as our product quality and price, are key factors in maintaining market share in these products.
Government Regulation
Overview
Our businesses are subject to varying degrees of governmental regulation in the countries in which we operate, and the general trend is toward increasingly stringent regulation. In the US, the drug, device and dietary supplement industries have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labeling and safety reporting. The exercise of broad regulatory powers by the FDA continues to result in increases in the amounts of testing and documentation required for the commercialization of regulated products and a corresponding increase in the expense of product introduction. Similar trends are also evident in the EU and in other markets throughout the world. In addition to market access regulation, our businesses are also subject to other forms of regulation, such as those relating to anti-bribery, data privacy and cybersecurity and trade regulation matters. We are also subject to regulations related to environmental and safety matters, which are discussed in greater detail in "Item 4.D. Property, Plants and Equipment—Environmental Matters".
Product Approval and Monitoring
Most of our products are regulated as medical devices in the US and the EU. These jurisdictions each use a risk-based classification system to determine the type of information that must be provided to the local regulatory bodies in order to obtain the right to market a product. In the US, the FDA classifies devices into three classes: Class I (low risk), Class II (moderate risk) and Class III (high risk). Many of our devices are Class II or III devices that require premarket review by the FDA. The primary pathway for our Class II devices is FDA clearance of a premarket notification under section 510(k) of the FDCA. With a 510(k) submission, the manufacturer must submit a notification to the FDA that includes performance data that establish that the product is substantially equivalent to a "predicate device", which is typically another Class II previously-cleared device. Our Class III devices require FDA approval of a PMAPremarket Approval application. With a PMA
Premarket Approval application, the manufacturer must submit extensive supporting evidence, including clinical data, sufficient to demonstrate a reasonable assurance that the device is safe and effective for its intended use.
In the EU, CE marking is required for all medical devices sold. Prior to affixing the CE Mark, the manufacturer must demonstrate that their device conforms to the relevant essential requirements of the EU's Medical Device Directive through a conformity assessment procedure. The nature of the assessment depends upon the classification of the device. The method of assessing conformity varies depending on the type and classification of the product. For most Class I devices, the assessment is a self-certification process by the manufacturer. For all other devices, the conformity assessment procedure requires review by a "notified body", which is authorized or licensed to perform conformity assessments by national device regulatory authorities. The conformity assessment procedures require a technical review of the manufacturer's product and an assessment of relevant clinical data. Notified bodies may also perform audits of the manufacturer's quality system. If satisfied that the product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity and application of the CE mark.
The EU published a new Medical Device Regulation, or EU MDR, in 2017, which will imposeimposes significant additional requirements on medical device manufacturers, including with respect to clinical development,evaluation, labeling, technical documentation and quality management systems. The regulation has a three-year implementation period. Medical devices placed on the market in the EU after May 2020 will2021 require certification according to these new requirements, except thatthose legacy devices with valid CE certificates, issued pursuant to the Medical Device Directives before May 2020, which can be placed on the market until those certificates expire, at the latest in May 2024, provided there are no significant changes in the design or intended purpose of the device. On February 16, 2023, the European Parliament officially endorsed the European Commission's proposal to extend the date of compliance out by three to four years depending on the class of medical device, which would extend the date of compliance from 2024 until 2027 or 2028, provided that the manufacturer of the legacy product has submitted a formal application for a conformity assessment by May 2024. This extension is intended to ensure that the various notified bodies have enough time to review legacy products for compliance with the new regulations. The additional requirements of the EU MDR legislation did not change; however the “sell off” date has been proposed to be removed. The proposed extension must still be approved by the Council of the European Union.
We also market products that are regulated in other product categories, including lasers, drug products, dietary supplements and medical foods. These products are also subject to extensive government regulation, which vary by jurisdiction. For example, in the US, our drug products must either be marketed in compliance with an applicable over-the-counter drug monograph or receive FDA approval of a New Drug Application. In the EEA,European Economic Area, our drug products must receive a marketing authorization from the competent regulatory authority before they may be placed on the market. There are various application procedures available, depending on the type of product involved.
Clinical trials may be required to support the marketing of our drug or device products. In the US, clinical trials must be conducted in accordance with FDA requirements, including informed consent from study participants, and review and approval by an institutional review board ("IRB"), among other requirements. Additionally, FDA authorization of an Investigational Device Exemption ("IDE") application must be obtained for studies involving significant risk devices prior to commencing the studies. In the EU, clinical trials usually require the approval of an ethics review board and the prior notification to, or authorization of the study from, the regulatory authority in each country in which the trial will be conducted.
Regulations of the FDA and other regulatory agencies in and outside the US impose extensive manufacturing requirements as well as postmarket compliance and monitoring obligations on our business. The manufacture of our device, drug and dietary supplement products is subject to extensive and complex good manufacturing practice and quality system requirements, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, storage, handling and servicing of our products. We are also subject to requirements for product labeling and advertising, sampling, recordkeeping, reporting of adverse experiences and other information to identify potential problems with our marketed products, as well as recalls and field actions. We are also subject to periodic inspections for compliance with these requirements. We expect this regulatory environment will continue to require significant technical expertise and capital investment to ensure compliance.
Medical device, drug and dietary supplement manufacturers are also subject to taxes, as well as application, product, user, establishment and other fees. For example, in 2010, the ACA imposed an excise tax on medical device manufacturers and importers. This excise tax was subsequently repealed in December 2018; however, other similar taxes can be imposed in the future.
Price Controls
The prices of our medical devices and drugs that require prescriptions or are reimbursed through payments to providers for services using our devices or drugs are subject to reimbursement programs and price control mechanisms that vary from country to country. Due to increasing political pressure and governmental budget constraints, we expect these programs and mechanisms to remain robust and to potentially even be strengthened.strengthened or expanded. As a result, such
programs and mechanisms could have a negative influence on the prices we are able to charge for our medical device products, particularly those used in cataract, vitreoretinal and vitreoretinalglaucoma surgeries.
Regulations Governing Reimbursement
In the US, patient access to our drug and device products that require a prescription or are included in provider service payments is determined in large part by the coverage and reimbursement policies of third-party health payors, including health insurers includingand government programs such as Medicare and Medicaid. Both government and commercial health insurers are increasingly focused on containing health care costs and have imposed, and are continuing to consider, additional measures tothat exert downward pressure on device and drug prices. For example, the US recently passed the Inflation Reduction Act, which makes significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits and the introduction of government price-setting for certain Medicare Part D drugs starting in 2026.
Outside the US, global trends toward cost-containment measures likewise may influence prices for our healthcare products in those countries. Adverse decisions relating to either coverage for our products or the amount of reimbursement for our products, could significantly reduce the acceptance of and demand for our products and the prices that our customers are willing to pay for them.
Health Care Fraud and Abuse; Anti-Bribery
We are subject to health care fraud and abuse and anti-bribery laws and regulations in the US and around the world, including state and federal anti-kickback, anti-self-referral and false claims laws in the US. In addition, the FCPA is increasingly used to prosecute relationships between US companies and healthcare providers outside of the US. These laws are complex and subject to evolving interpretation by government agencies and courts. For example, in the US, relationships between manufacturers of products paid for by federal and state healthcare programs and healthcare professionals are regulated by a series of federal and state laws and regulations, such as the Federal Anti-Kickback Statute (and similar US state laws), that restrict the types of permissible financial relationships with referral sourcessources. In the US, the False Claims Act permits private litigants to pursue lawsuits that are permissible.can trigger government investigations and result in substantial financial fines and penalties to the defendant, as well as payment of significant financial rewards to the successful private litigants. As discussed in greater detail in "Item 4.B. Business Overview—Marketing and Sales", we engage in marketing activities targeted at healthcare professionals, which include among others the provision of training programs. If one or more of these activities were found to be in violation of the Federal Anti-Kickback Statute or comparable state laws, or if we otherwise generally fail to comply with any of the health care fraud and abuse andlaws, anti-bribery laws and regulations or any other law or governmental regulation, or there are changes to the interpretation of any of the foregoing,these laws, we could be subject to, among other things, civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations.
Data Privacy and Cybersecurity
The regulation of dataWe are subject to certain privacy laws and security,regulations that continue to evolve, including Swiss privacy laws, the EU's General Data Protection Regulation and the protection of the confidentiality of certain personal information (including patient health information and financial information), is increasing.California Consumer Privacy Act. For example, the EU General Data Protection Regulation contains enhanced financial penalties for noncompliance. Similarly, the US Department of Health and Human Services has issued rules governing the use, disclosure and security of protected health information, and the FDA has issued further guidance concerning cybersecurity for medical devices.
In addition, certain countries have issued or are considering data localization laws, which limit companies' ability to transfer protected data across country borders. Failure to comply with data privacy and cybersecurity laws and regulations can result in enforcement actions, including civil or criminal penalties.
Trade Regulation
The movement of products, services and investment across borders subject us to extensive trade regulations. A variety of laws and regulations in the countries in which we transact business apply to the sale, shipment and provision of goods, services and technology across borders. These laws and regulations govern, among other things, our import, export and other business activities. We are also subject to the risk that these laws and regulations could change in a way that would expose us to additional costs, penalties or liabilities. Some governments also impose economic sanctions against certain countries, persons or entities.
In addition to our need to comply with such regulations in connection with our direct activities, we also sell and provide goods, technology and services to agents, representatives and distributors who may export such items to customers and
end-users. Failure by us or the third parties through which we do business to comply with applicable import, export control or economic sanctions laws and regulations may subject us to civil or criminal enforcement action and varying degrees of liability.
4.C. ORGANIZATIONAL STRUCTURE
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4.C. | ORGANIZATIONAL STRUCTURE |
Organizational Structure
See "Item 4.B. Business Overview” for additional information.
Significant Subsidiaries
Below is a list of subsidiaries that had, as of December 31, 2019, total assets exceeding 10% of our consolidated assets, or net sales in excess of 10% of our consolidated net sales:See "Item 6.C. Board Practice” for additional information.
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| | | | |
Name | | Country of formation | | % of equity interest |
Alcon Pharmaceuticals Ltd. | | Switzerland | | 100 |
Alcon Vision, LLC | | United States | | 100 |
Alcon Laboratories, Inc. | | United States | | 100 |
4.D. PROPERTY, PLANTS AND EQUIPMENT | |
4.D. | PROPERTY, PLANTS AND EQUIPMENT |
Our corporate headquarters is located in Geneva, Switzerland. The principal office for our Swiss and international operations, which is also our registered office, is located in Fribourg, Switzerland, and the principal office for our US operations is located in Fort Worth, Texas.
We believe that our current manufacturing and production facilities have adequate capacity for our medium‑term needs. To ensure that we have sufficient manufacturing capacity to meet future production needs, we regularly review the capacity and utilization of our manufacturing facilities. The FDA and other regulatory agencies regulate the approval for use of manufacturing facilities for medical devices, and compliance with these regulations requires a substantial amount of validation time prior to start‑up and approval. Accordingly, it is important to our business that we ensure we have sufficient manufacturing capacity to meet our future production needs.
Major Facilities
The following table sets forth our most significant production and research and development facilities:
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Location | | Size of Site (in m2) | | Major Activity |
Fort Worth, Texas | | 315,200 |
| | Production, research and development for Surgical and Vision Care businesses |
Johns Creek, GeorgiaGrosswallstadt, Germany | | 84,100104,000 |
| | Production, research and development for Vision Care business |
Grosswallstadt, GermanyJohns Creek, Georgia | | 82,30084,825 |
| | Production, research and development for Vision Care business |
Johor, MalaysiaSingapore | | 43,90069,000 |
| | Production for Vision Care business |
Johor, Malaysia | | 43,900 | | | Production for Vision Care business |
Irvine, California | | 40,800 |
| | Production, research and development for Surgical business |
Houston, Texas | | 37,400 |
| | Production for Surgical business |
Batam, Indonesia | | 35,000 |
| | Production for Vision Care business |
SingaporeHuntington, West Virginia | | 35,00032,980 |
| | Production for Surgical business |
Sinking Spring, Pennsylvania | | 21,800 | | | Production for Surgical business |
Cork, Ireland | | 13,600 | | | Production for Surgical business |
Erlangen/Pressath/Teltow, Germany | | 10,700 | | | Production, research and development for Vision Care business |
Puurs, Belgium | | 8,000 | | | Production for Surgical business |
Durham, North Carolina | | 4,200 | | | Research and development for Vision Care business |
Schaffhausen, Switzerland | | 4,100 | | | Production for Surgical business |
Athlone, Ireland | | 3,410 | | | Production for Vision Care business |
Huntington, West Virginia | | 27,500 |
| | Production for Surgical business |
Sinking Spring, Pennsylvania | | 21,800 |
| | Production for Surgical business |
Cork, Ireland | | 13,600 |
| | Production for Surgical business |
Puurs, Belgium | | 8,000 |
| | Production for Surgical business |
Schaffhausen, Switzerland | | 4,100 |
| | Production for Surgical business |
In August 2021, we launched an expansion of our Johns Creek, Georgia facility in 2017 to add three production lines of DAILIES TOTAL1 contact lenses. We completed the project in 2019 and incurred costs of approximately $100 million.
In March 2018, we commenced the second phase of expansion of our Grosswallstadt, Germany and Singapore facilities relatingfacility to theadd three additional contact lens production lines for an anticipated cost of contact lenses. We expect to pay a total amount of approximately $450 million on the Grosswallstadt project and approximately $125 million on the Singapore project, in each case for both the first and second phases of expansion.$162 million. Through December 31, 2019,2022, the total amount paid and committed on the Grosswallstadt project was approximately $350 million and$137 million. We expect to complete the project by mid-2024.
In April 2021, we launched a further expansion of our Singapore facility to add four additional production lines for contact lenses. We expect to incur costs of $188 million. Through December 31, 2022, the total amount paid and committed on the Singapore project was approximately $120$181 million. We approved a further expansion in late 2021 to add three additional production lines and a new building for an expected cost of $280.1 million. Through December 31, 2022, the total amount paid and committed for this additional expansion was approximately $157 million. We expect to complete the entire project by late 2025.
In September 2019, we launched a furtheran expansion of our Johns Creek, Georgia facility to add four production lines for PRECISION1contact lenses. This project is ongoing.ongoing and was expanded in 2020. We expect to pay a total amount of approximately $175$245 million on this project. Through December 31, 2019,2022, the total amount paid and committed was approximately $90$243 million. In 2021, we launched an additional expansion to add two more production lines for contact lenses for $148 million. Through December 31, 2022, the total amount paid and committed was approximately $114 million. We expect to complete the project by mid-2024. Also, in late 2021, we approved an additional expansion to add one more production line for contact lenses. This additional expansion is expected to cost approximately $73.2 million and be completed by mid-2024. Through December 31, 2022, the total amount paid and committed was approximately $46 million.
We funded each of the projects discussed above from working capital.
Environmental Matters
At Alcon, we believe that excellent environmental performance enables us to achieve our purpose of helping people see brilliantly. We integrate core values of environmental protection into our business strategy to protect the environment, to add value to the business, manage risk and enhance our reputation.
We are committed to reducing the environmental impact of our operations, products and services. We strive to minimize waste and emissions, reuse and recycle materials and conserve natural resources, such as energy and water, across our value chain.
We are subject to laws and regulations concerning the environment, safety matters and regulation of chemicals and product safety in the countries where we manufacture and sell our products or otherwise operate our business. As a result, we have established internal policies and standards that aid our operations in systematically identifying relevant hazards, assessing and mitigating risks and communicating risk information. These internal policies and standards are in place to ensure our operations comply with relevant environmental, health and safety laws and regulations and that periodic audits of our operations are conducted. The potential risks we identify are integrated into our business planning, including investments in reducing safety and health risks to our associates and reducing our impact on the environment. We have also dedicated resources to monitor legislative and regulatory developments and emerging issues to anticipate future requirements and undertake policy advocacy when strategically relevant.
Each year, we publish on our website a Corporate Responsibility Report that provides additional details regarding our environmental sustainability strategy and highlights the steps we plan to undertake. | |
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. OPERATING RESULTS
This operating and financial review should be read together with the section captioned "Item 3. Key Information —3.A Selected Financial Data", "Item 4. Information on the Company—4.B. Business Overview" and our Consolidated Financial Statements and the related notes to those financial statements included elsewhere in this Annual Report. Among other things, those financial statements include more detailed information regarding the basis of preparation for the following information. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under "Item 3. Key Information —3.D—3.D. Risk Factors" and elsewhere in this Annual Report, AlconAlcon's actual results may differ materially from those anticipated in these forward-looking statements. Please see "Special Note About Forward-Looking Statements" in this Annual Report. “Item 5. Operating and Financial Review and Prospects”, together with “Item 4.B4.B. Business Overview” and “Item 6.D. Employees”, constitute the Operating and Financial Review (“Rapport annuel”), as defined by the Swiss Code of Obligations.
OVERVIEWOverview
Alcon researches, develops, manufactures, distributes and sells a full suite of eye care products within two segments: Surgical and Vision Care. The Surgical segment is focused on ophthalmic products for cataract surgery, vitreoretinal surgery, refractive laser surgery and glaucoma surgery, and includes implantables, consumables and surgical equipment required for these procedures. The Vision Care segment comprises daily disposable, reusable and color-enhancing contact lenses and a comprehensive portfolio of ocular health products, including products for dry eye, glaucoma, contact lens care and ocular allergies, as well as ocular vitamins and redness relievers. Prior to April 9, 2019, Alcon was operated as a division of Novartis.
We are the largest eye care company in the world, based on 2019 net sales. We are dedicated to providing innovative products that enhance quality of life by helping people see better. Our strong foundation is based on our longstanding success as a trusted brand, our legacy of industry firsts and advancements, our leading positions in the markets in which we compete and our continued commitment to substantial investment in innovation. With over 70more than 75 years of history in the ophthalmic industry, we believe the Alcon brand name is synonymous with innovation, quality, service and leadership among eye care professionals worldwide. We employ over 20,00025,000 associates from more than 90100 nationalities, operating in over 7460 countries and serving consumers and patients in over 140 countries.
Between 2011, when we were acquired by Novartis, and April 9, 2019, we operated as a division within Novartis. Novartis transferred to us substantially all of the assets and liabilities of its eye care devices business, consisting of our surgical and vision care businesses. Our financial statements include, in all periods presented, the assets, liabilities and results of operations of the ophthalmic over-the-counter products and a small portfolio of surgical diagnostics medications, which was transferred to Alcon from Novartis, effective as of January 1, 2018.
In 2019, Alcon achieved2022, Alcon's net sales to third parties of $7.4amounted to $8.7 billion. The United States accounted for $3.1$3.9 billion, or 41%45%, of total net sales, Japan accounted for $0.7$0.6 billion, or 9%7%, of total net sales, China accounted for $0.4$0.5 billion or 5%, of total net sales, Switzerland accounted for $56$59 million, or 1%, of total net sales, and the rest of the world accounted for $3.2 billion, or the remaining 44%,$3.7 billion of total net sales.
Basis of Preparationpreparation
The Consolidated Financial Statements included elsewhere in this Annual Report, which present our financial position, results of operations, comprehensive income/(loss), and cash flows have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
The preparation of the Consolidated Financial Statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the year, that affect the reported amounts of assets and liabilities as well as revenues and expenses. Actual outcomes and results could differ from those estimates and assumptions.
The businesses of Alcon did not form a separate legal group of companies prior to the Spin-off. For periods prior to the Spin-off, the financial statements were prepared on a combined basis and are derived (carved-out) from the Novartis Consolidated Financial Statements and accounting records, as if Alcon was a stand-alone company for all periods presented. Our Consolidated Financial Statements include the assets and liabilities within Novartis subsidiaries in such historical periods
that are attributable to Alcon and exclude the assets and liabilities within Alcon subsidiaries in such historical periods not attributable to its businesses. For periods prior to the Spin-off, the Consolidated Financial Statements include charges and allocation of expenses related to certain Novartis business support functions across the following service domains: human resources operations, real estate and facility services, including site security and executive protection, procurement, information technology, commercial and medical support services and financial reporting and accounting operations. In addition, allocations were made for Novartis corporate general and administration functions in the areas of corporate governance, including board of directors, corporate responsibility and other corporate functions, such as tax, corporate governance and listed company compliance, investor relations, internal audit, treasury and communications functions.
Management believes that the allocation methodology used was reasonable and all allocations have been performed on a basis that reasonably reflects the services received by Alcon, the cost incurred on behalf of Alcon and the assets and liabilities of Alcon. Although the Consolidated Financial Statements reflect management's best estimate of all historical costs related to Alcon, this may however not necessarily reflect what the results of operations, financial position or cash flows of Alcon would have been had Alcon operated as an independent, publicly traded company for the periods prior to the Spin-off.
Agreements entered into between Alcon and Novartis in connection with the Spin-off govern the relationship between the parties following the Spin-off and provide for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be provided on a temporary basis between the parties.
For further information on the basis of preparation of the Consolidated Financial Statements, see Note 2 to the Consolidated Financial Statements included elsewhere in this Annual Report.
Items You Should Consider When Evaluating Ouryou should consider when evaluating our Consolidated Financial Statements
War on Ukraine
In February 2022, as a result of the war on Ukraine by Russia, economic sanctions and export controls were imposed by much of the world on Russian financial institutions and businesses. These sanctions could adversely impact net sales, create disruptions in the global supply chain, increase the risk of cyber attacks, and potentially have an adverse impact on the global economy, financial markets, energy markets, currency rates and otherwise. As a result of the global impacts, we have experienced volatility in currency translation effects. Our manufacturing and procurement exposure in Russia and
Ukraine is limited as our operations consist mainly of associates in local functions, including sales and customer support. Refer to "Item 3. Key Information—3.D. Risk Factors" - Changing economic and financial environments in many countries and increasing global political and social instability may adversely impact our business included elsewhere in this Annual Report.
For periods priorthe years ended December 31, 2022 and 2021, net sales in Russia and Ukraine amounted to approximately 2% of consolidated net sales. Total assets in Russia and Ukraine amounted to $83 million as of December 31, 2022. As of December 31, 2022, operations previously impacted by the war on Ukraine continued operating to the Spin-off,extent practicable and permitted by law.
COVID-19
Outbreaks of COVID-19 cases continued to occur in 2022 and localized responses remain unpredictable, notably in China. The COVID-19 pandemic may continue to have an adverse effect on our net sales, operating results and cash flow. The extent to which the COVID-19 pandemic and the related economic impact may continue to affect our financial condition or results of operations financial positionis uncertain.
Net sales trends
Sales in 2022 grew over the prior year period reflecting continuing recovery from COVID-19. However, uncertainty remains on a market by market basis, and cash flowswe believe we will likely continue to see some lingering impacts from COVID-19.In addition, Russia’s war on Ukraine and resulting global response could differ from those that would have resulted if we operated autonomously or as an entity independent of Novartis. As a result, you should consider the following facts when evaluating our historical results of operations:
For certain of the periods covered by our Consolidated Financial Statements,adverse impact on our business was operated within legal entitiesfor the foreseeable future.
Supply chain continuity and inflation
We have experienced inflationary pressures in electronic components, freight, labor, resins and plastics, which hosted portions of other Novartis businesses. In addition,we continue to manage but have impacted operating margin in all the periods presented,2022 despite price increases and productivity initiatives. We have also encountered supply chain challenges in certain components including microchips, resins and plastics, metals and filters. Our procurement teams are staying in close contact with our Consolidated Financial Statements include the ophthalmic over-the-counter products and a small portfolio of surgical diagnostics medications, the management and reporting of which was transferredcritical suppliers to Alcon from the Innovative Medicines Division of Novartis effective as of January 1, 2018.
For periods priormaintain access to the Spin-off, income taxes attributable to the Alcon Division were determined using the separate return approach, under which current and deferred income taxes were calculated as if a separate tax return had been prepared in each tax jurisdiction. In various tax jurisdictions, Alcon and Novartis businesses operated within the same legal entity and certain Alcon subsidiaries were part of a Novartis tax group. This required an assumption that the subsidiaries and operations of Alcon in those tax jurisdictions operated on a standalone basis and constitute separate taxable entities. Actual outcomes and results could differ from these separate tax return estimates, including those estimates and assumptions related to realization of tax benefits within these Novartis tax groups.
For periods prior to the Spin-off, our Consolidated Financial Statements also include an allocation and charges of expenses related to certain Novartis functions. However, the allocations and charges may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company during those periods. For example, historically, our business has been charged with a significant portion of appropriate administrative costs, such as those related to services Alcon has received from Novartis across the following service domains: human resources operations, real estate and facility services, including site security and executive protection, procurement, information technology, commercial and medical support services and financial reporting and accounting operations, and these have been reflected in our Consolidated Financial Statements based on historical allocations and charges. Accordingly, these overhead costs were affected by the historical arrangements that existed between the historical reporting units of the Alcon Division and Novartis and typically did not include a profit margin.
For periods prior to the Spin-off, our Consolidated Financial Statements also include an allocation from Novartis of certain corporate related general and administrative expenses that we would have incurred as a publicly traded company. These include costs associated with corporate governance, including board of directors, corporate responsibilityraw materials and other corporate functions, suchcomponents. When necessary, we are also utilizing alternative methods of product distribution and supplier sourcing, as tax, corporate governancewell as alternative shipping options where possible. We expect these inflationary pressures and listed company compliance, investor relations, internal audit, treasury and communications functions. The allocation of these additional expenses may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for those periods.supply chain challenges to continue into 2023.
Estimation uncertainty
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• | On August 28, 2018, we announced our immediate, voluntary market withdrawal of our CyPass micro-stent surgical glaucoma product from the global market. Our Consolidated Financial Statements include the sales of CyPass micro-stent products from and after the launch of the product in 2016 until our withdrawal of the product from the market in August 2018. As a result, in the year ended December 31, 2018, we recognized a one-time pre-tax charge of $282 million (after tax $206 million). This consisted of $11 million for the costs associated with the market withdrawal and $337 million for the impairment of the CyPass intangible assets. These charges were partially offset by the $66 million gain for the reduction in the related contingent consideration liability.
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The preparation of financial statementsConsolidated Financial Statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the periodyear that affectsaffect the reported amounts of assets and liabilities as well as revenues and expenses. In particular, due to the fact that the presented Consolidated Financial Statements for periods priorthe year ended December 31, 2022 required the use of significant estimates and assumptions pertaining to the Spin-off have been carved out from Novartis financial statements, actualpast and potential impacts of the adverse effects of the war on Ukraine, economic sanctions and export controls on Russia and continuing impacts of COVID-19 on Alcon's operations, results and liquidity. Actual outcomes and results could differ materially from thoseour estimates and assumptions as indicated in the Critical accounting policiesassumptions. For example, we could be impacted by extended or new economic sanctions and estimates sectionexport controls on Russia, extended or new COVID-19 related shut-down periods, ongoing supply chain disruptions, labor shortages, an inability to manufacture products, reduced sales, incremental provisions for expected customer credit losses and inventory, incremental costs, reduced cash on hand and increased debt or impairments of this document.assets. See Note 32 to the Consolidated Financial Statements included elsewhere in this Annual Report and in the "Critical accounting policies and estimates" section within this Item 5.A.
Segment description
Alcon has two identified reportingreportable segments: Surgical and Vision Care. Both segments are supported by Research and Development and Manufacturing and Technical Operations, whose results are incorporated into the respective segment contribution. Segment contribution excludes amortization and impairment costscharges for acquired product rights or other intangibles, general and administrative expenses for corporate activities, separation costs, transformation costs, fair value adjustments to contingent consideration liabilities, past service costs primarily for post-employment benefit plan amendments, acquisition and integration related costs and certain other income and expense items such as spin readiness and separation costs, transformation program costs, and restructuring costs and legal settlements that are not attributableitems. See Note 4 to a specific segment.the Consolidated Financial Statements included elsewhere in this Annual Report.
In Surgical, Alcon researches, develops, manufactures, distributes and sells ophthalmic products for cataract surgery, vitreoretinal surgery, refractive laser surgery and glaucoma surgery. The surgical portfolio also includes implantables, consumables and surgical equipment required for these procedures and supports the end-to-end procedure needs of the ophthalmic surgeon. Alcon also provides services, training, education and technical support for the Surgical business. In 2019,2022, the Surgical segment accounted for $4.2$5.0 billion, or 57%58%, of Alcon net sales to third parties, and contributed $923 million,$1.3 billion, or 62%69%, of Alcon operating income (excluding unallocated income and expenses).
In Vision Care, Alcon researches, develops, manufactures, distributes and sells daily disposable, reusable, and color-enhancing contact lenses and a comprehensive portfolio of ocular health products, including products for dry eye, glaucoma, contact lens care and ocular allergies, as well as ocular vitamins and redness relievers. Alcon also provides services, training, education and technical support for the Vision Care business. In 2019,2022, the Vision Care segment accounted for $3.2$3.6 billion, or 43%42%, of Alcon net sales to third parties, and contributed $563$600 million, or 38%31%, of Alcon operating income (excluding unallocated income and expenses).
OPPORTUNITY AND RISK SUMMARYOpportunity and risk summary
The surgical and vision care markets in which Alcon operates are large, dynamic and growing. As the world population grows and ages, the need for quality eye care is expanding and evolving. In addition, although it is estimated that 80%90% of all visual impairments are currently preventable, treatable or curable, we operate in markets that have substantial unmet medical and consumer needs. Our surgical and vision care products are targeted at addressing many of these unmet medical and consumer needs through products that are used in treating multiple ocular health conditions and offer leading eye care solutions for patients throughout their lives.
The surgical market in which we operate includes sales of implantables, consumables and surgical equipment, including associated technical, clinical and service support and training, and is projected to grow at approximately 4%mid-single digits per year from 20192022 to 2024.2027. Growth drivers in the surgical market include: global growth of cataract and vitreoretinal procedures, driven by an aging population; increased access to care; higher uptake of premium patient-pay technologies; increased adoption of advanced technologies; and eye disease as a comorbidity linked to the global prevalence of diabetes.
The vision care market in which we operate is comprised of products designed for ocular care and consumer use, and is projected to grow at approximately 5%mid-single digits per year from 20192022 to 2024.2027. Growth drivers in the vision care market include: continued modality shift to daily disposable lenses from reusable lensesbetter contact lens material, improved health and the resulting sales premium; advancements in specialty lenses combined with increasing demand for toric, multifocalcomfort and cosmetic lenses;enhanced visual acuity; a significant population of approximately 194 million undiagnosed dry eye patients, with an additional 42 million self-diagnosed dry eye patients using unsuitable products for treatment; growing access and consumption of vision care products in emerging markets; and increasing consumer access through the expansion of distribution models.
In each of our markets, we rely on our strong relationships with eye care professionals and consumers to attract and retain customers and expand the market. We believe we have also made one of the largest commitments to research and development in the eye care market, which we expect to continue through internal innovation investments and identifying and executing on attractive acquisition, licensing and collaboration opportunities.
We are in the middle of executing a turnaround plan to return Alcon to sustainable, profitable growth and address existing challenges. Prior to 2016, Alcon, as a division of Novartis, had experienced stagnating growth driven by challenges in maximizing investments in its pipeline, the need for additional investment in promotional activities for existing Alcon products, an aging information technology infrastructure and difficulties in optimizing customer service, training, field service and inventory levels. The goal of the turnaround plan was to first fix the Alcon foundation, then to execute the growth plan and, in future periods, accelerate innovation, expand markets and adjacencies and develop new business models. Our growth acceleration plan consists of three phases:
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• | Fix the foundation (2016–2017): The initial phase of our growth plan in 2016 and 2017 focused on fixing the foundation of Alcon by investing in promotion, capital and systems, reinvigorating the innovation pipeline, and strengthening our customer relationships. Improving the culture at Alcon has also been a top priority, and the organization has responded with significant morale improvement. Strong results have followed, including sales returning to growth.
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• | Execute the growth plan (2018–2020): We began the second phase of our growth plan in 2018, with a focus on superior execution, further investing in high-potential products and market segments and accelerating our product development cycle. We have begun to transform our company by cultivating a more nimble and agile culture. In our surgical business, we intend to continue to expand and grow the premium IOL market with our AT-IOL offerings and our PanOptix brand of presbyopia correcting IOLs ("PC-IOLs"). We also plan to expand our vitreoretinal business, in part through enhancing technology penetration in key markets and by accelerating conversion from optical to digital surgery. In our vision care business, we intend to grow our DAILIES TOTAL1 family of products and expand the presbyopia category through increased consumer awareness, lens comfort and quality. We also plan to continue the global roll-out of our Systane COMPLETE product and grow consumer demand with investments in direct-to-consumer marketing.
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• | Deliver leading-edge solutions (2021 and beyond): Following the completion of the second phase of our growth plan, the third phase will focus on accelerating innovation, capturing opportunities to expand markets and pursue adjacencies and developing new business models to improve access to our leading product portfolio.
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AlconAlcon's future expectations are subject to various risks and uncertainties, including market dynamics in the surgical and vision care markets, general economic conditions, the effects of the ongoing COVID-19 pandemic and the pace of innovation in our industry, as well as successfully achieving our growth strategies and efficiency initiatives. These expectations were, in the view of management, prepared on a reasonable basis, reflect the best currently available estimates and judgments and present, to the best of management's knowledge and belief, the expected future financial performance of Alcon. However, this information is not fact and should not be relied upon as necessarily indicative of future results, and you are cautioned not to place undue reliance on the prospective financial information. There will likely be differences between Alcon expectations and the actual results and those differences could be material. We can give no assurance that AlconAlcon's expectations willmay not be achieved and we do not undertake any obligation to release publicly the results of any future revisions we may make to theour expectations. When considering AlconAlcon's expectations, you should keep in mind the risk factors and other cautionary statements in "Item 3. Key Information —3.DInformation—3.D Risk Factors" and "Special Note About Forward-Looking Statements" in this Annual Report.
Our financial results are affected to varying degrees by internal and external factors. For example, because of our heavy dependence on information technology systems, cybersecurity breaches or other disruptions of our information technology systems or our inability to comply with data privacy, identity protection or information security laws would significantly impact our business. Given the three-year Deferred Prosecution Agreement we entered into with the US DoJ, our compliance with anti-corruption laws is of heightened significance to our business. Litigation risk, including intellectual property and product liability lawsuits, and government investigations are additional risks our business faces.
The effect of a disruption in our global supply chain or important facilities, supply constraints, or an increase in the cost of energy would further impact our business. We also may be adversely affected by our inability to accurately forecast demand and manage our inventory levels and the changing buying patterns by our large distributor and retail customers. If we overestimate demand and produce too much of a particular product, we face a risk of inventory obsolescence. In addition, for certain materials, components and services, we rely on sole or limited sources of supply. Our customer relations could be negatively impacted by the loss of our significant suppliers or the inability of any such supplier to meet certain specifications or delivery schedules.
Further, our ability to manage environmental, social and governance matters to the satisfaction of our many stakeholders, some of which may have competing interests, may impact our results of operations. While we make significant efforts to
enhance the diversity of our workforce, we may be unable to attract and retain qualified personnel. Our reliance on outsourcing key business functions adds additional risk.
Moreover, our ability to grow depends on the commercial success of our products and our ability to maintain our position in the highly competitive markets in which we operate. Our ability to grow also depends on the success of our research and development efforts and BD&L activities in bringing new products to market, as well as the commercial acceptance of our products. We have incurred debt, in part to fund acquisitions including the acquisition of Aerie, that we must continue to service, and we may need additional financing in debt or equity.
Even if we protect our intellectual property to the fullest extent permitted by applicable law, competitors may market products that compete with our products. Our ability to grow also depends on the success of our research and development efforts in bringing new products to market, as well as the commercial acceptance of our products. Increased pricing pressure in the healthcare industry in general as well as industry consolidation could also impact our ability to generate returns and invest for the future. Additionally, our products are subject to competition from lower priced versions of our products, and our industry continues to be challenged by the vulnerability of distribution channels to counterfeiting. Product recalls or voluntary market withdrawals in connection with defects or unanticipated use of our products could also have a material adverse effect upon our business. We are also implementing new information technology systems and integrating those new systems into our legacy systems. All of our operations, including our information technology systems, can be vulnerable to a variety of business interruptions.
Further, our ability to grow may be impacted by the ongoing consolidation among distributors, retailers and healthcare provider organizations, which could increase both the purchasing leverage of key customers and the concentration of credit risk. We also may be adversely affected by changes in inventory levels or fluctuations in buying patterns by our large distributor and retail customers. If we overestimate demand and produce too much of a particular product, we face a risk of inventory
obsolescence. In addition, for certain materials, components and services, we rely on sole or limited sources of supply. Our customer relations could be negatively impacted by the loss of our significant suppliers or the inability of any such supplier to meet certain specifications or delivery schedules. Further, we have developed strong relationships with numerous healthcare providers and rely on them to recommend our products to their patients and to other members of their organizations. Consumers in the eye health industry have a tendency not to switch products regularly and are repeat consumers, meaning that a physician's initial recommendation of our products, and a consumer's initial choice to use our products, have an impact on the success of our products. Therefore, it is important to our business and results of operations to retain and grow these relationships.
Given our global presence, our operations and business results are also influenced and affected by the global economic and financial environment, including unpredictable political conditions that currently existand tax laws in various parts of the world. Additionally, a portion of our operations are conducted in emerging markets and are subject to risks and potential costs such as economic, political and social uncertainty, as well as relatively low average income levels and limited government reimbursement for the cost of healthcare products and services. Our operations and business results are also affected by the varying degrees of governmental regulation in the countries in which we operate, making the process of developing new products and obtaining necessary regulatory marketing authorization lengthy, expensive and uncertain. The manufacture of our products is also highly regulated. Any changes or new requirements related to the regulatory approval process or postmarket requirements applicable to our products in any jurisdiction for which compliance could be costly and onerous to comply with.onerous. Finally, if any of our accounting estimates are inaccurate then our financial results would be adversely impacted.
For more details on these trends and how they could impact our results, see "Item 3. Key Information—3.D. Risk Factors".
COMPONENTS OF RESULTS OF OPERATIONSComponents of results of operations
Net sales to third parties
Revenue on the sale of Alcon products and services, which is recorded as "Net sales to third parties" in the consolidated income statements,Consolidated Income Statement, is recognized when a contractual promise to a customer (i.e., a performance obligation) has been fulfilled by transferring control over the promised goods and services to the customer, substantially all of which is at the point in time of shipment to or receipt of the products by the customer or when the services are performed. If contracts contain customer acceptance provisions, revenue would be recognized upon the satisfaction of acceptance criteria. The amount of revenue to be recognized is based on the consideration Alcon expects to receive in exchange for its goods and services, which may be fixed or variable. Variable consideration may include rebates, discounts including cash discounts, chargebacks, estimated payments for Medicare Part D prescription drug program coverage gap, patient co-pay program coupon utilization and sales returns. Variable consideration is only recognized when it is highly probable that a significant reversal of cumulative sales will not occur.
Surgical equipment may be sold together with other products and services under a single contract. The total consideration is allocated to the separate performance obligations based on the relative standalone selling price for each performance obligation. Revenue is recognized upon satisfaction of each performance obligation under the contract.
Other revenues
"Other revenues" mainly include revenue from contract manufacturing services provided to our Former Parent which are recognized over time as the service obligations are completed. Associated costs incurred are recognized in "Cost of other revenues".
Inventories
Inventory is valued at the lower of acquisition or production cost determined on a first-in, first-out basis.basis and net realizable value. This value is used for the "Cost of net sales" and "Cost of other revenues" in the consolidated income statements.Consolidated Income Statement. Unsalable inventory is fully written off in the consolidated income statementsConsolidated Income Statement under "Cost of net sales" and "Cost of other revenues".
Research & development
Internal research and development ("R&D") costs are fully charged to "Research & development" in the consolidated income statementsConsolidated Income Statement in the period in which they are incurred. Alcon considers that regulatory and other uncertainties inherent in the development of new products preclude the capitalization of internal development expenses as an intangible asset until marketing approval from a regulatory authority is obtained in relevant major markets, such as the United States, the European Union, Switzerland, China or Japan.
CRITICAL ACCOUNTING POLICIES AND ESTIMATESCritical accounting policies and estimates
Selected accounting policies are set out in Note 32 to the Consolidated Financial Statements included elsewhere in this Annual Report, which are prepared in accordance with IFRS as issued by the IASB.
Given the uncertainties inherent in our business activities, we must make certain estimates and assumptions that require difficult, subjective and complex judgments. Because of uncertainties inherent in such judgments, actual outcomes and results may differ from our assumptions and estimates, which could materially affect our Consolidated Financial Statements. We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of the war on Ukraine, economic sanctions and export controls on Russia and the COVID-19 pandemic using information reasonably available to us at this time. The inherent uncertainties of the continuation of the war on Ukraine, COVID-19 or other items may result in actual outcomes that differ materially from our current assumptions and estimates.
Application of the following accounting policies requires certain assumptions and estimates that have the potential for the most significant impact on the Consolidated Financial Statements.
Impairment of goodwill and intangible assets
We review long-lived intangible assets for impairment whenever events or changes in circumstance indicate that the asset's balance sheet carrying amount may not be recoverable. Goodwill, the Alcon brand name and intangible assets not yet ready for use are not amortized but are reviewed for impairment at least annually. Our annual impairment testing date is Alcon's year-end, December 31.
A cash generating unit to which goodwill has been allocated (reportable segments) is considered impaired when its carrying amount, including the goodwill, exceeds its recoverable amount, which is defined as the higher of its fair value less costs of disposal and its value in use. If the recoverable amount of the reportable segment is less than its carrying amount, an impairment loss shall be recognized.
An intangible asset other than goodwill is generally considered impaired when its balance sheet carrying amount exceeds its estimated recoverable amount, which is defined as the higher of its fair value less costs of disposal and its value in use. Usually, Alcon usesapplies the fair value less costs of disposal method for its impairment evaluation.assessment. In most cases, no directlydirect or indirect observable market inputsprices for identical or similar assets are available to measure the fair value less costs of disposal. Therefore, an estimate of fair value less costs of disposal is derived indirectly and is based on net present value techniques utilizing post-tax cash flows and discount rates. In the limited cases where the value in use method iswould be applied, net present value techniques are utilizedwould be applied using pre-tax cash flows and discount rates.
Fair value less costs of disposal reflects estimates of assumptions that market participants would be expected to use when pricing the asset or cash generating units, and for this purpose management considers the range of economic conditions that are expected to exist over the remaining useful life of the asset. The estimates used in calculating net present values are highly sensitiveinvolve significant judgment by management and depend oninclude assumptions which includeswith measurement uncertainty, such as the following:
the amount•Amount and timing of projected cash flows;
the timing•Long-term sales forecasts for up to 25 years including sales growth rates;
•Timing and probability of regulatory and commercial success;
the royalty•Royalty rate for the Alcon brand name;
the terminal•Terminal growth rate; and
•Discount rate.
Generally, for intangible assets with a definite useful life Alcon uses cash flow projections for the discount rate.whole useful life of these assets. For goodwill and the Alcon brand name, Alcon generally utilizes cash flow projections for a five-year period based on management forecasts, with a terminal value based on cash flow projections considering the long-term expected growth rates and impact of demographic trends of the population to which Alcon products are prescribed, for later periods. Probability-weighted scenarios are typically used.
Discount rates used consider Alcon estimated weighted average cost of capital adjusted for specific country and currency risks associated with cash flow projections to approximate the weighted average cost of capital of a comparable market participant.
Due to the above factors and those further described in the "Opportunity and risk summary" section above, actual cash flows and values could vary significantly from forecasted future cash flows and related values derived using discountingnet present value techniques.
The recoverable amount of the grouping of cash generating units to which goodwill and indefinite life intangible assets are allocated is based on fair value less costs of disposal. For additional information on intangible assets and impairment charges recognized, see Note 109 to the Consolidated Financial Statements included elsewhere in this Annual Report.
Goodwill and other intangible assets represent a significant part of our consolidated balance sheet,Consolidated Balance Sheet, primarily due to acquisitions. Although no significant additional impairments are currently anticipated, impairment evaluation could lead to material impairment charges in the future.
Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the net identifiable assets acquired is recorded as goodwill, or directly in the income statement if it is a bargain purchase. Alcon primarily uses net present value techniques, utilizing post-tax cash flows and discount rates in calculatingestimating the fair value of net identifiable assets acquired when allocating the purchase consideration paid for the acquisition. The estimates in calculatingof the fair values are highly sensitiveinvolve significant judgment by management and depend oninclude assumptions which includewith measurement uncertainty, such as the following:
the amount•Amount and timing of projected cash flows;
long-term•Long-term sales forecasts;
the timing•Timing and probability of regulatory and commercial success; and
•Discount rate.
Alcon may elect on a transaction-by-transaction basis to apply the appropriate discount rate.optional concentration test to assess whether a trans-action qualifies as a business. Under the test, when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, Alcon will account for the transaction as an asset purchase and not a business combination.
If the concentration test is not met, or Alcon elects not to apply this optional test, Alcon will perform an assessment focusing on the existence of inputs and processes that have the ability to create outputs to determine whether the transaction is an asset purchase or a business combination.
Contingent consideration
In a business combination, it is often necessary to recognize contingent future payments to previous owners, representing contractually defined potential amounts as a liability. Usually for Alcon these are linked to milestonedevelopment or royalty paymentscommercial milestones related to certain assets and are recognized as a financial liability at their fair value, which is then re-measured at each subsequent reporting date.
For the determination of the fair value of contingent consideration, various unobservable inputs are used. A change in these inputs might result in a significantly higher or lower fair value measurement. The inputs used are, among others, the timing and probability of regulatory and commercial success, sales forecast and assumptions regarding the discount rate, timing and different scenarios of triggering events. The significance and usage of these inputs to each contingent consideration may vary due to differences in the timing and triggering events for payments or in the nature of the asset related to the contingent consideration. These estimations typically depend on factors such as technical milestones or market performance and are adjusted for the probability of their likelihood of payment, and if material, are appropriately discounted to reflect the impact of time.
Changes in the fair value of contingent consideration liabilities in subsequent periods are recognized in the consolidated income statementsConsolidated Income Statement in "Cost of net sales" for currently marketed products and in "Research & development" for in-process research & development.
The effect of unwinding the discount over time is recognized in "Interest expense" in the consolidated income statements.Consolidated Income Statement.
Alcon accounts for variable or contingent consideration associated with asset acquisitions using the cost accumulation model. At the date of the asset acquisition, the intangible asset is initially recognized at the amount paid. Variable payments are subsequently capitalized as part of the cost of the asset when paid, on the basis that such payments represent the direct cost of acquisition.
Taxes
The estimated amounts for current and deferred tax assets or liabilities, including any amounts related to any uncertain tax positions, are based on currently known facts and circumstances. Tax returns are based on an interpretation of tax laws and regulations and reflect estimates based on these judgments and interpretations. The tax returns are subject to examination by the competent taxing authorities which may result in an assessment being made requiring payments of additional tax, interest or penalties. Inherent uncertainties exist in the estimates of the tax positions.
Research & development
Internal research & development costs are fully charged to "Research & development" in the income statementConsolidated Income Statement in the period in which they are incurred. Alcon considers that regulatory and other uncertainties inherent in the development of new products preclude the capitalization of internal development expenses as an intangible asset usually until marketing approval from the regulatory authority is obtained in a relevant major market, such as the United States, the European Union, Switzerland, China or Japan.
FACTORS AFFECTING COMPARABILITY OF PERIOD TO PERIOD RESULTS OF OPERATIONSFactors affecting comparability of period to period results of operations
The comparability of the period to period results of our operations can be significantly affected by our Spin-off from Novartis,the COVID-19 pandemic, the issuance and refinancingrepayment of financial debts and acquisitions. Our net sales, operating results and cash flows in 2022, 2021 and 2020 were affected by COVID-19. The transactions of significance during 2019 include2022 included the acquisition of PowerVision,Aerie Pharmaceuticals, Inc., Spin-off from Novartis through a dividend in kind distribution to Novartis shareholders, and refinancingthe acquisition of the bridge and term loans which had been issued in April 2019. Transactions of significance during 2018 and 2017 included the acquisitions of TrueVision Systems,Ivantis, Inc. and Tear Film Innovations, Inc. in 2018("Ivantis"), and the acquisition of ClarVista Medical, Inc.Eysuvis and Inveltys products. Additionally, in 2017.2022 we issued senior notes due in 2028, 2032 and 2052, and repaid the Facility B and C term loans. In 2021, we acquired the US commercialization rights of Simbrinza. In 2020, one transaction of significance was the issuance of senior notes due in 2030. Refer to Note 43 to the Consolidated Financial Statements for details related to each of these significant transactions.
RESULTS OF OPERATIONSResults of operations
In evaluating our performance, we consider not only the IFRS results, but also certain non-IFRS measures, including various "core" results and constant currency ("cc") results. These measures assist us in evaluating our ongoing performance from period to period and we believe this additional information is useful to investors in understanding the performance of our business. Refer to "Item 5.A. Operating Results —Non-IFRS measures as defined by the Company"Results—Supplementary Information—Definitions and Reconciliations of Non-IFRS Measures" section for additional information and reconciliation tables. These measures are not intended to be substitutes for the equivalent measures of financial performance prepared in accordance with IFRS and may differ from similarly titled non-IFRS measures of other companies.
Key figures
| | | 2019 compared to 2018 | | 2018 compared to 2017 | | 2022 compared to 2021 | | 2021 compared to 2020 |
| | | | | Change % | | | | Change % | | | Change % | | | Change % |
($ millions unless indicated otherwise) | 2019 |
| | 2018 |
| | $ |
| | cc(1) |
| | 2017 |
| | $ | | cc(1) |
| ($ millions unless indicated otherwise) | 2022 | | 2021 | | $ | | cc(1) | | 2020 | | $ | | cc(1) |
| | | | | | | | | | | | | |
Net sales to third parties | 7,362 |
| | 7,149 |
| | 3 |
| | 5 |
| | 6,785 |
| | 5 | | 5 |
| Net sales to third parties | 8,654 | | | 8,222 | | | 5 | | | 11 | | | 6,763 | | | 22 | | | 20 | |
Gross profit | 3,662 |
| | 3,192 |
| | 15 |
| | 19 |
| | 3,204 |
| | — | | (1 | ) | Gross profit | 4,748 | | | 4,652 | | | 2 | | | 10 | | | 2,940 | | | 58 | | | 56 | |
Operating (loss) | (187 | ) | | (248 | ) | | 25 |
| | 54 |
| | (77 | ) | | nm | | nm |
| |
Operating income/(loss) | | Operating income/(loss) | 672 | | | 580 | | | 16 | | | 59 | | | (482) | | | nm | | nm |
Operating margin (%) | (2.5 | ) | | (3.5 | ) | | | | | | (1.1 | ) | | | Operating margin (%) | 7.8 | | | 7.1 | | | (7.1) | | |
Net (loss)/income | (656 | ) | | (227 | ) | | (189 | ) | | (163 | ) | | 256 |
| | nm | | nm |
| |
Basic and diluted (loss)/earnings per share ($)(2) | (1.34 | ) | | (0.46 | ) | | (191 | ) | | (163 | ) | | 0.52 |
| | nm | | nm |
| |
Net income/(loss) | | Net income/(loss) | 335 | | | 376 | | | (11) | | | 37 | | | (531) | | | nm | | nm |
Basic earnings/(loss) per share ($) | | Basic earnings/(loss) per share ($) | 0.68 | | | 0.77 | | | (12) | | | 36 | | | (1.09) | | | nm | | nm |
Diluted earnings/(loss) per share ($) | | Diluted earnings/(loss) per share ($) | 0.68 | | | 0.76 | | | (11) | | | 37 | | | (1.09) | | | nm | | nm |
| | | | | | | | | | | | |
Core results(1) | | | | | | | | | | | | Core results(1) | |
Core operating income | 1,265 |
| | 1,212 |
| | 4 |
| | 11 |
| | 1,086 |
| | 12 | | 12 |
| Core operating income | 1,571 | | | 1,443 | | | 9 | | | 26 | | | 789 | | | 83 | | | 78 | |
Core operating margin % | 17.2 |
| | 17.0 |
| | | | | | 16.0 |
| | | |
Core operating margin (%) | | Core operating margin (%) | 18.2 | | | 17.6 | | | 11.7 | | |
Core net income | 925 |
| | 974 |
| | (5 | ) | | 1 |
| | 908 |
| | 7 | | 8 |
| Core net income | 1,108 | | | 1,063 | | | 4 | | | 23 | | | 512 | | | 108 | | | 102 | |
Core basic earnings per share ($)(2) | 1.89 |
| | 2.00 |
| | (6 | ) | | 1 |
| | 1.86 |
| | 8 | | 8 |
| 2.25 | | | 2.17 | | | 4 | | | 23 | | | 1.05 | | | 107 | | | 101 | |
Core diluted earnings per share ($)(3) | 1.89 |
| | 2.00 |
| | (6 | ) | | 1 |
| | 1.86 |
| | 8 | | 8 |
| 2.24 | | | 2.15 | | | 4 | | | 23 | | | 1.04 | | | 107 | | | 101 | |
nm = not meaningful
| |
(1) | (1)Core results and constant currencies (cc) as presented in this table are non-IFRS measures. Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods. Refer to "Item 5.A. Operating Results —Non-IFRS measures as defined by the Company" section for additional information and reconciliation tables. |
| |
(2) | Calculated using 488.2 million shares for both current and prior year periods. |
| |
(3) | Calculated using 490.1 million weighted average diluted shares for the year ended December 31, 2019, and 488.2 million shares for the prior year periods. |
All comments below focus on constant currencies (cc) movementsas presented in this table are non-IFRS measures. Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods. Refer to "Item 5.A. Operating Results—Supplementary Information—Definitions and Reconciliations of Non-IFRS Measures" section for the year ended December 31, 2019 compared to 2018 unless otherwise noted. additional information and reconciliation tables.
Commentary for the year ended December 31, 20182021 compared to 20172020 may be found in Item 5 of Amendment No. 6 to the Company's Registration StatementAnnual Report on Form 20-F filed with the Securities and Exchange Commission ("SEC") on March 22, 2019,February 15, 2022 ("20182021 Form 20-F").
Net sales by segment
The following table provides an overview | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 compared to 2021 | | 2021 compared to 2020 |
| | | | | Change % | | | | Change % |
($ millions unless indicated otherwise) | 2022 | | 2021 | | $ | | cc(1) | | 2020 | | $ | | cc(1) |
| | | | | | | | | | | | | |
Surgical | | | | | | | | | | | | | |
Implantables | 1,725 | | | 1,522 | | | 13 | | | 20 | | | 1,126 | | | 35 | | | 34 | |
Consumables | 2,499 | | | 2,388 | | | 5 | | | 10 | | | 1,952 | | | 22 | | | 21 | |
Equipment/other | 821 | | | 793 | | | 4 | | | 10 | | | 632 | | | 25 | | | 24 | |
Total Surgical | 5,045 | | | 4,703 | | | 7 | | | 13 | | | 3,710 | | | 27 | | | 25 | |
| | | | | | | | | | | | | |
Vision Care | | | | | | | | | | | | | |
Contact lenses | 2,192 | | | 2,139 | | | 2 | | | 9 | | | 1,838 | | | 16 | | | 15 | |
Ocular health | 1,417 | | | 1,380 | | | 3 | | | 7 | | | 1,215 | | | 14 | | | 12 | |
Total Vision Care | 3,609 | | | 3,519 | | | 3 | | | 8 | | | 3,053 | | | 15 | | | 14 | |
Net sales to third parties | 8,654 | | | 8,222 | | | 5 | | | 11 | | | 6,763 | | | 22 | | | 20 | |
(1)Constant currencies is a non-IFRS measure. Refer to "Item 5.A. Operating Results—Supplementary Information—Definitions and Reconciliations of net sales to third parties by segment:
|
| | | | | | | | | | | | | | | | |
| 2019 compared to 2018 | | 2018 compared to 2017 |
| | | | | Change % | | | | Change % |
($ millions unless indicated otherwise) | 2019 |
| | 2018 |
| | $ | | cc(1) | | 2017 |
| | $ | | cc(1) |
| | | | | | | | | | | | | |
Surgical | |
| | |
| | | | | | |
| | | | |
Implantables | 1,210 |
| | 1,136 |
| | 7 | | 9 | | 1,045 |
| | 9 | | 9 |
Consumables | 2,304 |
| | 2,227 |
| | 3 | | 6 | | 2,104 |
| | 6 | | 5 |
Equipment/other | 660 |
| | 636 |
| | 4 | | 6 | | 584 |
| | 9 | | 9 |
Total Surgical | 4,174 |
| | 3,999 |
| | 4 | | 7 | | 3,733 |
| | 7 | | 7 |
| | | | | | | | | | | | | |
Vision Care | | | | | | | | | | | | | |
Contact lenses | 1,969 |
| | 1,928 |
| | 2 | | 4 | | 1,836 |
| | 5 | | 4 |
Ocular health | 1,219 |
| | 1,222 |
| | — | | 2 | | 1,216 |
| | — | | 1 |
Total Vision Care | 3,188 |
| | 3,150 |
| | 1 | | 3 | | 3,052 |
| | 3 | | 3 |
Net sales to third parties | 7,362 |
| | 7,149 |
| | 3 | | 5 | | 6,785 |
| | 5 | | 5 |
| |
(1) | Constant currencies is a non-IFRS measure. Refer to "Item 5.A. Operating Results—Non-IFRS measures as defined by the Company"Non-IFRS Measures" section for additional information.
|
Surgical
Surgical net sales were $4.2$5.0 billion, (+4%, +7% cc) in 2019 as all key categories grew. Implantables grew (+an increase of 7%, +9% cc),primarily driven by continued strongproduct innovation, market improvements across most geographies reflecting continuing recovery from the COVID-19 pandemic, and sales of the Hydrus Microstent. Growth was partially offset by unfavorable currency impacts of 6%. Surgical net sales increased 13% in constant currencies.
•Implantables net sales were $1.7 billion, an increase of 13%, reflecting improving market conditions, increased demand for Advanced Technology IOLs, includingthe portfolio of advanced technology intraocular lenses, led by AcrySof IQVivity, and sales of the Hydrus Microstent, partially offset by unfavorable currency impacts of 7%. Implantables net sales increased 20% in constant currencies.
•PanOptix trifocal IOLs, particularly with the recent launches in the US and Japan. Consumables grew (+3%net sales were $2.5 billion, an increase of 5%, +6% cc), primarily driven by cataract and vitreoretinal consumables which continuehigher procedure volumes due to benefit from a strong global installed equipment base. improving market conditions, partially offset by unfavorable currency impacts of 5%. Consumables net sales increased 10% in constant currencies.
•Equipment/other grew (+net sales were $821 million, an increase of 4%, +6% cc),primarily driven by growthdemand in international markets for cataract equipment and service, revenuepartially offset by declines in refractive equipment and procedural eye drops, while the base equipmentunfavorable currency impacts of 6%. Equipment/other net sales remained broadlyincreased 10% in line with prior year.constant currencies.
Vision Care
Vision Care net sales were $3.2$3.6 billion, (+1%an increase of 3%, +3% cc)with product innovation and market improvements across geographies reflecting continuing recovery from the COVID-19 pandemic, partially offset by unfavorable currency impacts of 5%. Ocular health net sales also benefited from sales of ophthalmic pharmaceutical products following acquisitions, including Aerie in November 2022. Vision Care net sales increased 8% in constant currencies.
•Contact lenses grew (+net sales were $2.2 billion, an increase of 2%, +4% cc), driven by continued double-digitsilicone hydrogel contact lenses, including the Precision1 and Total families of products, as well as price increases. This growth of DAILIES TOTAL1 globally, including multifocal lenses to treat presbyopia, partially offset by a decline in other contact lenses. Ocular health grew (0%, +2% cc), driven by artificial tears, primarily Systane in the US and Europe following the 2018 launch of Systane COMPLETE,was partially offset by declines in legacy lenses and unfavorable currency impacts of 7%. Contact lenses net sales increased 9% in constant currencies.
•Ocular health net sales were $1.4 billion, an increase of 3%, primarily driven by the portfolio of eye drops, including recently acquired ophthalmic pharmaceuticalproducts and Systane. This growth was significantly offset by unfavorable currency impacts of 4% and supply chain challenges, primarily in contact lens care as the global market continues to shift to daily lens modalities.care. Ocular health net sales increased 7% in constant currencies.
Operating income/(loss)/income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 compared to 2021 | | 2021 compared to 2020 |
| | | Change % | | | Change % |
($ millions unless indicated otherwise) | | 2022 | 2021 | $ | cc(1) | | 2020 | $ | cc(1) |
| | | | | | | | | |
Gross profit | | 4,748 | | 4,652 | | 2 | | 10 | | | 2,940 | | 58 | | 56 | |
Selling, general & administration | | (3,068) | | (3,076) | | — | | (4) | | | (2,694) | | (14) | | (13) | |
Research & development | | (702) | | (842) | | 17 | | 15 | | | (673) | | (25) | | (25) | |
Other income | | 36 | | 43 | | (16) | | (15) | | | 235 | | (82) | | (82) | |
Other expense | | (342) | | (197) | | (74) | | (75) | | | (290) | | 32 | | 33 | |
Operating income/(loss) | | 672 | | 580 | | 16 | | 59 | | | (482) | | nm | nm |
Operating margin (%) | | 7.8 | | 7.1 | | | | | (7.1) | | | |
| | | | | | | | | |
Core results(1) | | | | | | | | | |
Core gross profit | | 5,381 | | 5,216 | | 3 | | 11 | | | 4,092 | | 27 | | 26 | |
Core operating income | | 1,571 | | 1,443 | | 9 | | 26 | | | 789 | | 83 | | 78 | |
Core operating margin (%) | | 18.2 | | 17.6 | | | | | 11.7 | | | |
|
| | | | | | | | | | | | | | | | |
| | 2019 compared to 2018 | | 2018 compared to 2017 |
| | | Change % | | | Change % |
($ millions unless indicated otherwise) | | 2019 |
| 2018 |
| $ |
| cc(1) |
| | 2017 |
| $ |
| cc(1) |
|
| | | | | | | | | |
Gross profit | | 3,662 |
| 3,192 |
| 15 |
| 19 |
| | 3,204 |
| — |
| (1 | ) |
Selling, general & administration | | (2,847 | ) | (2,801 | ) | (2 | ) | (4 | ) | | (2,596 | ) | (8 | ) | (7 | ) |
Research & development | | (656 | ) | (587 | ) | (12 | ) | (12 | ) | | (584 | ) | (1 | ) | — |
|
Other income | | 55 |
| 47 |
| 17 |
| 19 |
| | 47 |
| — |
| 1 |
|
Other expense | | (401 | ) | (99 | ) | nm |
| nm |
| | (148 | ) | 33 |
| 33 |
|
Operating (loss) | | (187 | ) | (248 | ) | 25 |
| 54 |
| | (77 | ) | nm |
| nm |
|
Operating margin (%) | | (2.5 | ) | (3.5 | ) | | | | (1.1 | ) | | |
| | | | | | | | | |
Core results(1) | | | | | | | | | |
Core gross profit | | 4,663 |
| 4,541 |
| 3 |
| 6 |
| | 4,211 |
| 8 |
| 8 |
|
Core operating income | | 1,265 |
| 1,212 |
| 4 |
| 11 |
| | 1,086 |
| 12 |
| 12 |
|
Core operating margin (%) | | 17.2 |
| 17.0 |
| | | | 16.0 |
| | |
nm = not meaningful | |
(1) | (1) Core results and constant currencies are non-IFRS measures. Refer to "Item 5.A. Operating Results—Non-IFRS measures as defined by the Company" section for additional information and reconciliation tables. |
Operating lossResults—Supplementary Information—Definitions and Reconciliations of Non-IFRS Measures" section for additional information and reconciliation tables.
Operating income was $187$672 million (+16%, +59% cc), compared to $248$580 million in the prior year period. The prior year period included an unfavorable impact of $282 millionOperating margin increased 0.7 percentage points, with improved operating leverage from the CyPass voluntary market withdrawal, including a $337 million expense for impairment of thehigher sales, lower intangible asset impairments and $11 million in other costs,favorability from incentive compensation, partially offset by a $66 million reduction of the contingent consideration liability. The current year period includesincreased inflationary impacts, increased transformation costs, increased legal items, acquisition and integration related expenses, higher salesamortization for intangible assets due to recent acquisitions and improved gross margin which were more than offset by spin readiness costs, separation costs, transformation program costs, and investments in research and development and IT, including SAP implementation. There was a negative 1.0%2.3 percentage point impact from currency. Operating margin increased 3.0 percentage points on operating margin from currency in 2019.a constant currencies basis.
Adjustments to arrive at core operating income in the current year were $1.5 billion,$899 million, mainly due to $1.0 billion$588 million of amortization, $237$62 million in impairments of intangible assets, $119 million of transformation costs, $90 million of legal settlement costs and $64 million of acquisition and integration related expenses. Adjustments to arrive at core operating income in the prior year period were $863 million, mainly due to $529 million of amortization, $225 million in impairments of intangible assets, $68 million of transformation costs, an increase of $50 million in legal items and $36 million of separation costs, $72partially offset by a $42 million of spin readiness costs and $52 million of transformation program costs.benefit from fair value adjustments to contingent liabilities.
Core operating income was $1.6 billion (+9%, +26% cc), compared to $1.4 billion in the prior year period. Core operating margin increased 0.6 percentage points, with improved operating leverage from higher sales and favorability from incentive compensation, partially offset by increased inflationary impacts and a negative 1.8 percentage point impact from currency. Core operating margin increased 2.4 percentage points on a constant currencies basis.
Segment contribution
For additional information regarding segment contribution, please refer to Note 4 to the Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 compared to 2021 | | 2021 compared to 2020 |
($ millions unless indicated otherwise) | | | Change % | | | Change % |
| 2022 | 2021 | $ | cc(1) | | 2020 | $ | cc(1) |
| | | | | | | | | |
Surgical segment contribution | | 1,336 | | 1,184 | | 13 | | 26 | | | 672 | | 76 | | 72 | |
As % of net sales | | 26.5 | | 25.2 | | | | | 18.1 | | | |
Vision Care segment contribution | | 600 | | 604 | | (1) | | 15 | | | 419 | | 44 | | 41 | |
As % of net sales | | 16.6 | | 17.2 | | | | | 13.7 | | | |
Not allocated to segments | | (1,264) | | (1,208) | | (5) | | (5) | | | (1,573) | | 23 | | 23 | |
Operating income/(loss) | | 672 | | 580 | | 16 | | 59 | | | (482) | | nm | nm |
Core adjustments(1) | | 899 | | 863 | | | | | 1,271 | | | |
Core operating income(1) | | 1,571 | | 1,443 | | 9 | | 26 | | | 789 | | 83 | | 78 | |
nm = not meaningful
(1)Core results and constant currencies are non-IFRS measures. Refer to "Item 5.A. Operating Results—Supplementary Information—Definitions and Reconciliations of Non-IFRS Measures" section for additional information and reconciliation tables.
Surgical
Surgical segment contribution was $1.3 billion (+4%13%, +11%+26% cc), compared to $1.2 billion in the prior year period. HigherSegment contribution margin increased 1.3 percentage points, with improved operating leverage from higher sales wereand favorability from incentive compensation, partially offset by investments in research & developmentincreased inflationary impacts and IT, including the SAP implementation. Core gross margin was broadly in line with prior year, as improved surgical sales mix and vision care manufacturing efficiencies were offset by SAP implementation costs, vision care production expansion costs and China tariffs. There was a negative 0.6%1.6 percentage point impact from currency. Segment contribution margin increased 2.9 percentage points on core operating margin from currency in 2019.a constant currencies basis.
Vision Care
Segment contribution(1)
|
| | | | | | | | | | | | | | | | |
| | 2019 compared to 2018 | | 2018 compared to 2017 |
($ millions unless indicated otherwise) | | | Change % | | | Change % |
| 2019 |
| 2018 |
| $ |
| cc(2) |
| | 2017 |
| $ |
| cc(2) |
|
| | | | | | | | | |
Surgical segment contribution | | 923 |
| 813 |
| 14 |
| 19 |
| | 691 |
| 18 |
| 18 |
|
As % of net sales | | 22.1 |
| 20.3 |
|
|
|
|
| | 18.5 |
| | |
Vision Care segment contribution | | 563 |
| 594 |
| (5 | ) | (1 | ) | | 625 |
| (5 | ) | (5 | ) |
As % of net sales | | 17.7 |
| 18.9 |
|
|
|
|
| | 20.5 |
| | |
Not allocated to segments | | (1,673 | ) | (1,655 | ) | (1 | ) | (1 | ) | | (1,393 | ) | (19 | ) | (18 | ) |
Operating (loss) | | (187 | ) | (248 | ) | 25 |
| 54 |
| | (77 | ) | nm |
| nm |
|
| | | | | | | | | |
Core results(2) | | | | | | | | | |
Core Surgical segment contribution | | 957 |
| 846 |
| 13 |
| 19 |
| | 701 |
| 21 |
| 21 |
|
As % of net sales | | 22.9 |
| 21.2 |
|
|
|
|
| | 18.8 |
| | |
Core Vision Care segment contribution | | 580 |
| 600 |
| (3 | ) | 1 |
| | 625 |
| (4 | ) | (3 | ) |
As % of net sales | | 18.2 |
| 19.0 |
|
|
|
|
| | 20.5 |
| | |
Core not allocated to segments | | (272 | ) | (234 | ) | (16 | ) | (17 | ) | | (240 | ) | 3 |
| 3 |
|
Core operating income | | 1,265 |
| 1,212 |
| 4 |
| 11 |
| | 1,086 |
| 12 |
| 12 |
|
nm = not meaningful
| |
(1) | For additional informationregarding segment contribution please refer to Note 5 to the Consolidated Financial Statements.
|
| |
(2) | Core results and constant currencies are non-IFRS measures. Refer to "Item 5.A. Operating Results —Non-IFRS measures as defined by the Company" section for additional information and reconciliation tables.
|
Surgical
SurgicalVision Care segment contribution was $923$600 million (+14%(-1%, +19%+15% cc), compared to $813$604 million in the prior year period. HigherSegment contribution margin decreased 0.6 percentage points, including a negative 1.8 percentage point impact from currency. Segment contribution margin increased 1.2 percentage points on a constant currencies basis. Underlying improvements in operating leverage from higher sales improved gross margin, and improved selling, general & administrative expenses leverage,favorability from incentive compensation were partially offset byunfavorable product mix from launches of new silicone hydrogel daily contact lenses, increased inflationary impacts and supply chain challenges.
Not allocated to segments
Operating loss not allocated to segments totaled $1.3 billion (-5%, -5% cc), compared to $1.2 billion in the prior year period, primarily driven by higher research & development investments.
Adjustmentsamortization for intangible assets due to arrive at core Surgical segment contribution were $34 million, primarily for business development chargesrecent acquisitions, increased transformation costs, acquisition and manufacturing sites consolidation activitiesintegration related expenses and increased legal items, partially offset by fair value adjustmentslower intangible asset impairments.
Non-operating income & expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 compared to 2021 | | 2021 compared to 2020 |
| | | | Change % | | | Change % |
($ millions unless indicated otherwise) | | 2022 | 2021 | $ | cc(1) | | 2020 | $ | cc(1) |
| | | | | | | | | |
Operating income/(loss) | | 672 | | 580 | | 16 | | 59 | | | (482) | | nm | nm |
Interest expense | | (134) | | (120) | | (12) | | (13) | | | (124) | | 3 | | 3 | |
Other financial income & expense | | (75) | | (42) | | (79) | | (80) | | | (29) | | (45) | | (41) | |
Income/(loss) before taxes | | 463 | | 418 | | 11 | | 70 | | | (635) | | nm | nm |
Taxes | | (128) | | (42) | | nm | nm | | 104 | | nm | nm |
Net income/(loss) | | 335 | | 376 | | (11) | | 37 | | | (531) | | nm | nm |
Basic earnings/(loss) per share ($) | | 0.68 | | 0.77 | | (12) | | 36 | | | (1.09) | | nm | nm |
Diluted earnings/(loss) per share ($) | | 0.68 | | 0.76 | | (11) | | 37 | | | (1.09) | | nm | nm |
| | | | | | | | | |
Core results(1) | | | | | | | | | |
Core taxes | | (254) | | (218) | | (17) | | (38) | | | (124) | | (76) | | (72) | |
Core net income | | 1,108 | | 1,063 | | 4 | | 23 | | | 512 | | 108 | | 102 | |
Core basic earnings per share ($) | | 2.25 | | 2.17 | | 4 | | 23 | | | 1.05 | | 107 | | 101 | |
Core diluted earnings per share ($) | | 2.24 | | 2.15 | | 4 | | 23 | | | 1.04 | | 107 | | 101 | |
nm = not meaningful
(1)Core results and constant currencies are non-IFRS measures. Refer to contingent consideration liabilities."Item 5.A. Operating Results—Supplementary Information—Definitions and Reconciliations of Non-IFRS Measures" section for additional information and reconciliation tables.
Core Surgical segment contributionInterest expense
Interest expense was $957$134 million, (+13%, +19% cc), compared to $846$120 million in the prior year period. Higher sales, improved gross margin, and improved selling, general & administrative expenses leverage, were partially offset by higher research & development investments. There was a negative 0.6% point impact on core Surgical segment contribution margin from currency.
Vision Care
Vision Care segment contribution was $563 million (-5%, -1% cc), compared to $594 million in the prior year period. Higher sales and lower marketing and selling costs were offset by lower gross margin from product mix, production expansion costs, higher research & development investments, and separation costs.
Adjustments to arrive at core Vision Care segment contribution were $17 million primarily due to spin readiness and separation costs partially offset by fair value adjustments to contingent consideration liabilities.
Core Vision Care segment contribution was $580 million (-3%, +1% cc), compared to $600 million in the prior year period. Higher sales and lower marketing and selling costs were partially offset by lower gross margin from product mix, production expansion costs, and higher research & development investments. There was a negative 0.5% point impact on core Vision Care segment contribution margin from currency.
Not allocated to segments
Operating loss not allocated to segments was $1.7 billion, broadly in line with the prior year period which was affected by the CyPass voluntary market withdrawal. The current year period included $214 million of separation costs, $62 million of spin readiness costs,$52 millionof transformation program costs, and higher corporate costs, consisting of legal items and IT costs.
Core operating income not allocated to segments amounted to net core expense of $272 million, compared to $234 million in the prior year period, driven primarily by higher IT costs.
Non-operating income & expense
|
| | | | | | | | | | | | | | | | |
| | 2019 compared to 2018 | | 2018 compared to 2017 |
| | | | Change % | | | Change % |
($ millions unless indicated otherwise) | | 2019 |
| 2018 |
| $ |
| cc(1) |
| | 2017 |
| $ |
| cc(1) |
|
| | | | | | | | | |
Operating (loss) | | (187 | ) | (248 | ) | 25 |
| 54 |
| | (77 | ) | nm |
| nm |
|
Interest expense | | (113 | ) | (24 | ) | nm |
| nm |
| | (27 | ) | 11 |
| (2 | ) |
Other financial income & expense | | (32 | ) | (28 | ) | (14 | ) | (15 | ) | | (23 | ) | (22 | ) | (29 | ) |
(Loss) before taxes | | (332 | ) | (300 | ) | (11 | ) | 13 |
| | (127 | ) | (136 | ) | (129 | ) |
Taxes | | (324 | ) | 73 |
| nm |
| nm |
| | 383 |
| (81 | ) | (81 | ) |
Net (Loss)/income | | (656 | ) | (227 | ) | (189 | ) | (163 | ) | | 256 |
| nm |
| nm |
|
Basic and diluted (loss)/earnings per share ($) | | (1.34 | ) | (0.46 | ) | (191 | ) | (163 | ) | | 0.52 |
| nm |
| nm |
|
| | | | | | | | | |
Core results(1) | | | | | | | | | |
Core taxes | | (195 | ) | (186 | ) | (5 | ) | (12 | ) | | (128 | ) | (45 | ) | (45 | ) |
Core net income | | 925 |
| 974 |
| (5 | ) | 1 |
| | 908 |
| 7 |
| 8 |
|
Core basic earnings per share ($) | | 1.89 |
| 2.00 |
| (6 | ) | 1 |
| | 1.86 |
| 8 |
| 8 |
|
Core diluted earnings per share ($) | | 1.89 |
| 2.00 |
| (6 | ) | 1 |
| | 1.86 |
| 8 |
| 8 |
|
nm = not meaningful
| |
(1) | Core results and constant currencies are non-IFRS measures. Refer to "Item 5.A. Operating Results—Non-IFRS measures as defined by the Company" section for additional information and reconciliation tables.
|
Interest expense
Interest expense was $113 million, compared with $24 million in the prior year period, driven byhad increased financial debts includingfollowing funding of the bridgeAerie acquisition in November 2022 and other term loans, notes and local bilateral facilities, and the adoption of IFRS 16, Leases.less favorable interest rates.
Other financial income & expense
Other financial income & expense was a net expense of $32$75 million, compared to $28 million in the prior year period, and consisted primarily of hedging costs and foreign currency exchange gains and losses. The current year period also included a $4 million write-off of unamortized deferred financing costs at the time of refinancing.
Taxes
Tax expense was $324 million, compared to a tax benefit of $73$42 million in the prior year period. The increase was primarily driven by foreign currency exchange losses, losses from hyperinflationary accounting, hedging costs and losses for the write-off of unamortized debt issuance costs, partially offset by interest income.
Taxes
Tax expense was $128 million, compared to $42 million in the prior year period. The average tax rate was 27.6% compared to 10.0% in the prior year period, includedprimarily driven by the recognition of tax expense for an Advanced Pricing Agreement between Swiss and US tax authorities related to fiscal years 2019 through 2022 (the "2022 APA"), partially offset by discrete tax items favorably impacting the current year, including an agreement for deductibility of a $76 millionstatutory expense for Switzerland federal tax related to fiscal year 2021. It is uncertain whether Alcon will obtain a similar benefit for the releasedeductibility of the deferred tax liability associated with the CyPass intangible asset. Taxes recognizedthese statutory expenses in the current period include $304 millionSwitzerland in non-cash tax expense related to the re-measurement of deferred tax assets and liabilities as a result of Swiss tax reform, tax expense related to rate changes in the US following legal entity reorganizations executed related to the Spin-off, non-cash tax expense related to the re-measurement of deferred tax assets and liabilities following a tax rate change in India, and net changes in uncertain tax positions.future years.
Adjustments to arrive at core tax expense in the current year period were $129$126 million primarily related to Swissfor the tax reform,effect associated with operating income core adjustments, partially offset by discrete tax impacts of the 2022 APA for the fiscal years 2019 through 2021. Adjustments to arrive at core tax expense in the prior year period were $176 million for the tax effect associated with operating income core adjustments.
Core tax expense was $195$254 million, compared to $186$218 million in the prior year period. The average core tax rate increasedwas 18.6% compared to 17.4% from 16.0%17.0% in the prior year period. The increase in the core effective tax rate isperiod, primarily driven by a loss of certain tax benefits in the US due to the Spin-off2022 APA related to fiscal year 2022, partially offset by discrete tax benefits, including an agreement for deductibility of a statutory expense for Switzerland federal tax related to fiscal year 2021 and the mix of pre-tax income across geographicalother discrete tax jurisdictions.items.
Net (loss)/income and (loss)/earnings per share
Net lossincome was $656$335 million, compared to a net loss of $227$376 million in the prior year period. The increase was mainly attributableperiod, primarily due to an operating loss driven mainly by spin readiness costs, separation costs, and transformation program costs, higher interest, other financial expense and tax expense.expense, partially offset by higher operating income. In addition, the current year reflects unfavorable currency impacts. The associated basic and diluted (loss)earnings per share were $(1.34),$0.68, compared to $(0.46)basic and diluted earnings per share of $0.77 and $0.76, respectively, in the prior year period.
Core net income was $925 million,$1.1 billion, compared to $974 million$1.1 billion in the prior year period, asprimarily due to higher core operating income, waspartially offset by higher interest, other financial expense and core tax expense.expenses. In addition, the current year reflects unfavorable currency impacts. The associated core basic and diluted earnings per share were $1.89$2.25 and $2.24, respectively, compared to $2.00$2.17 and $2.15, respectively, in the prior year period.
EFFECTS OF CURRENCY FLUCTUATIONSEffects of currency fluctuations
We prepare our Consolidated Financial Statements in US dollars. As a result, fluctuations in the exchange rates between the US dollar and other currencies can have a significant effect on both our results of operations as well as on the reported value of our assets, liabilities and cash flows. This in turn may significantly affect reported earnings (both positively and negatively) and the comparability of period-to-period results of operations.
For purposes of our consolidated balance sheets,Consolidated Balance Sheet, we translate assets and liabilities denominated in other currencies into US dollars at the prevailing market exchange rates as of the relevant balance sheet date. For purposes of our consolidated income statementsConsolidated Income Statement and statementsstatement of cash flows, revenue, expense and cash flow items in local currencies are translated into US dollars at average exchange rates prevailing during the relevant period. As a result, even if the amounts or values of these items remain unchanged in the respective local currency, changes in exchange rates have an impact on the amounts or values of these items in our Consolidated Financial Statements.
Alcon manages its global currency exposure by engaging in hedging transactions where management deems appropriate (forward contractsas described in "Item 5.B. Liquidity and swaps)Capital Resources". Specifically, Alcon enters into various contracts that reflect the changes in the valueThe impact of foreign currency exchange rates to preserve the valueongoing macroeconomic conditions is currently unknown and could have a material adverse effect on our results of assets.operations, cash flows or financial condition.
There is also a risk that certain countries could devalue their currency. If this occurs, then it could impact the effective prices we would be able to charge for our products and also have an adverse impact on both our consolidated income statementConsolidated Income Statement and balance sheet.Consolidated Balance Sheet. Alcon is exposed to a potential adverse devaluation risk on its intercompany funding and total investment in certain subsidiaries operating in countries with exchange controls.
The hyperinflationary economies in which we operate are Argentina, Turkey and Venezuela. Argentina and Venezuela waswere hyperinflationary for all years presented, and Argentinapresented. Turkey became hyperinflationary effective JulyApril 1, 2018,2022, requiring retroactive implementation of hyperinflation accounting as offrom January 1, 2018.2022 of hyperinflationary accounting. Refer to Note 32 to the Consolidated Financial Statements included elsewhere in this Annual Report for additional information.
Foreign exchange rates for foreign currency translation
The following tables set forth the foreign exchange rates of the US dollar against key currencies used for foreign currency translation when preparing the Consolidated Financial Statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average for year | | As of December 31 |
($ per unit unless indicated otherwise) | 2022 | | 2021 | | Change % | | 2022 | | 2021 | | Change % |
AUD | 0.693 | | 0.752 | | (8) | | | 0.678 | | 0.726 | | (7) | |
BRL | 0.194 | | 0.186 | | 4 | | | 0.189 | | 0.180 | | 5 | |
CAD | 0.768 | | 0.798 | | (4) | | | 0.738 | | 0.785 | | (6) | |
CHF | 1.047 | | 1.094 | | (4) | | | 1.081 | | 1.093 | | (1) | |
CNY | 0.149 | | 0.155 | | (4) | | | 0.144 | | 0.157 | | (8) | |
EUR | 1.051 | | 1.183 | | (11) | | | 1.065 | | 1.130 | | (6) | |
GBP | 1.232 | | 1.376 | | (10) | | | 1.207 | | 1.351 | | (11) | |
INR (100) | 1.272 | | 1.353 | | (6) | | | 1.208 | | 1.347 | | (10) | |
JPY (100) | 0.760 | | 0.912 | | (17) | | | 0.757 | | 0.868 | | (13) | |
RUB (100) | 1.432 | | 1.358 | | 5 | | | 1.380 | | 1.336 | | 3 | |
KRW (1,000) | 0.774 | | 0.874 | | (11) | | | 0.793 | | 0.840 | | (6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average for year | | As of December 31 |
($ per unit unless indicated otherwise) | 2021 | | 2020 | | Change % | | 2021 | | 2020 | | Change % |
AUD | 0.752 | | 0.690 | | 9 | | | 0.726 | | 0.771 | | (6) | |
BRL | 0.186 | | 0.196 | | (5) | | | 0.180 | | 0.193 | | (7) | |
CAD | 0.798 | | 0.746 | | 7 | | | 0.785 | | 0.784 | | — | |
CHF | 1.094 | | 1.066 | | 3 | | | 1.093 | | 1.135 | | (4) | |
CNY | 0.155 | | 0.145 | | 7 | | | 0.157 | | 0.153 | | 3 | |
EUR | 1.183 | | 1.141 | | 4 | | | 1.130 | | 1.229 | | (8) | |
GBP | 1.376 | | 1.284 | | 7 | | | 1.351 | | 1.365 | | (1) | |
INR (100) | 1.353 | | 1.350 | | — | | | 1.347 | | 1.369 | | (2) | |
JPY (100) | 0.912 | | 0.937 | | (3) | | | 0.868 | | 0.970 | | (11) | |
RUB (100) | 1.358 | | 1.390 | | (2) | | | 1.336 | | 1.337 | | — | |
KRW (1,000) | 0.874 | | 0.849 | | 3 | | | 0.840 | | 0.920 | | (9) | |
|
| | | | | | | | | | | | | |
| Average for year | | As of December 31 |
($ per unit unless indicated otherwise) | 2019 | | 2018 | | Change % |
| | 2019 | | 2018 | | Change % |
|
AUD | 0.695 | | 0.748 | | (7 | ) | | 0.701 | | 0.707 | | (1 | ) |
BRL | 0.254 | | 0.275 | | (8 | ) | | 0.249 | | 0.258 | | (3 | ) |
CAD | 0.754 | | 0.772 | | (2 | ) | | 0.767 | | 0.735 | | 4 |
|
CHF | 1.006 | | 1.023 | | (2 | ) | | 1.032 | | 1.014 | | 2 |
|
CNY | 0.145 | | 0.151 | | (4 | ) | | 0.144 | | 0.145 | | (1 | ) |
EUR | 1.120 | | 1.181 | | (5 | ) | | 1.121 | | 1.144 | | (2 | ) |
GBP | 1.277 | | 1.336 | | (4 | ) | | 1.313 | | 1.274 | | 3 |
|
JPY (100) | 0.917 | | 0.906 | | 1 |
| | 0.920 | | 0.907 | | 1 |
|
RUB (100) | 1.546 | | 1.600 | | (3 | ) | | 1.613 | | 1.437 | | 12 |
|
The following table shows information concerning the rate of exchange of US dollar per Swiss franc based on exchange rate information found on Bloomberg Market System. The exchange rate in effect on February 21, 2023 as found on Bloomberg Market System was CHF 1.00 =USD 1.08. | | | | | | | | | | | |
($ per CHF) | Low(1) | | High(1) |
January 2022 | 1.07 | | 1.08 |
February 2022 | 1.08 | | 1.09 |
March 2022 | 1.08 | | 1.09 |
April 2022 | 1.03 | | 1.03 |
May 2022 | 1.04 | | 1.05 |
June 2022 | 1.04 | | 1.05 |
July 2022 | 1.04 | | 1.05 |
August 2022 | 1.02 | | 1.03 |
September 2022 | 1.01 | | | 1.03 | |
October 2022 | 1.00 | | | 1.00 | |
November 2022 | 1.05 | | | 1.06 | |
December 2022 | 1.08 | | | 1.09 | |
January 2023 | 1.08 | | | 1.09 | |
February 2023 (through February 21, 2023) | 1.08 | | | 1.08 | |
|
| | | | | | | | | | | | | |
| Average for year | | As of December 31 |
($ per unit unless indicated otherwise) | 2018 | | 2017 | | Change % |
| | 2018 | | 2017 | | Change % |
|
AUD | 0.748 | | 0.766 | | (2 | ) | | 0.707 | | 0.779 | | (9 | ) |
BRL | 0.275 | | 0.313 | | (12 | ) | | 0.258 | | 0.302 | | (15 | ) |
CAD | 0.772 | | 0.771 | | — |
| | 0.735 | | 0.797 | | (8 | ) |
CHF | 1.023 | | 1.016 | | 1 |
| | 1.014 | | 1.024 | | (1 | ) |
CNY | 0.151 | | 0.148 | | 2 |
| | 0.145 | | 0.154 | | (6 | ) |
EUR | 1.181 | | 1.129 | | 5 |
| | 1.144 | | 1.195 | | (4 | ) |
GBP | 1.336 | | 1.288 | | 4 |
| | 1.274 | | 1.347 | | (5 | ) |
JPY (100) | 0.906 | | 0.892 | | 2 |
| | 0.907 | | 0.888 | | 2 |
|
RUB (100) | 1.600 | | 1.715 | | (7 | ) | | 1.437 | | 1.734 | | (17 | ) |
(1) Represents the lowest and highest, respectively, of the exchange rates on the last day of each month during the year.
Currency impact on key figures
The following table provides a summary of the currency impact on key company figures due to their conversion into US dollars, Alcon's reporting currency, of the financial data from entities reporting in non-US dollars.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 compared to 2021 | | 2021 compared to 2020 |
| Change % | | Percentage point currency impact | | Change % | | Percentage point currency impact |
| $ | | cc(1) | | | $ | | cc(1) | |
| | | | | | | | | | | |
Net sales to third parties | 5 | | | 11 | | | (6) | | | 22 | | | 20 | | | 2 | |
Gross profit | 2 | | | 10 | | | (8) | | | 58 | | | 56 | | | 2 | |
Operating income/(loss) | 16 | | | 59 | | | (43) | | | nm | | nm | | nm |
Net income/(loss) | (11) | | | 37 | | | (48) | | | nm | | nm | | nm |
Basic earnings/(loss) per share ($) | (12) | | | 36 | | | (48) | | | nm | | nm | | nm |
Diluted earnings/(loss) per share ($) | (11) | | | 37 | | | (48) | | | nm | | nm | | nm |
| | | | | | | | | | | |
Core results(1) | | | | | | | | | | | |
Core operating income | 9 | | | 26 | | | (17) | | | 83 | | | 78 | | | 5 | |
Core net income | 4 | | | 23 | | | (19) | | | 108 | | | 102 | | | 6 | |
Core basic earnings per share ($) | 4 | | | 23 | | | (19) | | | 107 | | | 101 | | | 6 | |
Core diluted earnings per share ($) | 4 | | | 23 | | | (19) | | | 107 | | | 101 | | | 6 | |
|
| | | | | | | | | | | | | | | | |
| 2019 compared to 2018 | | 2018 compared to 2017 |
| Change % | | Percentage point currency impact |
| | Change % | | Percentage point currency impact |
|
| $ |
| | cc(1) |
| | | $ |
| | cc(1) | |
| | | | | | | | | | | |
Net sales to third parties | 3 |
| | 5 |
| | (2 | ) | | 5 |
| | 5 | | — |
|
Gross profit | 15 |
| | 19 |
| | (4 | ) | | — |
| | (1) | | 1 |
|
Operating (loss) | 25 |
| | 54 |
| | (29 | ) | | nm |
| | nm | �� | nm |
|
Net (loss)/income | (189 | ) | | (163 | ) | | (26 | ) | | nm |
| | nm | | nm |
|
Basic and diluted (loss)/earnings per share | (191 | ) | | (163 | ) | | (28 | ) | | nm |
| | nm | | nm |
|
| | | | | | | | | | | |
Core results(1) | | | | | | | | | | | |
Core operating income | 4 |
| | 11 |
| | (7 | ) | | 12 |
| | 12 | | — |
|
Core net income | (5 | ) | | 1 |
| | (6 | ) | | 7 |
| | 8 | | (1 | ) |
Core basic earnings per share | (6 | ) | | 1 |
| | (7 | ) | | 8 |
| | 8 | | — |
|
Core diluted earnings per share | (6 | ) | | 1 |
| | (7 | ) | | 8 |
| | 8 | | — |
|
nm = not meaningful | |
(1) | Core results and constant currencies (cc) as presented in this table are non-IFRS measures. Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods. Refer to "Item 5.A. Operating Results—Non-IFRS measures as defined by the Company"(1) Core results and constant currencies (cc) as presented in this table are non-IFRS measures. Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods. Refer to "Item 5.A. Operating Results—Supplementary Information—Definitions and Reconciliations of Non-IFRS Measures" section for additional information. |
A 1% movement in the USD versus our basket of currencies would resulthave resulted in a $40$46 million change in annual net sales and $15a $20 million change in both annual operating income and core operating income.
SUPPLEMENTARY INFORMATION - DEFINITIONS AND RECONCILIATIONS OF NON-IFRS MEASURES AS DEFINED BY THE COMPANY
Non-IFRS measures as defined by the Company
Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods, including core results, percentage changes measured in constant currencies, EBITDA, free cash flow, and net liquidity/(debt)./liquidity.
Because of their non-standardized definitions, the non-IFRS measures (unlike IFRS measures) may not be comparable to the calculation of similar measures of other companies. These supplemental non-IFRS measures are presented solely to permit investors to more fully understand how Alcon management assesses underlying performance. These supplemental non-IFRS measures are not, and should not be viewed as, a substitute for IFRS measures.
Core results
Alcon core results, including core operating income and core net income, exclude all amortization and impairment charges of intangible assets, excluding software, net gains and losses on fund investments and equity securities valued at fair value through profit and loss ("FVPL"), fair value adjustments of financial assets in the form of options to acquire a company carried at FVPL, obligations related to product recalls, and certain acquisition related items. The following items that exceed a threshold of $10 million and are deemed exceptional are also excluded from core results: integration and divestment related income and expenses, divestment gains and losses, restructuring charges/releases and related items, legal related items, gains/losses on early extinguishment of debt or debt modifications, past service costs for post-employment benefit plans, impairments of property, plant and equipment and software, as well as income and expense items that management deems exceptional and that are or are expected to accumulate within the year to be over a $10 million threshold.
Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements in certain jurisdictions.
Alcon believes that investor understanding of its performance is enhanced by disclosing core measures of performance because, since they exclude items that can vary significantly from period to period, the core measures enable a helpful comparison of business performance across periods. For this same reason, Alcon uses these core measures in addition to IFRS and other measures as important factors in assessing its performance.
A limitation of the core measures is that they provide a view of Alcon operations without including all events during a period, such as the effects of an acquisition, divestment, or amortization/impairments of purchased intangible assets and restructurings.
Constant currencies
Changes in the relative values of non-US currencies to the US dollar can affect AlconAlcon's financial results and financial position. To provide additional information that may be useful to investors, including changes in sales volume, we present information about changes in our net sales and various values relating to operating and net income that are adjusted for such foreign currency effects.
Constant currency calculations have the goal of eliminating two exchange rate effects so that an estimate can be made of underlying changes in the consolidated income statementConsolidated Income Statement excluding:
•the impact of translating the income statements of consolidated entities from their non-US dollar functional currencies to the US dollar; and
•the impact of exchange rate movements on the major transactions of consolidated entities performed in currencies other than their functional currency.
Alcon calculates constant currency measures by translating the current year's foreign currency values for sales and other income statement items into US dollars, using the average exchange rates from the prior yearhistorical comparative period and comparing them to the prior year values from the historical comparative period in US dollars.
For additional information on the effects of foreign currencies, refer to "Item 5.A. Operating Results- EffectsResults-Effects of currency fluctuations" section.
EBITDA
Alcon defines earnings before interest, tax, depreciation and amortization ("EBITDA") as net income/(loss)/income excluding income taxes, depreciation of property, plant and equipment (including any related impairment charges), depreciation of right-of-use assets, amortization of intangible assets (including any related impairment charges), interest expense and other financial income and expense. Alcon management primarily uses EBITDA together with net (debt)/liquidity to monitor leverage associated with financial debts. For a reconciliation of EBITDA to the most directly comparable measure presented in accordance with IFRS, see "Item 5.B. Liquidity and Capital Resources—EBITDA (non-IFRS measure)" section.
Free cash flow
Alcon defines free cash flow as net cash flows from operating activities less cash flow associated with the purchase or sale of property, plant and equipment. Free cash flow is presented as additional information because Alcon management believes it is a useful supplemental indicator of Alcon's ability to operate without reliance on additional borrowing or use of existing cash. Free cash flow is not intended to be a substitute measure for net cash flows from operating activities as determined under IFRS. For a reconciliation of free cash flow to the most directly comparable measure presented in accordance with IFRS, see "Item 5.B. Liquidity and Capital Resources—Free cash flow (non-IFRS measure)" section.
Net liquidity/(debt)/liquidity
Alcon defines net liquidity/(debt)/liquidity as current and non-current financial debt less cash and cash equivalents, current investments and derivative financial instruments. Net liquidity/(debt)/liquidity is presented as additional information because management believes it is a useful supplemental indicator of Alcon's ability to pay dividends, to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet. For a reconciliation of net liquidity/(debt)/liquidity to the most directly comparable measure presented in accordance with IFRS, see "Item 5.B. Liquidity and Capital Resources—Net (debt)/liquidity (non-IFRS measure)" section.
Growth rate and margin calculations
For ease of understanding, Alcon uses a sign convention for its growth rates such that a reduction in operating expenses or losses compared to the prior year is shown as a positive growth.
Gross margins, operating income/(loss) margins and core operating income margins are calculated based upon net sales to third parties unless otherwise noted.
Reconciliation of IFRS results to core results
2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ millions except earnings per share) | | IFRS results | Amortization of certain intangible assets(1) | | | Impairments(2) | | Transformation costs(4) | | Legal items(6) | Other items(7) | Core results |
Gross profit | | 4,748 | | 572 | | | | 59 | | | — | | | — | | 2 | | 5,381 | |
Operating income | | 672 | | 588 | | | | 62 | | | 119 | | | 90 | | 40 | | 1,571 | |
Income before taxes | | 463 | | 588 | | | | 62 | | | 119 | | | 90 | | 40 | | 1,362 | |
Taxes(8) | | (128) | | (99) | | | | (14) | | | (20) | | | (22) | | 29 | | (254) | |
Net income | | 335 | | 489 | | | | 48 | | | 99 | | | 68 | | 69 | | 1,108 | |
Basic earnings per share ($) | | 0.68 | | | | | | | | | | | 2.25 | |
Diluted earnings per share ($) | | 0.68 | | | | | | | | | | | 2.24 | |
Basic - weighted average shares outstanding (millions)(9) | | 491.4 | | | | | | | | | | | 491.4 | |
Diluted - weighted average shares outstanding (millions)(9) | | 494.4 | | | | | | | | | | | 494.4 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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Refer to the associated explanatory footnotes at the end of the 'Reconciliation of IFRS results to core results' tables.
2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ millions except earnings per share) | | IFRS results | Amortization of certain intangible assets(1) | Impairments(2) | Separation costs(3) | Transformation costs(4) | Post-employ-ment benefits(5) | Legal items(6) | Other items(7) | Core results |
Gross profit | | 4,652 | | 520 | | 45 | | — | | — | | — | | — | | (1) | | 5,216 | |
Operating income | | 580 | | 529 | | 225 | | 36 | | 68 | | (16) | | 50 | | (29) | | 1,443 | |
Income before taxes | | 418 | | 529 | | 225 | | 36 | | 68 | | (16) | | 50 | | (29) | | 1,281 | |
Taxes(8) | | (42) | | (95) | | (51) | | (6) | | (13) | | 2 | | (12) | | (1) | | (218) | |
Net income | | 376 | | 434 | | 174 | | 30 | | 55 | | (14) | | 38 | | (30) | | 1,063 | |
Basic earnings per share ($) | | 0.77 | | | | | | | | | 2.17 | |
Diluted earnings per share ($) | | 0.76 | | | | | | | | | 2.15 | |
Basic - weighted average shares outstanding (millions)(9) | | 490.0 | | | | | | | | | 490.0 | |
Diluted - weighted average shares outstanding (millions)(9) | | 493.4 | | | | | | | | | 493.4 | |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
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Refer to the associated explanatory footnotes at the end of the 'Reconciliation of IFRS results to core results' tables.
Reconciliation of IFRS results to core results (continued)
RECONCILIATION OF2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ millions except (loss)/earnings per share) | | IFRS results | Amortization of certain intangible assets(1) | Impairments(2) | Separation costs(3) | Transformation costs(4) | Post-employ-ment benefits(5) | | Other items(7) | Core results |
Gross profit | | 2,940 | | 1,001 | | 106 | | 13 | | — | | — | | | 32 | | 4,092 | |
Operating (loss)/income | | (482) | | 1,021 | | 167 | | 217 | | 49 | | (154) | | | (29) | | 789 | |
(Loss)/income before taxes | | (635) | | 1,021 | | 167 | | 217 | | 49 | | (154) | | | (29) | | 636 | |
Taxes(8) | | 104 | | (172) | | (34) | | (37) | | (10) | | 38 | | | (13) | | (124) | |
Net (loss)/income | | (531) | | 849 | | 133 | | 180 | | 39 | | (116) | | | (42) | | 512 | |
Basic (loss)/earnings per share ($) | | (1.09) | | | | | | | | | 1.05 | |
Diluted (loss)/earnings per share ($) | | (1.09) | | | | | | | | | 1.04 | |
Basic - weighted average shares outstanding (millions)(9) | | 489.0 | | | | | | | | 489.0 |
Diluted - weighted average shares outstanding (millions)(9) | | 489.0 | | | | | | | | 491.8 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
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Explanatory footnotes to IFRS RESULTS TO CORE RESULTSto Core reconciliation tables
Segment contribution(1)Includes recurring amortization for all intangible assets other than software.
2019(2)Includes impairment charges related to intangible assets.
(3)Separation costs, primarily related to IT and third party consulting fees, following completion of the Spin-off. |
| | | | | | | | | | | | | | | | | | | | | |
($ millions) | | IFRS results |
| | Amortization of intangible assets(1) |
| | Separation costs(2) |
| | Transformation Costs(3) |
| | Legal items(4) |
| | Other items(5) |
| | Core results |
|
Surgical segment contribution | | 923 |
| | — |
| | 7 |
| | — |
| | — |
| | 27 |
| | 957 |
|
Vision Care segment contribution | | 563 |
| | — |
| | 16 |
| | — |
| | — |
| | 1 |
| | 580 |
|
Not allocated to segments | | (1,673 | ) | | 1,040 |
| | 214 |
| | 52 |
| | 32 |
| | 63 |
| | (272 | ) |
Total operating (loss)/income | | (187 | ) | | 1,040 |
| | 237 |
| | 52 |
| | 32 |
| | 91 |
| | 1,265 |
|
| |
(1) | Includes recurring amortization for all intangible assets other than software. |
| |
(2) | Separation costs are expected to be incurred over the two to three-year period following the completion of the Spin-off from Novartis and primarily include costs related to IT and third party consulting fees. |
| |
(3) | (4)Transformation costs, primarily related to restructuring and third party consulting fees, for the multi-year transformation program. |
| |
(4) | Includes legal settlement costs and certain external legal fees. |
| |
(5) | Surgical segment contribution includes $85 million for the amortization of option rights, manufacturing sites consolidation activities, post marketing study following a product's voluntary market withdrawal expenses, integration of recent acquisitions, and spin readiness costs and other items, partially offset by $58 million in fair value adjustments to contingent consideration liabilities. Vision Care segment contribution includes $18 million in spin readiness costs and the integration of recent acquisitions, partially offset by $17 million in fair value adjustments to contingent consideration liabilities. Not allocated to segments primarily includes spin readiness costs and fair value adjustments of a financial asset.
|
2018
(5)Includes impacts from pension and other post-employment benefit plan amendments. |
| | | | | | | | | | | | | | | | | | | | |
($ millions) | IFRS results |
| | Amortization of intangible assets(1) |
| | Impairments(2) |
| | Restructuring items(3) |
| | Legal items(4) |
| | Other items(5) |
| | Core results |
|
Surgical segment contribution | 813 |
| | — |
| | — |
| | — |
| | — |
| | 33 |
| | 846 |
|
Vision Care segment contribution | 594 |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | 600 |
|
Not allocated to segments | (1,655 | ) | | 1,007 |
| | 378 |
| | 9 |
| | 28 |
| | (1 | ) | | (234 | ) |
Total operating (loss)/income | (248 | ) | | 1,007 |
| | 378 |
| | 9 |
| | 28 |
| | 38 |
| | 1,212 |
|
| |
(1) | Includes recurring amortization for all intangible assets other than software. |
| |
(2) | Includes impairment charges related to intangible assets. |
| |
(3) | Includes restructuring income and charges and related items. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year. |
| |
(4) | Includes legal costs related to an investigation. |
| |
(5) | Surgical segment contribution(6)For 2022, includes legal settlement costs.$99 million for the amortization of option rights and charges and reversal of charges related to a product's voluntary market withdrawal, spin readiness costs, and other items, partially offset by a $66 million fair value adjustment to a contingent consideration liability due to a product's voluntary market withdrawal. Vision Care segment contribution includes spin readiness costs and other items. Not allocated to segments includes $21 million in fair value adjustments of a financial asset and other items, partially offset by $20 million spin readiness costs. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year.
|
For 2021, includes an increase in provisions for legal matters.
2017(7)For 2022, Gross profit includes the amortization of inventory fair value adjustments related to recent acquisitions, partially offset by fair value adjustments to contingent consideration liabilities. Operating income also includes acquisition and integration related expenses, partially offset by fair value adjustments to contingent consideration liabilities and fair value adjustments of financial assets.
For 2021, Gross profit includes fair value adjustments to contingent consideration liabilities. Operating income also includes fair value adjustments to contingent consideration liabilities, partially offset by the amortization of option rights and fair value adjustments of financial assets. |
| | | | | | | | | | | | | | | | | | | | |
($ millions) | IFRS results |
| | Amortization of intangible assets(1) |
| | Impairments(2) |
| | Restructuring items(3) |
| | Legal items(4) |
| | Other items(5) |
| | Core results |
|
Surgical segment contribution | 691 |
| | — |
| | 29 |
| | — |
| | — |
| | (19 | ) | | 701 |
|
Vision Care segment contribution | 625 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 625 |
|
Not allocated to segments | (1,393 | ) | | 1,017 |
| | 57 |
| | 30 |
| | 61 |
| | (12 | ) | | (240 | ) |
Total operating (loss)/income | (77 | ) | | 1,017 |
| | 86 |
| | 30 |
| | 61 |
| | (31 | ) | | 1,086 |
|
| |
(1) | Includes recurring amortization for all intangible assets other than software. |
| |
(2) | Includes impairment charges related to intangible and financial assets. |
| |
(3) | Includes restructuring income and charges and related items. |
| |
(4) | Includes an increase to a legal settlement provision and legal costs related to an investigation. |
| |
(5) | Includes fair value adjustments to contingent consideration liabilities, a gain from a Swiss pension plan amendment and the partial reversal of a prior period charge. |
For 2020, Gross profit primarily includes losses on disposal of property, plant & equipment, partially offset by fair value adjustments to contingent consideration liabilities. Operating income also includes fair value adjustments to contingent consideration liabilities, a gain relating to an extinguishment of certain potential liabilities under the employee matters agreement executed at Spin-off and fair value adjustments of financial assets, partially offset by the amortization of option rights.
(8)For 2022, total tax adjustments of $126 million include tax associated with operating income core adjustments, partially offset by discrete tax items. Tax associated with operating income core adjustments of $899 million totaled $166 million with an average tax rate of 18.5%. Core tax adjustments for discrete tax items totaled $40 million, primarily related to the recognition of an Advanced Pricing Agreement between US and Switzerland tax authorities for fiscal years 2019 through 2021.
For 2021, total tax adjustments of $176 million include tax associated with operating income core adjustments of $863 million with an average tax rate of 20.4%.
RECONCILIATION OF IFRS RESULTS TO CORE RESULTS
Operating (loss)/For 2020, total tax adjustments of $228 million include tax associated with operating income net (loss)/core adjustments and discrete tax items. Tax associated with operating income and (loss)/earnings per share
2019
|
| | | | | | | | | | | | | | | |
($ millions except (loss)/earnings per share) | | IFRS Results |
| Amortization of certain intangible assets(1) |
| Separation costs(2) |
| Transformation Costs(3) |
| Legal items(4) |
| Other items(5) |
| Core Results |
|
Gross profit | | 3,662 |
| 1,007 |
| 10 |
| — |
| — |
| (16 | ) | 4,663 |
|
Operating (loss)/income | | (187 | ) | 1,040 |
| 237 |
| 52 |
| 32 |
| 91 |
| 1,265 |
|
(Loss)/income before taxes | | (332 | ) | 1,040 |
| 237 |
| 52 |
| 32 |
| 91 |
| 1,120 |
|
Taxes(6) | | (324 | ) | (140 | ) | (54 | ) | (7 | ) | (8 | ) | 338 |
| (195 | ) |
Net (loss)/income | | (656 | ) | 900 |
| 183 |
| 45 |
| 24 |
| 429 |
| 925 |
|
Basic (loss)/earnings per share | | (1.34 | ) |
|
|
|
|
|
|
|
|
|
| 1.89 |
|
Diluted (loss)/earnings per share | | (1.34 | ) |
|
|
|
|
|
|
|
|
|
| 1.89 |
|
Basic - weighted average shares outstanding(7) | | 488.2 |
|
|
|
|
|
| 488.2 |
|
Diluted - weighted average shares outstanding(7) | | 488.2 |
|
|
|
|
|
| 490.1 |
|
| | | | | | | | |
Adjustments to arrive at core operating income |
Selling, general & administration | | (2,847 | ) | — |
| 30 |
| — |
| — |
| 15 |
| (2,802 | ) |
Research & development | | (656 | ) | 33 |
| 4 |
| — |
| — |
| 35 |
| (584 | ) |
Other income | | 55 |
| — |
| — |
| — |
| — |
| (9 | ) | 46 |
|
Other expense | | (401 | ) | — |
| 193 |
| 52 |
| 32 |
| 66 |
| (58 | ) |
| |
(1) | Includes recurring amortization for all intangible assets other than software. |
| |
(2) | Separation costs are expected to be incurred over the two to three-year period following the completion of the Spin-off from Novartis and primarily include costs related to IT and third party consulting fees. |
| |
(3) | Transformation costs, primarily related to restructuring and third party consulting fees, for the multi-year transformation program. |
| |
(4) | Includes legal settlement costs and certain external legal fees. |
| |
(5) | Gross Profit includes $37 million in fair value adjustments of contingent consideration liabilities, partially offset by $21 million in spin readiness costs, manufacturing sites consolidation activities, and integration of recent acquisitions. Selling, general & administration primarily includes spin readiness costs and the integration of recent acquisitions. Research & development includes $73 million for the amortization of option rights, post-marketing study following a product's voluntary market withdrawal, and the integration of recent acquisitions, partially offset by $38 million in fair value adjustments for contingent consideration liabilities. Other income primarily includes a realized gain on a financial asset. Other expense primarily includes spin readiness costs, fair value adjustments of a financial asset and other items.
|
| |
(6) | Total tax adjustments of $129 million include tax associated with operating income core adjustments and discrete tax items. Tax associated with operating income core adjustments of $1.5 billion totaled $215 million with an average tax rate of 14.8%.
|
core adjustments of $1.3 billion totaled $221 million with an average tax rate of 17.4%. Core tax adjustments for discrete items totaled $344 million, primarily including $304 million$7 million.
(9)Core basic earnings per share is calculated using the weighted-average shares of common stock outstanding during the period. Core diluted earnings per share also contemplate dilutive shares associated with unvested equity-based awards as described in non-cash tax expense for re-measurement of deferred tax balances as a result of Swiss tax reform, tax expense related to rate changes in the US following legal entity reorganizations executed relatedNote 7 to the Spin-off, non-cash tax expense related to the re-measurement of deferred tax assets and liabilities following a tax rate change in India, and net changes in uncertain tax positions.
| |
(7) | Core basic earnings per share is calculated using the weighted-average shares of common stock outstanding during the period. Core diluted earnings per share also contemplate dilutive shares associated with unvested equity-based awards as described in Note 8 to the Consolidated Financial Statements.
|
2018
|
| | | | | | | | | | | | | | |
($ millions except (loss)/earnings per share) | IFRS Results |
| Amortization of certain intangible assets(1) |
| Impairments(2) |
| Restructuring items(3) |
| Legal items(4) |
| Other items(5) |
| Core Results |
|
Gross profit | 3,192 |
| 996 |
| 376 |
| — |
| — |
| (23 | ) | 4,541 |
|
Operating (loss)/income | (248 | ) | 1,007 |
| 378 |
| 9 |
| 28 |
| 38 |
| 1,212 |
|
(Loss)/income before taxes | (300 | ) | 1,007 |
| 378 |
| 9 |
| 28 |
| 38 |
| 1,160 |
|
Taxes(6) | 73 |
|
|
|
|
|
|
|
|
|
|
| (186 | ) |
Net (loss)/income | (227 | ) |
|
|
|
|
|
|
|
|
|
| 974 |
|
Basic (loss)/earnings per share | (0.46 | ) |
|
|
|
|
|
|
|
|
|
| 2.00 |
|
Diluted (loss)/earnings per share | (0.46 | ) |
|
|
|
|
|
|
|
|
|
| 2.00 |
|
Basic - weighted average shares outstanding(7) | 488.2 |
|
|
|
|
|
|
|
|
|
|
| 488.2 |
|
Diluted - weighted average shares outstanding(7) | 488.2 |
|
|
|
|
|
|
|
|
|
|
| 488.2 |
|
| | | | | | | |
Adjustments to arrive at core operating income |
Selling, general & administration | (2,801 | ) | — |
| 2 |
| — |
| — |
| 13 |
| (2,786 | ) |
Research & development | (587 | ) | 11 |
| — |
| — |
| — |
| 47 |
| (529 | ) |
Other income | 47 |
| — |
| — |
| (4 | ) | — |
| (19 | ) | 24 |
|
Other expense | (99 | ) | — |
| — |
| 13 |
| 28 |
| 20 |
| (38 | ) |
| |
(1) | Includes recurring amortization for all intangible assets other than software. |
| |
(2) | Includes impairment charges related to intangible assets. |
| |
(3) | Includes restructuring income and charges and related items. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year. |
| |
(4) | Includes legal costs related to an investigation. |
| |
(5) | Gross profit, selling, general & administration and research & development include charges and reversal of charges related to a product’s voluntary market withdrawal. Research & development also includes amortization of option rights and a fair value adjustment of a contingent consideration liability. Other income includes fair value adjustments on a financial asset. Other expense includes spin-readiness costs and other items. Certain amounts previously reported under "restructuring items" in the 2018 Form 20-F have been reclassified to "other items" to conform with presentation in the current year. |
| |
(6) | Total tax adjustments of $259 million included tax associated with operating income adjustments and discrete tax items. Tax associated with operating income adjustments of $1.5 billion totaled $237 million with average tax rate of 16.2%. Core tax adjustments for discrete items totaled $22 million, including a net out of period income tax benefit of $55 million partially offset by net changes in uncertain tax positions of $33 million. |
| |
(7) | For periods prior to the Spin-off, the denominator for both core basic and diluted earnings per share was calculated using the shares of common stock distributed in the Spin-off. |
2017
|
| | | | | | | | | | | | | | |
($ millions except earnings per share) | IFRS Results |
| Amortization of certain intangible assets(1) |
| Impairments(2) |
| Restructuring items(3) |
| Legal items(4) |
| Other items(5) |
| Core Results |
|
Gross profit | 3,204 |
| 1,007 |
| — |
| — |
| — |
| — |
| 4,211 |
|
Operating (loss)/income | (77 | ) | 1,017 |
| 86 |
| 30 |
| 61 |
| (31 | ) | 1,086 |
|
(Loss)/income before taxes | (127 | ) | 1,017 |
| 86 |
| 30 |
| 61 |
| (31 | ) | 1,036 |
|
Taxes(6) | 383 |
| | | | | | (128 | ) |
Net income | 256 |
| | | | | | 908 |
|
Basic earnings per share | 0.52 |
| | | | | | 1.86 |
|
Diluted earnings per share | 0.52 |
| | | | | | 1.86 |
|
Basic - weighted average shares outstanding(7) | 488.2 |
| | | | | | 488.2 |
|
Diluted - weighted average shares outstanding(7) | 488.2 |
| | | | | | 488.2 |
|
| | | | | | | |
Adjustments to arrive at core operating income |
Research & development | (584 | ) | 10 |
| 86 |
| — |
| — |
| (18 | ) | (506 | ) |
Other income | 47 |
| — |
| — |
| (4 | ) | — |
| (13 | ) | 30 |
|
Other expense | (148 | ) | — |
| — |
| 34 |
| 61 |
| — |
| (53 | ) |
5.B. LIQUIDITY AND CAPITAL RESOURCES | |
(1) | Includes recurring amortization for all intangible assets other than software. |
| |
(2) | Includes impairment charges related to intangible and financial assets. |
| |
(3) | Includes restructuring income and charges and related items. |
| |
(4) | Includes an increase to a legal settlement provision and legal costs related to an investigation. |
| |
(5) | Research & development includes fair value adjustments to contingent consideration liabilities; other income includes a gain from a Swiss pension plan amendment and the partial reversal of a prior period charge. |
| |
(6) | The required revaluation of the deferred tax assets and liabilities and a portion of current tax payables to the newly enacted tax rate at the date of enactment of the US enacted tax reform legislation (Tax Cuts and Jobs Act), resulted in a net tax income of $413 million that has been adjusted out of core taxes. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments of $1.2 billion to arrive at the core results before tax amounts to $98 million, excluding the tax income from US tax reform. The average tax rate on these adjustments is 8.4%. |
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(7) | For periods prior to the Spin-off, the denominator for both core basic and diluted earnings per share was calculated using the shares of common stock distributed in the Spin-off. |
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5.B. | LIQUIDITY AND CAPITAL RESOURCES
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Our sources of funds have consisted principally of cash flowflows from operations, issuance of senior notes, bank debt and credit facilities with lenders, and other financial liabilities to our Former Parent.lenders. Our uses of those funds (other than for operations) have consisted principally of dividend payments, investments in our growth plan, capital expenditures, cash paid for acquisitions and associated expenses and other obligations.
We believe that we have adequate liquidity to meet our needs. At December 31, 2019,2022, we had cash and cash equivalents of $822 million,$1.0 billion, compared to $227 million$1.6 billion at December 31, 2018.2021. At December 31, 20192022, we had current financial debt of $261$107 million, compared to $47$114 million at December 31, 2018,2021, consisting of bank and other financial debt. At December 31, 20192022, we had non-current financial debt of $3.2$4.5 billion, compared to $4.0 billion at December 31, 2021, consisting of bank debt and senior notes primarily as a result of the Spin-off.notes.
To date, all of our sales are generated by our subsidiaries and not directly by us. Thus, we are dependent on dividends, other payments or loans from our subsidiaries to meet our liquidity needs. Some of our subsidiaries may be subject to legal requirements of their respective jurisdictions of organization that may restrict their paying dividends or other payments, or making loans, to us.
Potential future uses of our liquidity include capital expenditures, acquisitions, debt repayments, dividend payments and other general corporate purposes. As of December 31, 2022, we had commitments for purchases of property, plant & equipment of $248 million. In addition, on February 12, 2023 we announced the settlement of legal proceedings with JJSVI related to femtosecond laser assisted cataract surgery devices. As part of the resolution of this matter, we will make a one-time payment to JJSVI of $199 million. Refer to Note 18 to the Consolidated Financial Statements for additional information.
We use the US Dollar as our reporting currency and are therefore exposed to foreign currency exchange movements, primarily in Euros, Japanese Yen, Chinese Renminbi, Canadian Dollars, Korean Won, Swiss Francs, Russian Rubles and emerging market currencies. We manage our globalThe foreign currency exposure by engaging in hedging transactions where management deems appropriate (forward contractson the balance sheet is hedged with limited exception, but the impact of ongoing macroeconomic conditions is currently unknown and swaps) to preserve the valuecould have a material adverse effect on our results of assets.operations, cash flows or financial condition. As of December 31, 2019,2022 unsettled derivative positions included $1$8 million in unrealized gains and $16$10 million in unrealized losses.
All comments in this section relate to the year ended December 31, 20192022 compared to 2018.2021. Commentary for the year ended December 31, 20182021 compared to 20172020 may be found in Item 5 of the 20182021 Form 20-F.
Cash flow and net (debt)/liquidity
| | | | | | | | | | | | | |
($ millions) | 2022 | | 2021 | | |
| | | | | |
Net cash flows from operating activities | 1,217 | | | 1,345 | | | |
Net cash flows used in investing activities | (1,865) | | | (1,198) | | | |
Net cash flows used in financing activities | (8) | | | (123) | | | |
Effect of exchange rate changes on cash and cash equivalents | 61 | | | (6) | | | |
Net change in cash and cash equivalents | (595) | | | 18 | | | |
Change in derivative financial instrument assets | 5 | | | — | | | |
Change in equity securities of public companies | (3) | | | 3 | | | |
Change in current and non-current financial debts | (568) | | | 38 | | | |
Change in net (debt) | (1,161) | | | 59 | | | |
Net (debt) at January 1 | (2,499) | | | (2,558) | | | |
Net (debt) at December 31 | (3,660) | | | (2,499) | | | |
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| | | | | |
($ millions) | 2019 |
| | 2018 |
|
| | | |
Net cash flows from operating activities | 920 |
| | 1,140 |
|
Net cash flows used in investing activities | (1,011 | ) | | (1,001 | ) |
Net cash flows from/(used in) financing activities | 659 |
| | (78 | ) |
Effect of exchange rate changes on cash and cash equivalents | 27 |
| | (6 | ) |
Net change in cash and cash equivalents | 595 |
| | 55 |
|
Change in derivative financial instrument assets | 1 |
| | — |
|
Change in current and non-current financial debts | (3,432 | ) | | 18 |
|
Change in other financial liabilities to former parent | 67 |
| | (21 | ) |
Change in other financial receivables from former parent | (39 | ) | | (26 | ) |
Change in net (debt)(1) | (2,808 | ) | | 26 |
|
Net liquidity at January 1 | 152 |
| | 126 |
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Net (debt)/liquidity at December 31(1) | (2,656 | ) | | 152 |
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Net cash flows from operating activities | |
(1) | The balances previously reported in "Financial debts" for a finance lease obligation have been reclassified from "Financial debts" to "Non-current lease liabilities". This reclassification resulted in an increase in Net liquidity as of January 1, 2019 and January 1, 2018 of $89 million and $84 million, respectively. |
Net cash flows from operating activities amounted to $920 million$1.2 billion in 2019,2022, compared to $1.1$1.3 billion in the prior year period. The decreasecurrent year includes increased cash outflows from changes in net working capital, the negative impact of foreign currency rates on operating cash flows was primarily attributable to spin readinessresults and separation costs, a $20 million legal settlement payment. Both periods were impacted by tax payments and semi-annual interest payments on our financial debts.payments.
Changes in net working capital werein the current year include increases in inventories and trade receivables, the net change in other operating assets and other operating liabilities and decreases in trade payables.The increase in inventories was primarily driven by annew product launches and higher raw materials and work in process at manufacturing sites to mitigate uncertainty caused by longer supply lead times. The increase in trade receivables was primarily driven by new receivables from higher sales outpacing collections. The net change in other operating assets was primarily driven by increases in long-term receivables and prepaid expenses. The net change in other operating liabilities was primarily driven by higher annual associate short-term incentive payments in 2022, which generally occur in the first quarter, payment of acquisition and integration costs related to Aerie and lower wage accruals due to the timing of payroll, partially offset by accruals for deductions from revenue. Trade receivables in 2019 broadlypayables decreased as the prior year payables reflected increased discretionary spending in line with increased sales. The currentmarket recovery.
Changes in net working capital in the prior year period has contract manufacturingwere mainly driven by increases in inventories and trade receivables, partially offset by the net change in other operating liabilities and increases in trade payables. The increase in inventories was primarily associated with new product launches as well as to meet expected upcoming demand and to support supply chain continuity. The increase in trade receivables was primarily driven by new receivables from our Former Parent, which are included within Other current assets. Trade payableshigher sales outpacing collections. The net change in other operating liabilities was primarily related to accruals for associate short-term incentive benefits and revenue deductions, partially offset by payments for Value Added Tax ("VAT") and other current liabilitiespayables. The increase in trade payables was primarily driven by increased during the current reporting period primarily due
to various transition agreements and separation costs incurred. discretionary spending.Refer to Note 21 to20 of the Consolidated Financial Statements for additional details regarding changes within net working capital.capital in the current and prior year periods.
Net cash flows used in investing activities
Net cash flows used in investing activities amounted to $1.0$1.9 billion in 2019,2022, compared to $1.2 billion in line with 2018. The cashthe prior year period. Cash outflows in the current year period are primarily due to the acquisitions of Aerie, Ivantis, and Eysuvis and Inveltys products, capital expenditures and purchases of long-term financial investments measured at fair value through other comprehensive income, partially offset by the sale of short-term investments obtained in the Aerie acquisition.
Cash outflows in the prior year period were primarily driven by $553 million for the purchase of property, plant and equipment, $123 million for intangible assets, and $283 million fordue to the acquisition of PowerVision, Inc. in March 2019.exclusive US commercialization rights to Simbrinza and capital expenditures, including for new contact lens manufacturing lines. Refer to Note 3 of the Consolidated Financial Statements for additional information on the acquisitions of Aerie, Ivantis, Eysuvis and Inveltys products and Simbrinza US commercialization rights.
Net cash flows fromused in financing activities
Net cash flows used in financing activities amounted to $659$8 million in 2019,2022, compared to $78$123 million of net cashin the prior year period. Cash outflows in 2018. Cash inflows in the current year period were attributableprimarily include dividends paid to proceeds fromshareholders of Alcon Inc., lease payments, withholding taxes paid upon net settlements of equity-based compensation and payments made upon settlement of derivative contracts, partially offset by net cash inflows associated with financial debts. Net cash inflows associated with financial debts primarily included the issuance of non-currentSeries 2028, Series 2032 and currentSeries 2052 senior notes, issuance and repayment of the 2022 Bridge Loan Facility associated with the Aerie acquisition, repayment of the Facility B and Facility C term loans, payment of financial debts totaling $3.4 billion associated with borrowings fromassumed in the bridgeAerie acquisition and other term loans andpayments of certain local bilateraldebt facilities. This was partially offset by movements of financing provided to our Former Parent, which increased by $2.5 billion from
Cash outflows in the prior year period due to $3.1 billion in cashprimarily included lease payments, made to our Former Parentdividends paid, payment of certain local debt facilities and its affiliates prior to the Spin-off. The cash flows from financing activities also reflect thewithholding taxes paid upon net settlements of equity-based compensation, partially offset by net proceeds from the issuancerefinancing of $2.0 billion senior notes and repayments of the $1.5 billion Bridge Facility and $0.5 billion Facility Alocal debt facilities in 2019.Japan. Refer to Notes 43, 16 and 1720 of the Consolidated Financial Statements for additional information.
Free cash flow (non-IFRS measure)
The following is a summary of Alcon free cash flow for 2019, 20182022, 2021 and 2017,2020, together with a reconciliation to net cash flows from operating activities, the most directly comparable IFRS measure.
| | | | | | | | | | | | | | | | | | | |
($ millions) | 2022 | | 2021 | | 2020 | | |
Net cash flows from operating activities | 1,217 | | | 1,345 | | | 823 | | | |
Purchase of property, plant & equipment | (636) | | | (700) | | | (479) | | | |
Proceeds from sale of property, plant & equipment | — | | | — | | | 6 | | | |
Free cash flow | 581 | | | 645 | | | 350 | | | |
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| | | | | | | | |
($ millions) | 2019 |
| | 2018 |
| | 2017 |
|
Net cash flows from operating activities | 920 |
| | 1,140 |
| | 1,218 |
|
Purchase of property, plant & equipment | (553 | ) | | (524 | ) | | (415 | ) |
Proceeds from sales of property, plant & equipment | — |
| | — |
| | 1 |
|
Free cash flow | 367 |
| | 616 |
| | 804 |
|
Free cash flow amounted to $367an inflow of $581 million in 2019,2022, compared to $616an inflow of $645 million in 2018, with the decrease mainly causedprior year period, driven primarily by lowerdecreased cash flowsflow from operating activities. activities, partially offset by decreased purchases of property, plant and equipment.
For additional information refer to "ItemItem 5.A. Operating Results—Supplementary Information—Definitions and Reconciliations of Non-IFRS measures as defined by the Company"Measures".
Balance sheet
Assets
Total non-current assets were $23.4 billion at December 31, 2019, a decrease of $244 million compared to $23.7$24.0 billion as of December 31, 2018. There was a decrease2022, an increase of $448 million in$1.4 billion when compared to $22.6 billion as of December 31, 2021. Intangible assets other than goodwill related to the amortization for the period offset by In-process research and development intangible assets acquired through the PowerVision acquisition, a decrease of $316increased $924 million in Deferred tax assets related to offsetting deferred tax liabilities within the same tax jurisdiction based on the legally enforceable right of offset following the Spin-off, and a decrease of $81 million in Financial assets primarily due to movementthe acquisitions of balances to Other current assets as maturity has become less than twelve monthsAerie, Ivantis, and continued amortization of option rights. This was largelyEysuvis and Inveltys products, partially offset by increases of $313 million inrecurring amortization and asset impairments. Property, plant, &and equipment increased $314 million primarily due to continued capital expenditures netand the acquisition of recurringAerie, partially offset by depreciation and $245foreign currency translation effects. Financial assets increased $70 million in Right-of-use assets from the adoptionprimarily driven by purchases of IFRS 16, Leases as described in Note 16long-term financial investments measured at fair value through other comprehensive income and unrealized gains on financial investments measured at fair value through profit and loss. Goodwill increased $65 million due to the Consolidated Financial Statements.acquisition of Aerie.
Total current assets were $4.2$5.2 billion as of December 31, 2019, an increase2022, a decrease of $837$193 million when compared to $5.4 billion as of December 31, 2018, mainly due to increases in2021. Cash and cash equivalents ofdecreased $595 million attributabledue to the net impact of operating, investing and financing activities as described earlier in thisthe preceding section. Inventories increased $210 million primarily driven by new product launches, higher raw materials and work in process at manufacturing sites to mitigate uncertainty caused by longer supply lead times and the acquisition of Aerie, partially offset by foreign currency translation effects. Trade receivables of $1.4 billion increased $137 million broadly in line with sales, and Other current assets of $0.5 billion increased $115$177 million primarily due to movementdriven by higher sales outpacing collections and the acquisition of certain assets from non-current financial assets as maturity has become less than twelve monthsAerie, partially offset by foreign currency translation effects.
Closely monitored countries include Greece, Italy, Portugal, Spain, Brazil, Russia, Turkey, Saudi Arabia and contract manufacturing receivables. Inventories of $1.5 billion also increased $65 million in line with sales and new product launches.
We consider our doubtful debt provisions to be adequate.Argentina. The majority of the outstanding trade receivables from Greece, Italy, Portugal, Spain, Brazil, Russia, Turkey, Saudi Arabia and Argentina are due directly from local governments or from government-funded entities except for Russia, Brazil, and Turkey.entities. We evaluate trade receivables in these countries for potential collection risk. Should there be a substantial deterioration in our economic exposure with respect to those countries, we may increase our level of provisions by updating our expected loss provision or may change the terms of trade on which we operate.
The gross trade receivables from these countries at December 31, 2019 amount2022 amounted to $209$280 million ($216252 million at December 31, 2018)2021), of which $10$8 million are past due for more than one year ($1410 million at December 31, 2018)2021) and for which provisions
of $13$10 million have been recorded ($1611 million at December 31, 2018)2021). At December 31, 2019,2022, amounts past due for more than one year are not significant in any of these countries.
The following table summarizes the aging of trade receivables as of December 31, 20192022 and 2018:2021:
| | ($ millions) | 2019 |
| 2018 |
| ($ millions) | 2022 | 2021 | |
Not overdue | 1,135 |
| 1,018 |
| Not overdue | 1,390 | | 1,273 | | |
Past due for not more than one month | 118 |
| 118 |
| Past due for not more than one month | 125 | | 96 | | |
Past due for more than one month but less than three months | 81 |
| 70 |
| Past due for more than one month but less than three months | 93 | | 74 | | |
Past due for more than three months but less than six months | 47 |
| 34 |
| Past due for more than three months but less than six months | 56 | | 43 | | |
Past due for more than six months but less than one year | 21 |
| 20 |
| Past due for more than six months but less than one year | 28 | | 23 | | |
Past due for more than one year | 36 |
| 47 |
| Past due for more than one year | 38 | | 42 | | |
Provisions for doubtful trade receivables | (48 | ) | (54 | ) | Provisions for doubtful trade receivables | (57) | | (55) | | |
Total trade receivables, net | 1,390 |
| 1,253 |
| Total trade receivables, net | 1,673 | | 1,496 | | |
There is also a risk that certain countries could devalue their currency. Currency exposures are described in more detail in the "Item 5.A. Operating Results — Effects of currency fluctuations" section.