Earnings Call Transcript - BLCO Q2 2022

Operator, Operator

Good morning, and welcome to Bausch + Lomb's Second Quarter 2022 Earnings Call. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Art Shannon. Please go ahead.

Arthur Shannon, Moderator

Thank you very much. Good morning, everyone, and welcome to our second quarter 2022 financial results conference call. Participating on today's call are Chief Executive Officer, Mr. Joe Papa, and Chief Financial Officer, Mr. Sam Eldessouky. In addition to this live webcast, a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section. Before we begin, we'd like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking statement legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures. For more information about these measures, please refer to slide two of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. Finally, the financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter and not to update or affirm guidance other than through broadly disseminated public disclosure. With that, it is my pleasure to turn the call over to Joe.

Joseph Papa, CEO

Thank you, Art, and thank you, everyone, for joining us today for the second quarter Bausch + Lomb earnings call. I will begin with some comments about Bausch + Lomb as an integrated eye care business and briefly discuss the second quarter highlights. Sam Eldessouky, our CFO, will then review our second quarter financial results in detail and discuss our 2022 guidance. Finally, I will conclude by discussing our product pipeline and upcoming catalysts before opening the line for questions. But before we talk about the quarter, I would like to take a moment to address two recent announcements. Last month, we announced that I will be stepping down as Chairman and CEO of Bausch + Lomb in the coming months. Having completed the IPO of Bausch + Lomb, it is an appropriate time to transition to new leadership. First and foremost, I want to thank all of the talented Bausch + Lomb employees who are dedicated to our mission of helping people see better to live better. I'm honored to have been a part of this incredible company's history, and I will leave knowing that Bausch + Lomb is well-positioned for continued success. Second, the XIFAXAN Norwich decision is a Bausch Health matter. We will not comment on it. Bausch Health will discuss the Norwich decision on its earnings call next week. Now, let's turn to slide four and talk about the Bausch + Lomb business. For an overview of the important differentiators that support Bausch + Lomb's competitive positioning in the marketplace, Bausch + Lomb is the most integrated eye care company operating today. Bausch + Lomb was the fastest-growing global contact supplier in 2021, has the highest brand awareness in eye care, is a global leader in consumer health, outpacing U.S. market growth by approximately 1.7 times since 2018, and finally, B&L products are available to over 80% of the world's population. This clearly demonstrates Bausch + Lomb's critical mass in eye health. Turning to slide five, we see a number of opportunities for standalone Bausch + Lomb as an eye health company. First, we believe the company is well-positioned for growth in large, durable markets driven by new products and favorable mega-trends or tailwinds such as the increasing prevalence of myopia and diabetes, and an aging population that utilizes 10 times more eye health than those patients under the age of 65, along with a growing middle class that is expected to continue driving demand for eye health products. In addition, we have the potential for margin expansion over the long-term based on new product launches and supply chain efficiencies. Finally, as a publicly traded company, we expect to have balance sheet flexibility to expand investment in the business and additional strategic bolt-on product opportunity, such as our recent announcement in Sanoculis for a surgical glaucoma solution, which I will discuss in more detail later. Moving now to the second quarter highlights on slide six, our achievements contributed to a strong second quarter organic revenue growth of 6%. We have continued momentum in key portfolios. We had great consumer performance in the second quarter with the LUMIFY, Biotrue Solution, all reaching their record high market shares in the U.S. U.S. market share for eye vitamins franchise increased by 410 basis points compared to the prior year quarter. The Biotrue Solutions franchise grew by 39% in the second quarter and is expanding with two new launches underway. Next, the investment in fast-growing categories. LUMIFY reported revenue grew by 21% in the second quarter. We're in the early stages of brand expansion. Reported revenue for the SiHy Daily contact lenses grew by approximately 50%. With the global SiHy Daily market growing at a CAGR of approximately 11%, we continue to see significant growth potential as we launch in more countries. And finally, new product category expansion. We are launching Revive, a new family of customizable soft contact lenses designed to meet the needs of more patients. In June, we filed an NDA for NOV03, a potential first-in-class treatment for dry eye disease associated with Meibomian gland dysfunction. To summarize, our strong second quarter results demonstrate the advantage of our integrated eye care platform, the durability of our brands through challenging economic conditions, and the continued ability of our team to execute our goals and drive innovation. As we look toward the future as a standalone publicly traded company, we see many opportunities for an eye health company that is well-positioned for growth in large, durable markets and in categories that are growing faster than the overall eye health market. And with that, I'll now turn the call over to Sam to cover the financial results in more detail.

Sam Eldessouky, CFO

Thank you, Joe. Before we get into the details, I will remind listeners that when we talk about organic revenue growth, we mean on a constant currency basis and adjusted to remove the impact of divestitures and discontinuations. Turning now to our results on slide seven. We're pleased to report another quarter of strong organic growth. Our durable portfolio continues to drive demand across our key franchises and markets, reflected by our total company revenue of $941 million for the second quarter, up 6% organically and up 1% on a reported basis. The business is demonstrating the benefits of Bausch + Lomb's integrated and diversified platform, with high brand recognition, which enabled us to overcome existing macroeconomic challenges, including inflation, the impact of COVID in China, and approximately $46 million of currency headwinds. While we're seeing a gradual improvement in economic activity in China, COVID-related restrictions continue to limit mobility and disrupt consumer buying patterns. Overall, we're very pleased with our performance in the quarter and believe we have a resilient foundation that will allow us to accelerate growth as we build on the momentum in our current portfolio and continue to launch new products. In the near term, we expect growth to be driven by our key Vision Care franchises, expansion of our U.S. leadership position in consumer eye health, and market recovery retail within our surgical business. We will continue to target cost mitigation initiatives and identify competitive pricing actions to address the impact of inflation and leverage our global footprint to navigate the stop-and-go nature of the COVID recovery. Over the long-term, we expect to continue to strategically focus our investment to further strengthen the brand equity in our global franchises, execute on the transformation of our ophthalmic pharmaceuticals portfolio by launching new differentiating products, and invest in R&D to capture future opportunities and target mega-trends shaping the eye care sector. Now, I will go into more detail on each of our segments. Revenue in the Vision Care segment, which includes contact lenses and consumer products, grew organically by 11% in the second quarter. Our consumer portfolio, which was up 15% organically, saw broad-based growth in the U.S. and international markets, with market share gains in eye vitamins and redness relief products. The eye vitamin franchise Ocuvite + PreserVision grew by 7% on a reported basis. The franchise has continued to demonstrate resilience, and as the market leader, it is continuing to drive growth through increasing awareness of the prevalence of AMD. LUMIFY reported revenue grew by 21%, driven by an increase in demand. LUMIFY continues to expand its market leadership position, with revenue in the quarter reaching an all-time high of $35 million. The LUMIFY success has created a new platform for us, which we expect to build on with line extension and geographic expansion strategies. Having already launched in the U.S. and South Korea, we also recently launched LUMIFY in Canada. Our lens care portfolio saw strong performance driven by both base business and new product launches. We expanded our market share in the U.S. and recaptured market share internationally, following supply challenges resulting from the Milan recall in the prior year. We saw robust revenue growth in the Biotrue franchise. The launch of Biotrue Hydration Plus Multi-Purpose Solution in the U.S. is off to a strong start. Also contributing to growth is the Biotrue eye hydration boost line, which was launched in 2021. Internationally, AQUALOX, which is a key dry eye franchise, grew organically by 20%, mainly driven by strength in European markets. Growth in lenses was up 10% organically in the U.S. and up 3% organically in the international markets. Excluding the impact of COVID in China, the international portfolio grew approximately 13%. The strong results were primarily driven by 50% growth in Daily SiHy lenses and double-digit organic growth in our core brands, ULTRA and Biotrue. We're continuing the global rollout of the Daily SiHy lenses, most recently with the launch of AQUALOX UV SHIN in Japan. We also launched revised custom soft lenses in the U.S., which is an important step in building out our higher margin specialty lens portfolio. Certain products in the Vision Care portfolio have also benefited from strategic pricing actions to help mitigate the impact of inflation, with the brand equity of the portfolio continuing to drive demand. We will continue to monitor the market dynamics to ensure our products remain competitively priced. Moving onto our Surgical segment. Second quarter revenue grew organically by 7% to $184 million, benefiting from the continued recovery as the market works through the COVID-related backlog of elective services. Growth was driven by demand in consumables, which saw 13% organic and 3% reported growth, and implantables where we saw 10% organic growth and 4% reported growth. Growth in implantables was mainly driven by our enVista franchise and the contribution from our international entry into our premium IOL category through LuxSmart. Finally, in the Ophthalmic Pharmaceuticals segment, second quarter revenues of $168 million declined by 10% on an organic basis. In the U.S., the portfolio is impacted by the tail end of LOE products and competitive market dynamics in our generics portfolio. We continue to strategically focus on key promoter brands. VYZULTA TRx growth was up 36% in the quarter, and total revenue grew by 16%. VYZULTA has now been approved in 18 countries. We launched in Thailand in the second quarter, and we're preparing for launch in Brazil in the fourth quarter. The international ophthalmology portfolio was also impacted by COVID-related restrictions in China, which is a key market for us outside of the U.S. We're excited about the steps taken this quarter to continue the transformation of the ophthalmology portfolio. The NDA submission of NOV03 marks a critical milestone. We expect that funding to be accepted in the third quarter as we make progress towards the launch in the second half of 2023. We're also pleased with our recent launch of XIPERE, and we're seeing a positive response from the retina community. We believe that the new product launches and portfolio transformation will provide the Ophthalmic Pharmaceutical segment with a strong foundation to drive growth. Turning now to slide eight. With total revenue of $941 million in the second quarter, we continue our strategy of investing behind new product launches and investing in R&D, while maintaining a disciplined cost structure despite incremental costs to stand up the company. Our adjusted EBITDA in the second quarter was $182 million. Our total adjusted gross margin for the quarter was approximately 60%, which is 100 basis points lower than Q2 2021. The change is largely driven by inflation-related headwinds, leading to higher costs in energy, shipping, transportation and certain raw materials. We're actively working to mitigate inflation challenges through cost improvement and efficiency-enhancing initiatives, as well as strategic price increases. We continue to maintain a disciplined approach to cost management and leverage our infrastructure. Our increased SG&A spending of $10 million year-over-year can be attributed mainly to inflation and transportation costs. Our investment in R&D in the quarter increased to roughly 8% of sales as we continue to focus on high-priority projects to accelerate our ability to execute on our R&D pipeline. Finally, adjusted EPS for the quarter was $0.29. Moving on to slide 10, adjusted cash flow from operations was $165 million in the second quarter. Maintaining working capital efficiency tends to be a key priority while also balancing strategic inventory management to anticipate the impact of macro headwinds. Second quarter CapEx was $34 million. B&L continues to have a strong balance sheet, which provides us with the flexibility to pursue value-enhancing investment opportunities. Now turning to guidance on slide 12. We are reaffirming revenue guidance for 2022 in the range of $3.75 billion to $3.8 billion, representing between 4% and 5% in organic revenue growth. We're also maintaining our adjusted EBITDA guidance for 2022 in the range of $740 million to $780 million. We expect adjusted gross margin to be approximately 60% for the year. While we continue to implement mitigating initiatives, we expect the impact of inflationary pressure to be prolonged. We continue to expect interest expense of approximately $150 million, which includes the impact of previously anticipated interest rate increases on our variable interest rate debt. We also increased full year R&D investment to approximately 8% of revenue, as we continue to accelerate high-priority projects within our R&D pipeline. Lastly, as we continue to finalize our separation from BSC and take the required steps to establish B&L's standalone capital structure post-IPO, we're expecting our tax rate to be in the range of 6% to 8% in 2022, which is lower than our previous guidance of 12%. In summary, we're pleased with our strong Q2 results and growth momentum. We believe that the results reflect the resilience of our business and provide a strong financial position from which to execute our growth strategy.

Joseph Papa, CEO

Thank you, Sam. I will now discuss our product pipeline and the upcoming catalysts that we expect to drive business results. Beginning with LUMIFY on slide 14. After launching in May of 2018, LUMIFY became a $100 million-plus brand in 2021. Today it is the number one redness reliever in the category in the U.S. with approximately 47% market share. Building on the phenomenal success of this product and using the power of our fully integrated eye care platform, we're planning to expand the brand geographically and through line extensions. International expansion remains a priority. We have launched LUMIFY in Canada, and we're now available at all major pharmacy retailers and in South Korea. We are planning launches in other geographies and have regulatory approvals and submissions underway in multiple countries. We are also working on LUMIFY Eye Illumination, especially eye care line for the sensitive eye area, a preservative-free formulation of LUMIFY, and a combination product with ketotifen for allergy symptom control. Turning now to slide 15, our Biotrue franchise is a global mega brand platform that includes contact lens solutions, contact lenses, and dry eye products. The franchise generated $92 million of revenue in the second quarter, and importantly, reported revenue grew by 19% versus the second quarter of 2021. We have two launches underway. First, the Biotrue Hydration Boost Dry Eye Drops, which were launched in 2021, and second, a Biotrue Hydration Plus Multi-Purpose Solution, which we launched earlier this year. This product builds on the success of the original Biotrue Multi-Purpose Solution, which we launched in 2010 and is the number one multi-purpose solution in the United States. Importantly, the Biotrue Solutions family continues to grow and gain market share, increasing by 380 basis points compared to the first quarter of 2022. Let's take a look at the broader Vision Care portfolio on slide 16. Beginning with Biotrue One-Day lenses, which launched in 2012, year-over-year sales of these lenses grew by 13% on an organic basis and generated $200 million of revenue over the trailing 12 months. Next, we have Bausch + Lomb ULTRA contact lenses, launched in 2014. Reported revenue from sales of these lenses grew organically by 10%, generating $173 million of revenue over the trailing 12 months. Finally, we have the ongoing launch of our SiHy Daily lenses, up 50% on a reported basis. At a CAGR of approximately 11%, the SiHy Daily market is the fastest-growing segment of the contact lens market, and we expect our SiHy Daily lenses, which are now available in approximately 2,500 locations, to be an important growth driver for the lens business, with global peak sales expected to exceed $250 million. On slide 17, we featured the newest addition to our specialty lens portfolio. Revive is a new family of customizable soft contact lenses that have been launched for the goal of providing a more individualized vision-correcting solution to a broad range of patients, including those with high or unique prescriptions. Revive soft contact lenses are available in spherical, toric, multifocal, and multifocal toric options and can be worn daily for up to three months. These customizable lenses also provide us with a higher realizable margin structure. We are pleased to offer this new solution for patients with unmet vision needs. On slide 18, as I mentioned earlier, we submitted an NDA for NOV03 in June, a potential first-in-class treatment for dry eye disease associated with meibomian gland dysfunction. If approved by the FDA, we expect to launch NOV03 in the second half of 2023. Consistent statistically significant efficacy, safety, and tolerability have now been demonstrated in two Phase 3 studies. The charts on slide 18 show the efficacy endpoints for the second Phase 3 trial. Importantly, all primary and secondary endpoints were achieved, including statistically significant changes from baseline as early as day 15. Dry eye disease is one of the most common ocular service disorders affecting approximately 18 million Americans, and one study found that approximately 86% of patients with dry eye disease had meibomian gland dysfunction. This is a fast-growing market with unmet patient needs. From 2016 to 2021, the U.S. prescription dry eye market grew at a CAGR of approximately 24%. Given the current market dynamics and the results of these two Phase 2 trials, we believe that NOV03 has the potential to be a major future growth driver for our business. On slide 19, we announced that we expanded our surgical portfolio by making an equity investment in Sanoculis, and we have an option to acquire the company's assets. We also entered into an exclusive European distribution agreement with Sanoculis for an innovative minimally invasive surgical procedure for the treatment of glaucoma. MIMS is a stentless simple and fast glaucoma treatment that effectively lowers intraocular pressure without the need for invasive surgery. Globally, approximately 79.6 million people had glaucoma in 2020, and that number is expected to increase by 40% by 2040. Given the market landscape, we believe the transaction represents a great long-term opportunity for our surgical business and clearly fills the gap in our near-term surgical portfolio. To summarize on slide 20, Bausch + Lomb operates in the eye health ecosystem where it is uniquely positioned to meet eye care needs. Bausch + Lomb has the highest brand awareness of any eye care company. Bausch + Lomb has longstanding relationships with eye health professionals as well as key retailers and e-commerce channels that reach a broad consumer base. Bausch + Lomb is a fully integrated eye health company that offers a comprehensive portfolio of more than 400 products to meet significant patient and consumer needs. Bausch + Lomb serves patients and consumers throughout all phases of their lives, developing and offering new treatments to meet unmet eye health needs and help people see better to live better. Our second quarter results demonstrate the durability of our businesses. Our team remains focused on continuing to generate momentum in our key products, investing in fast-growing categories, and expanding into new product categories. Looking ahead, we continue to believe that Bausch + Lomb is well-positioned for success as a standalone eye health company. With that, operator, let's open up the line for questions.

Operator, Operator

We will now begin the question-and-session. Please wait for instructions. The first question comes from Joanne Wuensch from Citi. Joanne, your line is live. Please go ahead.

Joanne Wuensch, Analyst

Good morning and thank you for the question. There are two parts to it. First, despite a particularly strong second quarter in terms of revenue and EPS, you have reiterated guidance. I'm curious about the factors that contribute to that. Secondly, in my experience, ophthalmology tends to be fairly recession-resistant. I'd like to know which products in your portfolio you believe could perform better in a recession. Thank you.

Joseph Papa, CEO

Two very good questions. So, as we look to the second half of our year, we are optimistic in what we are seeing in the second half of the year with our business performance. So, that part is absolutely clear. Having said that, though, there are a number of macro trends out there right now that we just want to make sure that we understand more about them as we think about our second half guidance. For example, the geopolitical issues that we see in terms of the COVID recovery in China, some of the issues that we see because of the Russia/Ukraine invasion and how we are managing that relative to what it means for inflation, energy costs, especially energy cost in Europe. So, we're thinking through that, foreign exchange. We're thinking through all those things. And we thought at this time we are absolutely optimistic in how our business is performing, but we want to make sure we also consider those factors as we thought about what was happening with foreign exchange, etc., and inflation. So that's the reason why we reiterated our guidance, but very optimistic in our business. Regarding the portfolio through recession, I think you said it very well. We are looking at the eye health business as being a business that is relatively recession-resistant in the sense that vision is the most important sense for people. And what we believe is that people are going to continue to want to ensure they get the best vision care health that they possibly can. So, we do think that, that is something that is out there, and we've looked at it historically. We've examined our overall business and the fact that as we've gone through the business, especially as you've seen in the most recent quarter, our consumer business had very strong 15% growth, contacts was plus 5%. So, we're seeing very strong overall growth in the business. And of course, the surgical business also being plus 7% we felt were all indicators for us as we're looking and thinking through the surgical business. The only other comment I will make is because of some of the challenges of COVID going back into 2020 and 2021, to some degree, we still believe there is a backlog of approximately 10 million cataract surgeries that are still going to need to get caught up, and we see it happening in 2022, 2023, and beyond. So, those are all going to be factors that we think are going to continue to drive the overall performance through the recession time period depending on the magnitude of the recession.

Operator, Operator

Next question please.

Robbie Marcus, Analyst

Hi. This is actually Lilly on from Robbie's team. Thanks for taking the question. Can you talk a bit about how you're thinking about the cadence over the rest of the year? Do you expect normal seasonality in third quarter and fourth quarter? And are there any other puts and takes we should be keeping in mind for the balance of 2022?

Sam Eldessouky, CFO

Hi, Lilly. This is Sam. It's a good question. Our second half typically performs better than the first half. Building on what Joe mentioned earlier, we have observed strong momentum in our consumer business during the first half, particularly in the eye redness category with LUMIFY. We also experienced growth in the vitamin category with Ocuvite + PreserVision. This positive trend is expected to continue. On the lens side, we saw significant momentum with the launch of Daily SiHy in the first half, which saw a 50% increase in Q2. We anticipate this growth will carry forward into the second half. In the surgical segment, we're addressing the backlog and benefiting from the increase in elective surgeries as we move forward. However, we need to consider various macroeconomic factors, including inflation, supply chain challenges, geopolitical issues, and currency fluctuations, which have been quite volatile. We are carefully analyzing different scenarios as we plan for the second half, keeping in mind the potential outcomes and balancing the positive and negative influences. Historically, the second half has outperformed the first half, but we have to remain cautiously optimistic in light of the macro headwinds as we proceed into the latter part of 2022.

Joseph Papa, CEO

Operator, next question please.

Craig Bijou, Analyst

Great. Good morning, guys. I had a few on SiHy. One, I wanted to see if you could provide any directional color on where your Daily SiHy sales are today? And then, I also wanted to ask if you could provide a little bit more color on where you're seeing growth. Is it growth in the U.S.? Is it growth from the international markets that you just entered? And then, do you have a sense for how much of the SiHy use of growth is cannibalization versus new users to Bausch + Lomb?

Joseph Papa, CEO

Sure. Great questions. Let me address them one at a time. First, regarding SiHy sales, we are very pleased with our SiHy lenses. Starting with the U.S., we have doubled the number of active fitters for the SiHy Daily lens compared to a year ago. The actual number of doctors, optometrists, and ophthalmologists fitting these lenses has now doubled from the same quarter last year, primarily based on U.S. data. We're also seeing that in our fit set, which we refer to as the sample, we have about a 16.5% share of the overall SiHy Daily market, which is significant for us. I want to emphasize that we don’t have the fit set positioned everywhere we want yet. They have increased by about 30% year-over-year, but there are still more fit sets for us to launch, again focusing on U.S. data. On the international front, the team is performing very well. Europe is just beginning its launch phase, and we've expanded from about 10 countries at the end of 2021 to 25-26 countries now. This shows a nice geographic expansion as we planned for the SiHy Daily product. Outside of the U.S., the international team refers to this as ULTRA ONEday, which builds on our overall ULTRA brand. Regarding product sources, I have the best data sourced from the U.S. and we aren’t observing significant cannibalization. We're seeing sales coming from ACUVUE OASYS, ONE DAY Moist, and Daily Total. A large percentage is also coming from new starts, which is favorable for us. Notably, despite the SiHy Daily launch, Biotrue showed a 9% revenue growth, and our ULTRA monthly lens experienced a 5% growth, indicating that our existing lenses are still performing well while we launch the INFUSE products. INFUSE revenue grew about 50%, and we anticipate that our INFUSE product could present a long-term opportunity exceeding $250 million. We are excited about the growth we are observing. I believe I covered everything. Sam, would you like to add anything?

Sam Eldessouky, CFO

No. Just on the Biotrue and ULTRA, Craig, is if you look at it also organically because currency has a big impact on those products. If you look at it organically, those two products, Biotrue and ULTRA both grew double digits. So, Biotrue is up 13% in the quarter and ULTRA is up 10%, both of them organically.

Joseph Papa, CEO

Operator, next question please.

Larry Biegelsen, Analyst

Hi. This is Charles on behalf of Larry. First, congratulations on a successful quarter. Could you share some early insights on 2023? I understand it may be too soon to discuss specific numbers, but I’m curious about the various factors you are considering, such as potential challenges or opportunities related to foreign exchange, inflation, loss of exclusivity, or upcoming product launches.

Joseph Papa, CEO

Sure. Great question. And I'll start and Sam may want to add some additional comments on it. The important comment as we think about the future is that we're obviously not guiding to 2023 yet, but our plan is straightforward and simple. We think we can continue the momentum in the current portfolio, all the things that we're doing this quarter, for example. We've invested in categories that we think are going to grow faster than the overall eye health market, like the Daily SiHy lenses, the premium IOLs, the advanced digital microscope. Importantly, we will go into new product categories, such as dry eye disease. Those are the factors for us as we look at the growth strategy moving forward. Continued momentum, investment in categories growing faster than the market, and expanding into new categories is what we're focusing on for 2023. 2023 is going to be about continued new products. It's going to be about the LUMIFY product, looking at new formulations from LUMIFY plus geographic expansion on the consumer side, and continuing to look at the Biotrue franchise. Many people have questions about whether we can continue to grow the Biotrue Multi-Purpose solution in a marketplace where dailies are taking over, and we're answering that question positively as we're seeing growth with new innovation. On the contact lens side for 2023, the story will be the continued introduction of the INFUSE product. Now that we've launched the spherical, we're going to transition into the multifocal in 2023 and ultimately, the toric and multifocal toric lenses, all designed to help us. One innovation that we haven't talked much about but we're really excited about is Revive. Revive is a product category that allows us to customize lenses for patients, addressing their vision unmet needs that they previously couldn't access. We believe this is going to help meet the needs of patients with vision problems, and many will be happy to have this access.

Sam Eldessouky, CFO

And you also have to think about surgical new products, which will be the rollout of enVista, the LuxSmart, and the advanced digital microscope. Final comment on ophthalmology is that we have the largest portfolio of ophthalmic prescription products in the world with 100 products, and we're launching XIPERE now while VYZULTA continues to perform well. Notably, we've filed the NOV03 product at the end of June. We are very optimistic about its future. These are the key tailwinds I see ahead, but Sam, do you have anything else you want to add? No, we’re looking closely at currency; it's a significant factor. We guided a full-year currency impact at around $160 million, with about $75 million already seen in the first half of 2022. This volatility will continue. Also, we're tracking inflation, which we've factored into our guidance, leading to roughly about 100 basis points of an impact. While we're taking steps to mitigate many inflation effects, challenges could be prolonged into 2022 and beyond. These are key factors we will watch closely as we approach 2023.

Joseph Papa, CEO

Operator, next question please.

Imron Zafar, Analyst

Thank you very much for taking my question. First question is on the surgical business. Can you just talk about the capital spending environment in terms of what the order book looks like? And then maybe to what extent you're experiencing any supply constraints within that business? Thanks.

Joseph Papa, CEO

Sure. Let me start with the overall Bausch + Lomb surgical business. Importantly, we saw very nice growth in our consumer business, up 13% organically, and also in implantable devices, which saw a 10% increase. However, our total grown only 7%. You can see there's lower capital spending compared to consumables. During the quarter, our global supply chain team has excelled in working through real supply constraints. I think that is a fair comment. Our team has navigated challenges related to microprocessors and surgical devices. We have made strategic inventory investments to work through these issues. There are indeed supply constraints, but we are actively working through it. Regarding Revive, I don’t want to overstate this opportunity in the near term, but in the long term, we view the ability to customize lenses as a significant advantage. We’ll provide patients with solutions previously unavailable due to unique prescriptions. We see this as beneficial to patients with unmet vision needs. While we don't expect significant uptake immediately, it’s complementary to other products we're promoting. Over time, we anticipate patients eager to spend for improved vision, especially with the long-awaited access to customized lenses. Thank you. Operator, next question please.

George Yodo, Analyst

Thanks so much for taking our question, and congratulations on the quarter. So, maybe just more broadly on margins, you've spoken about some of the incremental investments you're making this year, but can you comment on how should we be thinking about margins going forward? Also, what are some focuses of your R&D investments? And can you talk about the restrictions that come from the 90% ownership that BHC has on your business? What business activities might be limited because of that, and how could that potentially impact your business?

Sam Eldessouky, CFO

George, let me start with margins. On gross margin, we’re currently seeing pressure from inflation, around 100 basis points. We've mitigated many of those impacts through strategic pricing and supply chain actions, but there continues to be inflation pressure. Product mix also plays a role, especially with new product launches that can momentarily strain margins. However, as we scale up these products, margins will improve. Regarding EBITDA year-on-year, inflation, and the costs associated with standing up the company are affecting margins. Our 2022 is pivotal; our infrastructure is being built, and this year we will face elevated costs. Moving forward, we’ll leverage previous investments and expect margin expansion. As for R&D investment, we increased our commitment to about 8% of sales this quarter. This follows our consistent focus on high-priority projects to ensure that we execute our R&D pipeline effectively. We’re pleased to advance our key projects faster under the recent management changes. We expect R&D investment to remain around 8% this year and beyond. In terms of restrictions due to 90% BHC ownership, we operate independently. There’s no day-to-day operational limit imposed; this allows flexibility in investments and partnerships, as demonstrated by our actions in the first half of the year. Overall, we maintain the freedom to operate effectively.

Joseph Papa, CEO

Sam articulated that very well. Overall, our focus on the eye care business post-separation enhances our efficiency and ability to execute, allowing us to innovate in R&D. This methodical advancement fosters sustainable growth as we enhance patient lives.

Doug Miehm, Analyst

Yeah. Thanks very much. Just a couple of housekeeping items. Number one, is our P&L now fully burdened for all standalone costs? And then maybe you could also just quickly chat about CapEx being maybe a little bit lower this quarter. It looks like you're guiding to an unchanged number. So, those are two housekeeping items. And finally, in the event the parent did need a bit more cash and recognizing that they still own 90% of the company. What is the mechanism by which that they could transfer over cash, if necessary in the future? And I'll leave it there. Thanks.

Sam Eldessouky, CFO

Doug, let me take them in order here. In the first one, with the standalone cost, we guided about $70 million standalone costs for this year compared to last year, the full year 2021. As you compare B&L, it is what you will see fulfilling operational requirements. Regarding CapEx, you are right. There was about $34 million of CapEx this quarter. Remember, we had spent roughly $42 million in Q1, so that's just about $76 million toward our $225 million guidance. The key factor is all about timing for us. A couple of factors in terms of CapEx are tied to projects within our supply chain and manufacturing and tend to be timing-related. The latter part of the year will bring significant investment and growth. Hence, we're not moving our full-year guidance of $225 million. For cash transfer mechanism, it's an arm-length relationship with BHC. Thus, there's no established structure to send cash back and forth, so the cash remains within B&L exclusively generated from cash flow—all operations generated around $165 million this quarter.

Joseph Papa, CEO

Operator, next question please.

Yatin Suneja, Analyst

Thank you. Congrats on a good quarter. A couple of questions for me. First, on the pricing. Can you just talk about the level of price increase you are able to take at the corporate level? Are there certain businesses where you have more leverage versus the other? And then what percent actually are you able to realize? And whatever you've done in 2022, at least, have you been able to offset the inflation impact? So that's the first question on the broader price. The second one, any update on Lucentis biosimilar filing? Thanks.

Joseph Papa, CEO

Sure. Let me start with the pricing and the level of increases. As we reported in the quarter, for the second quarter, price was 2% of the 6% organic growth, with volume being 4%. We've achieved a 2% price increase. In January, we took pricing on our vision products, particularly our contact lens products, setting the mid-single-digit level. We didn’t apply this universally; we targeted it where inflation impacted. The consumer side had advanced pricing notifications that occurred in January and realized by March. Moving forward, we're evaluating extra pricing opportunities for 2022, including discounts and rebates. For 2023, we're looking at additional pricing due to inflation. We expect pricing pressures to exist in the range of around 9%. As for Lucentis, we expect to resubmit the biosimilar by the end of 2022, but that will be done through a partner.

Yatin Suneja, Analyst

Thank you.

Cecilia Furlong, Analyst

Good morning and thank you for taking the question. I wanted to ask, on XIPERE, could you just talk a bit about your outlook for the balance of this year, where you are in the rollout of the training? And then just kind of a higher level macro question. On your surgical business side, really, what are you seeing today in terms of either staffing pressures or other limitations that are dampening what could have been perhaps greater growth just in surgical procedures overall? Thank you.

Joseph Papa, CEO

Sure. We are very excited about what we're seeing with XIPERE. I recently spoke to key opinion leaders at a major retinal surgeons’ meeting in New York City. The feedback about XIPERE was very strong. We have received a J code, which is essential for reimbursement. While this treatment appears highly promising, note that annual prevalence of treated uveitis patients in the U.S. is around 125,000 with macular edema affecting about 20% of these patients. This gives insight into our potential market size. Importantly, we will explore additional opportunities using the suprachoroidal space for future medication delivery. Regarding the surgical side, I’ll reinforce that we still estimate a backlog of about 10 million cataract surgeries delayed during COVID. We experience staffing challenges affecting overall growth, but with ongoing innovation, we still see significant improvements moving forward as we work to provide care for these patients.

Operator, Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.