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 The Canadian drugmaker's goal, spelled out to key employees and
demonstrated through its actions, has been to acquire other
manufacturers, take on competitors and raise prices for unfinished
lens components.
Valeant entered the contact lens business with its purchase of
Bausch and Lomb in 2013 for $8.7 billion. At the time of the
acquisition, Bausch and Lomb manufactured about 75% of the basic
components of rigid gas permeable lenses, known as “buttons,” said
Kurtis Brown, who worked for Bausch and Lomb prior to Valeant’s
purchase. After manufacture, buttons are customized for individual
patients, typically by laboratories specializing in that process.
With the acquisition of Paragon Vision Sciences in May for an
undisclosed sum, Valeant and Bausch and Lomb further consolidated
their grip on the market, gaining control of more than 80% percent
of the gas permeable button market, according to one of the sources
familiar with Valeant’s operations and the representative of an
industry group.
Rigid lenses comprise only about 10% of the contact lens market, and
are popular among people who cannot wear soft lenses.
The acquisition of Paragon also gave Valeant and Bausch and Lomb
full control of the small market for Ortho-K buttons, which are used
to create one type of gas permeable lens, said Brown, now a
marketing manager for lens manufacturer Menicon America Inc. Sales
of Ortho-K buttons and finished Ortho-K lenses comprise only about
$5 million in annual sales for Valeant companies.
The U.S. Federal Trade Commission is investigating the Paragon
purchase as part of an anti-trust probe, a source interviewed by the
FTC told Reuters. Valeant disclosed on Monday that it had received a
letter from the FTC on or about Oct. 16 seeking more information
about its acquisition of Paragon.
On Tuesday, Valeant declined to comment on specifics of its strategy
in the specialty contact lens market but defended its purchase of
Paragon.
“Our acquisition of Paragon Holdings supports our mission to improve
consumers’ lives by bringing to market innovative, specialty eye
care solutions, and we are cooperating with the FTC on its inquiry,”
the company said in a statement emailed to Reuters.
Bausch & Lomb is now operated as a division of Valeant, and Paragon
has been rolled into Bausch & Lomb.
In recent months, Bausch and Lomb also has moved to acquire
laboratories that turn the raw components – buttons - into finished
lenses.
The plan has encountered challenges, however, with at least four
laboratories - including Alden Optics, Art Optical and Tru-Form
Optics - holding out, at least for now, against Bausch and Lomb’s
purchase overtures, according to one of the sources familiar with
Valeant’s contact lens operations and some of the labs themselves.
In the months after it began trying to acquire laboratories, Bausch
and Lomb increased button prices for its customers, which included
more than 30 laboratories that customize lenses, according to Jan
Svochak, president of the contact lens manufacturers association, an
industry trade group.
The price increases for buttons ranged from 15 percent to more than
120 percent, a source with direct knowledge of the price hikes said.
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Keith Parker, owner and president of Advanced Vision Technology,
said that his lab was hit with a first price increase from Bausch
and Lomb in mid-September and a second one on October 1, all on
overnight-wear lenses.
“They were substantial,” he said of the price increases. “Some of
them 100 percent, some of them more than 100 percent."
The company also did away with volume discounts, he said.
In response to the price increases, some labs have begun switching
to other button suppliers, such as Contamac, according to at least
three laboratories interviewed by Reuters. Contamac has not
responded to a request for comment.
Last week, Bausch and Lomb sent a letter to the optometrist
community promising to “adjust down” some of the increased prices
after complaints from laboratories.
In the long run, Bausch and Lomb hopes to do more manufacturing and
distribution of finished lenses directly to optometrists. This would
enable Bausch and Lomb to bypass some of the laboratories now
filling that role and thereby buttress its profits, according to one
of the people familiar with Valeant’s operations and several
laboratories.
According to the two sources familiar with Valeant’s contact lens
operations, Bausch and Lomb hopes a newly created division, to be
called Advanced Vision Products, will bring in more than $100
million in revenue by the end of 2016 from sales of specialty
contact lens products, including customized gas permeable contact
lenses.
Bausch and Lomb currently earns about $30 million annually from
manufacturing gas permeable lenses and their basic components, the
sources said.
Valeant was already the subject of a U.S. probe into price increases
for its heart medications, and its stock price was battered last
week after short-seller Andrew Left accused it of using mail-order
pharmacies to fraudulently book revenues.
Valeant denied Left’s assertions and laid out a detailed defense on
Monday of its relationship with specialty pharmacy Philidor, the
firm at the center of Left's accusations.
(Additional reporting by Lisa Richwine in Los Angeles and Diane
Bartz in Washington Editing by Carmel Crimmins and Sue Horton)
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