Larry Biegelsen: That’s helpful. And David, just one follow-up on 15512. What was the symptom you showed a benefit on in the Phase 3 trials? And can you talk about tolerability? What we’ve heard is when you look at the Phase 2 paper, there was a rate — there was burning or stinging about 40% of the time. How do you think that impacts adoption? Thank you.
David Endicott: Yes. We’ll see over time. But, I mean, like almost every eye drop in this space, there is some burning and stinging. The discontinuation rate, I think, was inconsequential, like 1% or 2%. So I don’t think we read that as a major problem. But what I would say is that directionally, the primary endpoint was a non-anesthetized Schirmer strip of 10 millimeters or more, and we did very, very well on that, very significant; and that was day one and consistent at day 90. So very important in terms of onset and very important in terms of its ability to create through this trip M8 mechanism, natural tears. So not supplementing tears, but rather stimulating natural tear production. And if that’s true, as we kind of work our way through all these data, that’s a very exciting thing because this is, I think kind of a very different idea than trying to help the body by supplementing it.
This is actually working with the body to kind of create more tears. So we’re excited about the mechanism.
Larry Biegelsen: Thank you.
Operator: Our next question is from the line of Brett Fishbin with KeyBanc Capital Markets. Please proceed with your question.
Brett Fishbin: Hey guys. Thanks so much for taking the questions. Just wanted to start off with a quick follow-up on the revenue growth guidance. Understand Vision Care definitely looks positioned to lead the way in terms of growth for 2024. But just curious on how you see the overall Surgical segment progressing in context of the expected step-down in equipment? And if you think the rest of the segment can kind of like be an offset and have the broader segments trend toward the low end of the overall constant currency range.
David Endicott: Yes. Look, I mean, clearly, Surgical will lag Vision Care next year by a little bit, but not a ton. I mean, it’s in a pretty good place with consumables, right? And remember, maybe one of the underappreciated stories is how strong our consumables business is. It’s half of our revenue in Surgical and it’s been growing really, really well. So, one of the surprises for us in equipment this year, for example, was our share growth. We expected, I think in many ways, to face more competitive pressure than we have. We’ve actually gained share in our equipment footprint, both internationally and in the U.S. And in addition to that, we’ve added equipment in. So ARGOS has done very well. Our microscopes have done well.
Our refractive equipment has done well and we’ve really done — across the board, we’ve had a really exciting year for equipment. Now that makes it tough to grow on a comparable basis, but it creates a bunch of consumables for us to grow. So if half of our business can grow nicely with the consumables business, we’re going to be in a pretty good place. And again, I think implantables, we should expect to grow with or ahead of the market. So, directionally, we expect, as we’ve said, the equipment to be relatively flat to year-on-year, principally because of the compare, but also because we’re going to stall the market a little bit with. It’s like when you see the new car model from whatever your favorite brand is, a lot of people will wait six months a year to get it before they buy a new one.
So, we expect some of that to happen.
Brett Fishbin: All right, makes a ton of sense. And then just one quick follow-up for me. I think the operating margin guidance looks like it’s implying about 80 basis points of year-over-year expansion at the midpoint, and definitely appreciate the first half gross margin commentary. But just curious, on a full-year basis, if you think gross margins can generally trend in line with the previous year or if you’re looking at that more as a full-year offset to the operating margin expansion? And thanks for taking the questions.
Tim Stonesifer: Yes, I would expect that we’ll continue to get gross margin improvement in the second half of the year as we pass through that inventory. So, I would think about gross margins being relatively in line with what we saw last year. And then, you obviously see continued operating leverage throughout the year and that’s what’s driving the margin rate improvement for this year.
Operator: Our next question is from the line of Tom Stephan with Stifel. Please proceed with your question.
Tom Stephan: Great. Hey guys. Thanks for taking the questions. Maybe first one on the IOL business in China. David, can you level set us may be on the 2023 base? And then just talk about the assumptions of the outlook for your China IOL sales in 2024, particularly, I guess, as we think about VBP this year? And then I have a follow-up.
David Endicott: Yes, Tom, let me try give you some kind of directional help with that one. China now is the second largest country for ATIOLs in the world. It’s about half of the size of the United States in terms of volume, and I’ll just read that as units. We have a single-digit share in that market, which is very unusual. So most markets around the world, we probably in ATIOLs have somewhere between 30% and 80%. So pick a share number you like and then kind of have the U.S. market and apply whatever you think the trajectory ought to be. That’s probably the best way to model it. We try not to give individual products and country guidance, but I recognize it’s an interesting topic, and we’ve been thinking about how to explain it.
That’s probably the best we can do with that one. But I do think that going forward, it’ll be back half loaded this year and then kind of full-year loaded the following year. So, as you probably know, the award signs up in this — really this next quarter, the second quarter. So we should have most of it done by kind of April, May, maybe a little into June, and then start to selling in principally in the back half. So, that’s kind of the pattern.
Tom Stephan: Got it. That’s helpful. And then my follow-up is just on Hydrus. I guess directionally David, can you discuss a bit how that product performed in 2023 and again directional expectations for 2024? Thanks.
David Endicott: Yes, look I mean, we were pleased with Hydrus, especially given all the noise around the reimbursement challenges. So the reimbursement hiccups with some of the other products caused some stalling, I think in the market soft — this market was a little bit softer than normal than we would have expected. But we grew nicely with Hydrus, continue to grow nicely with Hydrus and expect to kind of grow share in that market. We did grow share in ’23, and we will continue to do that in ’24 against that MIGS market, the MIGS market didn’t grow as fast as we would have expected. But overall, we did quite well. I think what you’re seeing right now with Hydrus is a lot of people have come to an understanding of, if you’re going to do a stent, this one has some of the most compelling data for efficacy of anything out there.
So I think we feel like people have come to the understanding that this is glaucoma and you want to treat this, you want to get ahead of it. Hydrus is your best chance to do that. And so that with the medication reduction over the time, time horizon has been really a positive impact on folks. So that’s probably where we are now. I think directionally in ’24, we see the same thing kind of a very positive ahead of market growth performance.
Tom Stephan: That’s great. Thanks again.
Operator: Our next question is from the line of Issie Kirby with Redburn Partners. Please proceed with your questions.
Issie Kirby: Hi, thanks for taking my question everyone. I just wanted to touch on some of the market dynamics there. I noticed within your guide you see market sort of growing in line with historic levels, but I think the ’23 you were talking to market sort of at or above. Is there anything you’re seeing within your underlying markets, particularly in surgical that influenced this? And then related, would love to hear about some of the dynamics you’re seeing in cataract surgery in the U.S. perhaps any color you could give us on the volumes in the fourth quarter and for ’24? And then I have a follow-up on China.
David Endicott: Yes, look markets — mid-single-digits is probably was high for ’24 or ’23 because of the compare. So you had China wrapping around, you had some other of the Asian markets that were wrapping around. So you should have — we should have expected to see a better than historical rate in ’23 and we did. I think going forward, we see that really normalizing and typically the U.S. market is 2% to 3% growth internationally, it’s kind of that 4%, maybe 5%. And so between those two, you get kind of that, I would say kind of 3% to 4% is the cataract market. So that’s really what we’ve been talking about. Now I’m not sure you were interested in the vision care market, but I’ll throw it in. The vision care market, again we see kind of growing in that mid-single-digits, which is really the historical rate.
That’s pretty much what it grew a little faster than that. But I think principally because price was a little bit more aggressive in this year than in prior years. So that’s kind of where we see the market. And I would just characterize that as very normalized growth and what we should expect. In the cataract, the U.S. dynamic was again very normal for us. We look at our consumables as the proxy for what’s going on in the market. We grew nicely in consumables. We know what the unit growth in the U.S. was, and that’s a pretty good proxy given our share of what happened in the U.S. And so we kind of know that it was in that 2% to 3%. And that’s as we said, it’s kind of the low-single-digits was a pretty reasonable number in the fourth quarter.
Issie Kirby: Okay. No, that’s helpful. Thank you. And then just on China, I’d love to hear your thoughts on why you decided sort of participate and lean into the VBP this time around. What has changed in that market to make you interested in participating?
David Endicott: Well, I mean at the core of it, it’s the volume. At the time that we — if we go back several years when we decided not to do it, there were two reasons for it. One is we had a very strong position in the private market and we were unclear on whether the public market was ever going to get into AT-IOLs. And that has obviously changed our view quite substantially, as about a third of that market is now in the public sector. And so that plus what has happened historically is when you go into VBP the first time, you get a very good price. The second round is a very substantial cut. And so I think on a year-on-year basis, it’s very difficult to absorb that. Most everybody else who’ve seen these things, I think advised us around that.
So our calculus was we get through it on the private market and then evaluate it the second round. That’s exactly what we did. And I think in this way, our prices are better than our floor prices around the world. So pretty good pricing, not great pricing, but very European I would say based pricing. So from our perspective, we see a lot more reasonable growth with a lot of volume And this is a very big market now. So a lot of things have changed since our original decision not to participate. And we’re very pleased with the reception, I think to Vivity and PanOptix. I think the Chinese have a very high interest in what the best products in the world look like.
Issie Kirby: Great, that’s helpful. Thank you.
Operator: Thank you. Our next question is from the line of Jeff Johnson with Baird. Please proceed with your questions.
Jeff Johnson: Thank you. Good morning, guys. Maybe one question on cataract and one on contact lenses. So David, you were talking about UNITY launching maybe later this year and really scaling throughout 2025. Have you talked yet about what kind of price premium you’d expect to get maybe on the system itself, but more importantly on the consumables that will go with UNITY?
David Endicott: We haven’t really yet, Jeff. But I think you’re right to assume that there’ll be a premium. I think what we believe is that this, the whole premise really of the UNITY VCS system is that you’re getting two units in one. So you don’t have to buy a Constellation and a Centurion, you get both of them only really better versions of a rep machine and a cataract machine in a single unit, which on a capital basis should save you some money on a footprint basis, saves you space. And importantly, on a procedural time basis, we believe it will be more efficient. So what we’re looking to do is establish that principle and then share that value back with the surgeons and the ASCs that buy this equipment. So our consumable will be a little bit more expensive and we’ll ask for some of that value.
But if you can do more surgeries in a day, you’re going to make more as an ASC and you should be willing to share that back with us. And so I think that’s directionally how we see this thing playing out, which is a reasonably premium equipment capital, but really importantly, a nice steady consumable over a long stretch of time. Remember, this is typically a 10 year cycle. So we can get our consumables really launched at a premium and we feel really good about that.
Jeff Johnson: All right. That’s helpful. And then just on the contact lens side, should we think about anything gating this year in the contact lens business? It feels like we’re picking up some signals you may be looking to take DACP off the market in the U.S. And kind of force that up conversion to P1. I think when you did that with Focus a few quarters ago, we haven’t seen it in the numbers. Focus though an older smaller product line. DACP priced, I think relatively close to P1. So as you Force some of that up conversion, but maybe lose some fits to competitors out of DACP, anything we should just think about over the next few quarters, is that just kind of noise at least at our level looking into your company? Thanks.
David Endicott: Yes, look I mean I think our contact lens business right now is going on all cylinders. We’re doing really, really well. I would say and particularly, our Toric lenses have gained a ton of share. And I think that’s the design. Honestly, I think our designs are very stable, they’re easy to fit and they settle quickly and that is a really exciting phenomenon to see. As we look at the new portfolio in the U.S, PRECISION1 has been so successful, I think that we are not going to sample DACP anymore, but we are not taking it off the market. So it will be available to anybody who is wearing it, but really there isn’t a ton of new starts on our DACP product in the U.S. And so we are going to decrease the sampling on that.
That’s really maybe what you are picking up. So again, our fit sets, we aren’t really deploying any new ones, so that we can concentrate really on PRECISION1 as our kind of mainstream product. And then obviously, DAILIES TOTAL1 is our premium brand. And then obviously, we have total 30, which we’re excited about for reusable and before too long, we’ll be talking about P7 as the next alternative into that kind of, I would say cost sensitive market, but still wanting a replaceable lens at a little more frequent interval. So we’ve got a lot of choices in new products. And it’s just kind of natural for us to phase out some of our resourcing on some of the older products. And again, those will be available, but they may not be promoted.
Jeff Johnson: All right. Helpful. Thank you.
Operator: Our next question is from the line of David Adlington with JPMorgan. Please proceed with your question.
David Adlington: Hey, guys. Thanks for the question. First one on Surgical and on China again, I’m afraid. I just wondered of that 6% to 8% growth guidance, I just wondered if you could give us some sort of idea in terms of what sort of tailwind you’re seeing from China BBB on that. And in addition to that, just wondered if those sales are likely to be accretive or dilutive to your margins? And the second one, just on equipment. You’ve pointed towards flat for the year, but also the new launch being H2 weighted. Do you think there’s a quarter by the first quarter, second quarter possibly where we could see equipment sales down year-on-year? Thanks.
