Alcon, Inc. Q1 2010 Earnings Call Transcript

Alcon, Inc. Q1 2010 Earnings Call Transcript
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Alcon, Inc. (ACL)

Q1 2010 Earnings Call

April 27, 2010 8:30 a.m. ET

Executives

Doug MacHatton - VP, Treasury & Investor & Public Relations

Kevin Buehler - President and CEO

Rick Croarkin - SVP and CFO

Sabri Markabi - SVP, R&D, and Chief Medical Officer

Analysts

Amit Bhalla - Citi

Peter Bye - Jefferies & Company

Frank Pinkerton - SunTrust

Matt Miksic - Piper Jaffray

Marc Goodman - UBS

Louise Chen - Collins Stewart

Presentation

Operator

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Welcome to the Alcon Inc. earnings conference call for the first quarter of 2010. (Operator instructions) As a reminder, this conference is being recorded and will be available for replay from 11 a.m. on April 27, 2010, through 11:59 p.m. on May 4, 2010.

I will now turn the conference over to Doug MacHatton, Vice President, Treasury and Investor and Public Relations.

Doug MacHatton

Thank you. Good morning and welcome, everybody. Presenting today are Kevin Buehler, President and Chief Executive Officer; and Rick Croarkin, Senior Vice President and Chief Financial Officer; and for the Q&A is Dr. Sabri Markabi, Senior Vice President, Research and Development, and Chief Medical Officer.

Before we begin, I'd like to remind you that certain statements that we will make in this presentation maybe considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and you should not place undue reliance on these forward-looking statements in this webcast. We refer you to our full disclaimer regarding these statements, which is included in our first quarter earnings press release issued last night and in our Form 20-F filed on March 16, 2010, with the SEC.

In addition, this presentation may also include certain financial measures used to better understand our business, which may not be prepared in accordance with U.S. GAAP. These non-GAAP measures are reconciled at the end of this presentation or in associated SEC filings.

This conference call and accompanying webcast are being simultaneously broadcast over the Internet with replays available on our website at www.alcon.com in the Investors & Media section.

I'll now turn the call over to Kevin Buehler.

Kevin Buehler

Thanks, Doug, and good morning, everyone, and thank you for joining us on the call today. As our first quarter results clearly show, Alcon was able to build on the momentum coming out of the back half of 2009 to again achieve strong operational and financial results in the first quarter of 2010.

Sales rose 9.6% on an organic basis or $15.3%, including the contribution from foreign exchange and acquisitions, to over $1.7 billion. With this strong top-line growth and our continued efforts to manage discretionary expenses, we were able to generate leverage in our P&L to grow net income faster than sales, which translated to a 23.2% increase in adjusted diluted earnings per share to $1.91.

These financial results were achieved while total R&D expenses increased 20.7% on an adjusted basis over the same period last year. These adjustments are covered in our earnings release and reconciled to reported earnings at the end of this presentation.

Our results for this quarter and the last several quarters reinforce the value of the Alcon business model around the three separate ophthalmic business lines with the potential to deliver sustainable growth and improving profitability.

As this slide shows, our performance in the quarter is a result of solid broad-based contributions from each one of our pharmaceutical, surgical and consumer product lines. Pharmaceutical sales grew fastest and achieved organic growth of 11.7% as we build on our leading market shares around the world.

The glaucoma category in particular continues to perform well and the category rose 24% on an organic basis in the first quarter. This performance is attributable to the global share expansion of the TRAVATAN and Azopt family of products based on the differentiation of new products like TRAVATAN Z in the U.S. and Japan and combination products such as DuoTrav and AZARGA in the E.U.

Our prior additions to our global pharmaceutical sales force with heavy concentrations in Japan and the E.U. are yielding accelerated growth and market share gains.

Sales of products to treat infection and inflammation, which include VIGAMOX and NEVANAC respectively, increased 10% organically. VIGAMOX did exceptionally well, posting global organic growth of 18% which, along with our return to normal shipment pattern for NEVANAC, more than offset the TOBRADEX generic switch.

Allergy sales were relatively weak in Q1 due to weather conditions in the U.S. and other countries. But recent allergy reports, prescription trends and wholesale ordering patterns indicate that the spring season may be more severe than last year. Also, it looks like the split of allergy sales for Alcon products between Q1 and Q2 will be more heavily weighted to Q2 in 2010 as compared to last year.

The generic conversion of TOBRADEX continues to go as expected with the market now about 95% converted. Our generics division, Falcon, has maintained a majority position around 60% in the TOBRADEX generic since its conversion in 2009, and with the strong performance of the Brimonidine 0.15% product introduced last year, posted solid strong first quarter results.

Sales of surgical products rose 8.3% organically and with the acquisition of the Ex-PRESS Ophthalmic Glaucoma device contributing 50 basis points of incremental growth to our surgical sales.

Our performance in the quarter is largely attributable to the global strength of total IOLs. Total IOLs increased 10.9% on an organic basis with contributions from both

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