China Targets Intra-Ocular Lenses with Volume-Based Procurement

In November 2018, China rolled out a volume-based procurement (VBP) policy to force pharmaceutical companies into lowering drug prices. But then, in 2019, China decided to implement a volume-based procurement policy for medical device companies.

We've already witnessed the impact of volume-based procurement on Medtronic, the world's largest medical device company, as well as ZimVie, which decided earlier this year to pull its spine business out of China due to VBP.

Now, China is extending its volume-based procurement policy to intra-ocular lenses (IOLs) on a national level. The ophthalmic space has already been confronted with the VBP policy for a few years, but at a smaller, more provincial scale, and primarily within the monofocal IOL segment, noted Ryan Zimmerman, a medtech analyst at BTIG, in a March 22 report.

Zimmerman said he spoke with Alcon management and estimates that China exposure is about 5% of the Geneva, Switzerland-based company's sales, largely in surgical. The analyst expects Alcon's specific exposure to China within IOLs to be between 1% and 2% of the company's total sales.

"[Management] was quick to note though that they could pick up IOL share in the public sector as [Alcon] has historically focused on the private channel. In terms of timing, we believe bidding begins in June or July with implementation in 4Q23," Zimmerman wrote. "FY24 is much more likely to see impact and the rollout could be province by province limiting any sudden drop in sales growth in [Alcon's] implantable segment."

The analyst noted that prices for IOLs and cataract surgery within China have ranged from ¥1,000 Yuan to ¥6,000 Yuan, but after centralized procurement programs were put in place, many IOL and cataract procedures were reduced. Alcon lowered its prices modestly in Shanghai as a result of one round of volume-based procurement in the province, Zimmerman wrote, noting that local competitor Airui Technology dropped its price by as much as 65%.

Will volume-based procurement impact other areas of ophthalmology?

Staar Surgical's business is not subject to the volume-based procurement policy for IOLs, Zimmerman noted, because implantable contact lenses are a cash-pay business in China.

"This was our immediate worry when we heard VBP in ophthalmology given [Staar Surgical's] proportion of business in China (~52% in FY22)," Zimmerman wrote. "That said, how will Chinese ophthalmologists respond to these changes? If prices are cut down, on the one hand that can spur more patients to seek cataract treatment allowing Chinese ophthalmologists the opportunity to pursue more volume and that likely benefits the winners of the VBP programs despite drastic price cuts."

On the other hand, he noted, companies such as Aier Eye Hospital Group or EuroEyes International Eye Clinic that make a significant proportion of revenue and profit from the sale of IOLs (both standard and premium) could seek out alternative ophthalmic procedures and solutions to offset these losses, and Zimmerman said this could benefit Staar Surgical in FY24 or beyond.