Investors have shown a strong interest in the ophthalmic product space
Global surgical ophthalmic equipment and products deals grew with a CAGR of 19% 2018-2022 to a record high of 31 deals last year. PE or PE backed deals grew faster than the market overall with a CAGR of 26.6%, reaching a record 13 deals in 2022, almost twice that of the previous year.
Recent notable PE deals include Eurazeo’s acquisition of Dutch Ophthalmic Research Center International (D.O.R.C., led by CEO Pierre Billardon) for an estimated €300m in 2019, and CVC’s acquisition of Rayner Surgical Group (Rayner, led by CEO Tim Clover) for an undisclosed amount in 2021.
The most active investor in recent years however has been TPG Capital. Since its 2016 acquisition of US-based Beaver-Visitec International’s (BVI, led by President and CEO Shervin Korangy). TPG Capital has proceeded to roll-up multiple, mainly European, ophthalmology assets. Through this, TPG Capital has built a leading global platform estimated to have seen a revenue growth of ~19% CAGR between 2017 and 2021.
Investor interest in the space is driven by attractive market fundamentals such as an ageing population, an increasing treatment of pathologies, an increasing access to healthcare, as well as stable public or insurance funding. Ophthalmic procedures tend to be inexpensive because they are almost always day-cases, and impactful because good vision is so important to a normal productive life. We therefore see ophthalmic procedure growth exceeding growth in other surgical specialities.
There are also significant roll-up opportunities for investors in this space, notably in the US and Western Europe.
A large and fast-growing market, supported by strong driver
We estimate the global ophthalmology equipment and surgical products market to be worth around £20bn in 2023. Around 84% of this market is made up of equipment and products for the operating room (Exhibit 1).
Of the market that is for inside the operating room, this can further be broadly broken down into products for the front of the eye, or the anterior segment (covering cataract, glaucoma, and refractive surgery), and products for the back of the eye, or the posterior segment (covering vitreoretinal surgery). The anterior segment is by far the largest of the two, with a market size of circa 10x that of the posterior segment, and it is also forecast to grow faster, with a CAGR of 6.5% 2023-2027 (Exhibit 2). In this article we focus on the cataract and vitrectomy (VR) segments as the largest ones in the anterior and posterior segments respectively.
In the cataract space (the largest part of the anterior segment), intraocular lenses (IOLs) represent circa ~67% of the total market value. We forecast future market growth in this space to be largely driven by the multifocal (premium) IOL segment. Though multifocal IOLs are usually not covered by public pay healthcare systems, nor by statutory health insurance systems, we believe that growth will be driven an increasing global middle class who are willing to pay for these products in full (private pay), or in part (co-pay). Though we forecast monofocal lenses to grow at ~3.7% globally until 2025, we believe this will come almost exclusively from volume growth as these are largely commoditised products, experiencing strong downward price pressures.
In the VR space, we forecast future growth to continue to be driven by surgical pack sales, as well as to a lesser degree by disposable instruments (despite being a faster growing segment).
Strong market growth is supported by solid fundamental drivers including:
- An ageing population – Age is one of the main drivers of both cataract and VR surgery and according to data from World Population Prospects 16% of the world’s population (or 1.55 billion people) will be over age 65 by 2050, up from 9% in 2019 (or 639 million people).
- An increasing treatment of pathologies and increasing access to healthcare – For instance, cataract procedures in China are estimated to have doubled in the period between 2014-2019, going from 1.5 million to 3 million procedures. This still however means that only circa 213 per 100k population procedures were done that year, compared to for instance 1,310 in France, 1,049 in Germany , or 998 in England (FY22). Hence, we would also expect a significant growth in the number of procedures over time in this and similarly underpenetrated markets, notably in APAC.
- An increasing prevalence of diabetes (mainly related to VR) – Diabetes is a significant driver of VR surgery, and the global diabetes prevalence is estimated to rise to 10.2% or 578 million people by 2030 (9.3% or 463 million people in 2019) and 10.9% or 700 million people by 2045. The prevalence is higher in urban areas, and in high-income countries meaning we expect to see growth even in currently highly penetrated markets.
- An increasing middle class who are willing to pay for premium IOLs (related to cataract surgery only) – Market Scope forecasts the value the multifocal IOL market to grow with a CAGR of 11.7% until 2025 (compared to 3.7% for monofocal IOLs).
In addition to favourable drivers, we also view investments in the space benefiting from stable revenue streams from public or statutory health insurance payors. Hence, we forecast this market to remain attractive over the long term.
The cataract equipment space is dominated by large global players, whereas VR has some regional players
The global market for surgical ophthalmic equipment and products is dominated by Alcon, and Bausch + Lomb. These offer a full range of products, from equipment to instruments and consumables, covering both the cataract and VR segments.
Other global players have decided to focus primarily on the anterior segment (for instance Carl Zeiss Meditec, and Johnson & Johnson). The larger players are followed by a tail of smaller more regional ones often focusing on IOLs, notably UK-based Rayner and Netherlands-based Ophtec, and consumables.
Players focusing on equipment for the posterior segment tend to be smaller and more regional, for instance D.O.R.C., in Western Europe and the USA, Oertli mainly in DACH, and Appasamy Associates in India. We believe this regionalization is due to the smaller market size of the VR space compared to the cataract space, the dominance of Alcon in the US which until now has limited European player growth in that market, and the low priority VR players have historically placed on large Asian markets such as India, which has instead served by local, more low-cost, players such as Appasamy.
Though a rough divide between players focusing on the anterior and posterior segments can be made for smaller players, several companies mainly focused on VR such as BVI, D.O.R.C. and Oertli offer either dual-function machines, capable of performing both cataract and VR surgeries, or offer other products that span both segments. Hence, we have included these in the Cataract and VR segment in Exhibit 3.
We are seeing significant deal activity in the space, and a market consolidating with the merger of equipment, instruments, disposables and liquids
Global ophthalmic surgical equipment and products deals grew with a CAGR of 19% 2018-2022 to a record high of 31 deals last year. PE or PE backed deals grew faster than the market overall with a CAGR of 26.6%, reaching a record 13 deals in 2022, almost twice that of the previous year (Exhibit 4).
We are seeing a trend of consolidating equipment providers with other providers of ophthalmic products, such as consumables. Hence, under TA Associates ownership, Belgium-based IOL manufacturer PhysIOL in 2017 acquired Optikon, and Italian provider of phacoemulsification systems (used in cataract surgery), VR devices, and diagnostic equipment (PhysIOL/Optikon was acquired by BVI the year after). Further in 2019 Hoya (Public, TSE/TYO) acquired Germany-based Fritz Ruck and US-based Mid Labs, providing the company with VR machines, probes, and surgical packs.
The most active investor in recent years however has been TPG Capital who since its 2016 acquisition of BVI, has proceeded to roll-up multiple regional, mainly European, ophthalmology assets into its platform. Targets have included Vitreq (Netherlands), PhysIOL/Optikon (Belgium/Italy), and Arcadophta (France) (Exhibit 5).
Through these acquisitions, BVI has significantly expanded its portfolio from being largely a company focused on single-use devices in refractive, cataract and retina, to now covering most of the areas its global competitors cover (Exhibit 6).
As a consequence of this significant roll-up, BVI has almost doubled in size since the TPG Capital takeover, growing with an estimated ~19% CAGR in the years 2017-2021 to reach a revenue of ~€320m.
Investment opportunities
With acquisition activity accelerating, the ophthalmology product space remains ripe for investment. Investor will benefit from attractive market fundamentals such as an ageing population, increasing treatment of pathologies and increasing access to healthcare, as well as stable public or insurance funding.
Further, we see significant roll-up opportunities for investors interested in building ophthalmology platforms focussing on either cataract, VR, or both. We believe that any platform play should initially focus on the US and Western Europe where we see more numerous attractive assets. Further, any play should attempt to leverage assets’ different geographical presence to accelerate international expansion.
As a second step, once a platform has been established, additional longer term growth should be possible to achieve through growing the platform (notably within the instruments and consumables space), expanding to geographies outside of the US and Western Europe (notably targeting China, India, and the rest of APAC), and expanding to the refractive and glaucoma segments (which we forecast to be worth an estimated £4.4bn globally combined in 2023).
1 https://www.eurazeo.com/sites/default/files/presse/190313-DORC-Exclu-EN-1.pdf
2 Multifocal lenses allow for vision at a range of distances. This is in contrast to monofocal lenses which provide focus at only one distance.
3 Co-pay is where the patient pays the difference between the cost of a standard cataract procedure with a monofocal lens, and a premium procedure with a multifocal lens. This is allowed in some countries, though not for instance in the UK.
4 https://www.un.org/en/global-issues/ageing#:~:text=Globally%2C%20the%20population%20aged%2065,11%20in%202019%20(9%25).
5 Market Scope – 2020 IOL Market Report Mid-Year Update
6 Eurostat Surgical operations and procedures performed in hospitals: cataract surgery 2019.
7 NHS Digital
8 Saeedi, et. al. Global and regional diabetes prevalence estimates for 2019 and projections for 2030 and 2045: Results from the International Diabetes Federation Diabetes Atlas, 9th edition, Diabetes Research and Clinical Practice, Volume 157, 2019, 107843, ISSN 0168-8227
9 Market Scope – 2020 IOL Market Report Mid-Year Update
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