Cooper : COO USQ Transcript 2021 03 17

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

COO.N - Cooper Companies Inc at Oppenheimer Healthcare Conference (Virtual)

EVENT DATE/TIME: MARCH 17, 2021 / 5:10PM GMT

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CORPORATE PARTICIPANTS

Daniel G. McBride The Cooper Companies, Inc. - Executive VP & COO

CONFERENCE CALL PARTICIPANTS

Steven Michael Lichtman Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

PRESENTATION

Steven Michael Lichtman - Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

Hi, everyone. Sorry for the technical difficulties. This is Steve Lichtman, medical devices analyst at Oppenheimer. Welcome to the 31st Annual Oppenheimer Healthcare Conference. I'm very happy to have with us up next CooperCompanies. With us today is Dan McBride, Executive Vice President, COO and President of CooperVision; and Kim Duncan, Vice President, Investor Relations and Risk Management.

We're going to do this in a fireside format. If you have any questions, please key them in, and I will get them over to Dan and Kim. But with that, thank you both for joining us today.

QUESTIONS AND ANSWERS

Steven Michael Lichtman - Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

Dan, I thought maybe we could talk a little bit to start off about the underlying contact lens market dynamics. You guys have pegged the market pretty consistently at a mid-single-digit level. There's multiple drivers. And I'm wondering if you can talk about where we stand on 2 of them. First, the shift to dailies. And then second, the upshift to silicone hydrogel.

Daniel G. McBride - The Cooper Companies, Inc. - Executive VP & COO

Yes. What's nice about 2021 is 2021 is really shaping out to be a decent baseline year, at least in terms of how we're seeing guidance, and we felt comfortable enough to put out full year guidance on there.

We've been looking for how do you measure the market going forward. When we talk about a 4% to 6% growing market, 2021 may not be perfect, but it is measuring out like a relatively normal year despite the pandemic, other than maybe the European market which has been a little bit slow.

When we think about the big trends within the market, the big trends are the shift to 1 Days and 1 Day silicone hydrogels, the shift to torics, the shift to multifocals, and a distant or more out there future trend is this shift to myopia management.

When we think about the 1 Day market, it's strong. You're really seeing it being the greater percentage of the revenue market. It's over 50%. When you look at 1 Day silicone hydrogel, if I were to go back, we've always been projecting that the move to 1 Day silicone hydrogel is accelerating. Three years ago, the market was around 35% 1 Day silicone hydrogel in the 1 Day market. It's now [around 46%] (corrected by company after the call) of the 1 Day market. You're seeing that trend go there.

When we think about where that's going to, the FRP market is now around 86%, 87% silicone hydrogel. There's this block of about $2.4 billion of 1 Day hydrogel that is now accelerating into a shift into 1 Day silicone hydrogel.

For us, when I look at it, when we started this journey of pushing back into the 1 Day space, we were around a 14% [market] (added by company after the call) share, and now we're around a 19% [market] (added by company after the call) share in the 1 Day space. That's all being driven by

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the push to 1 Day silicone hydrogel. We're capturing almost 30% of all 1 Day SiHy fits and the share in that space. It really is a transformative point for us going from being really a small player in the 1 Day space to being a major player in that space, and it's driven by 1 Day SiHy.

All those trends are progressing. If anything, the pandemic has been a little helpful to the 1 Day space because consumers are more interested in the healthiest modality. They don't want to do the cleaning. We're seeing that push. But it really is an extension of a trend that was there pre-pandemic and consumers going as a first choice into 1 Days as opposed to going to FRP and then shifting down into 1 Days.

Steven Michael Lichtman - Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

Have you been surprised, Dan, by the relative performance of your 2 daily silicone hydrogels. In that, you're more premium product, MyDay, more recently seems to be outpacing clariti. Of course, you have offerings at both levels. But I think the thought, maybe a few years ago, was that you really needed that lower cost to lead the way. But it sounds like the premium product is even a bigger driver.

Daniel G. McBride - The Cooper Companies, Inc. - Executive VP & COO

Yes. What's really accelerated that is MyDay toric, because Biofinity toric has such a loyal following to Biofinity toric, it's the #1 toric in the market and that's putting a lot of acceleration behind MyDay toric. It was capacity constrained. Now that it's unconstrained and able to expand into markets, it's allowing that bit of acceleration. Both products are doing well, but certainly MyDay toric is driving the MyDay franchise faster at this time.

Steven Michael Lichtman - Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

And then you mentioned, Dan, toric and multifocals, where Cooper certainly has been and is a leader. What portion of the market are those segments today? And given the market dynamics and aging population, where do you think that's going to go over the next 3 to 5 years?

Daniel G. McBride - The Cooper Companies, Inc. - Executive VP & COO

Yes. Currently, torics represent about 24% of the soft contact lens market. When we look at the amount of astigmatism in the population, it's around 30%. There is still a lot of room for torics to move up and take a greater percentage of the share of soft contact lenses, especially as you're starting to expand out the opportunities around torics, which is twofold. One, we're doing with Biofinity XR, which is really dramatically expanding the number of toric SKUs; over 200,000 additional SKUs that we can fit.

But also now, in terms of the 1 Day space, because we are pushing the outer limits of where 1 Days have been. They've always been more of a center of the bell curve toric product and we're pushing that out to be more full service to people with astigmatism.

When we look at multifocals, that's about 10% of the market. The multifocal ceiling is hard to predict because you have a large population of soft contact lens wearers that are aging. Everybody is getting presbyopia. There's no avoiding it, whether it's in your mid-40s or your early 50s, and people are loyal and want to stay in contact lenses.

We're seeing that grow. It's hard to predict how big it could get because you have to estimate how many of those people choose to stay within contact lenses. Also, it's a new entry point for people to come into contact lenses that previously had no vision correction, but they don't want to wear glasses and then they go into contact lenses. But that 10% is definitely a growing number, and there is no theoretical ceiling on it. But we're encouraged by the growth. It's all a matter of continuing to put out products into that piece of the marketplace and reducing the amount of compromise that you take with a multifocal lens.

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Steven Michael Lichtman - Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

Got it. So I want to shift the course to myopia management, which is obviously a key focus currently for Cooper. I think we all know the size of the myopia market and the outlook there. Maybe if you could talk to investors that don't know, why MiSight? I mean maybe talk a little bit about the journey in terms of the data collection and what that shows in terms of being able to slow the progression for kids?

Daniel G. McBride - The Cooper Companies, Inc. - Executive VP & COO

Yes. What's driven this company's growth and our above-market growth really for the past 15 years has been the growth of Biofinity in the FRP space. In the last 3 or 4 years, we've seen another S-curve of growth, which is the 1 Day silicone hydrogel space. What myopia management represents to us is that next third wave of growth that we bring in by expanding the category, bringing younger wearers into contact lenses and also changing the mission of what it means to have vision correction at a young age.

When I was growing up, it was really still the genetic lottery of what vision was. You didn't have any choice. Your vision was going to decline over a period of time, usually between ages around 5 to 17, and there was really nothing you could do about it. We started investing in this field about a little over 10 years ago because the science was becoming pretty clear that there is a lot of environmental factors that influence the growth in the progression of the eye and that those environmental factors could mechanically be stopped.

We brought in MiSight into the market. We bought into the technology about 10 years ago. What we realized was that while the science was developing there, clinicians and opticians really hadn't bought into that. They didn't really know that you could look at myopia as a progressive disease. And I think that now is what we've gone over that hump now, and it's pretty accepted universally within the optometry community that this is a progressive disease. It is treatable.

We invested in MiSight in a long-term clinical study. We just finished our 6-year data and we'll be wrapping up the study because the participants are now graduating out of myopia management. They are past the age where their eyes are growing and what we found out of that, which was really super exciting and led to the FDA approval, was we had 60% control, a reduction of 60% of the progression of myopia.

What's more exciting underlying the data though, is about 40% of the participants had very little to no progression of their myopia. So, clinically stable eyes over that full 6-year period, and that's really exciting because then you're talking about not only slowing the progression of the myopic population, you're stopping the progression. It's basically almost a cure. You can't reverse the growth of the eye, but you can definitely stop it.

Now the step forward really is a lot more about execution. The science is clearly there. Optometry is buying into the science. It becomes almost obvious that this should be standard of care treatment for children. Why would you allow a child who's come in to your office who was a minus 1, has progressed to a minus 1.5, why would you let them progress further if you have any ability to stop the progression of the myopia with standard tools that you're using to treat the child anyway?

That's why we're excited about it because it's opening a really big new category. It's a new mission for optics. It's not just about correcting vision. It's actually about reducing myopia. We're starting to see all of the players in the category taking active steps to be involved in the market.

On the large spectacle side, you have Hoya and Essilor introducing products into the market. You have us with the only U.S. FDA approved product in the market. You have J&J actively working on programs and they put out a paper around how we should clinically manage myopia.

It really is just at the very early stages of that build and right now, the effort around ours is how quickly can we push that ramp.

Steven Michael Lichtman - Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

And I want to get to spectacles in a second because, of course, you now have a play there as well. But just for now sticking on MiSight, you've been pretty consistent with your guidance for this fiscal year of about $25 million in revenue. What portion of that will be outside of the U.S. in your

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