Contact lens solutions: A report on the supply within the United Kingdom of contact lens solutions

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On 30 April 1992 we were asked to investigate the supply within the UK of contact lens solutions (CLS or `solutions'): see Appendix 1.1. CLS are products used in the care of contact lenses, notably for cleaning, disinfecting, storing and rinsing. The reference covers all levels of supply: manufacturers and importers (`suppliers'), wholesalers and retailers.

Over 2 million people in the UK wear contact lenses and the value of the market for solutions is around £90 million at retail prices. Demand for solutions grew rapidly in the late 1980s but has slowed recently.

Government regulations play an important role in the CLS market. Two stand out-first, companies wishing to supply solutions have to obtain a product licence from the Medicines Control Agency (MCA) of the Department of Health (DoH), and secondly, CLS may only be sold at retail level by opticians and pharmacists because the MCA holds the view that expert advice should always be available at the point of sale. Opticians play a key role in the market because of the recommendations they make to customers at the time of fitting lenses. We estimate that opticians have about 60 per cent of the market at retail level, with the Dollond & Aitchison Group plc (D&A) and Boots Opticians Ltd (BOL), the two leading optical chains, taking about 10 per cent and 5 per cent respectively; and pharmacists 40 per cent, with Boots The Chemists Ltd (BTC) alone having 31 per cent. Because of the regulatory regime the UK is separate from the CLS markets in other countries.

The two leading suppliers are Allergan Ltd (Allergan), a subsidiary of the US company Allergan Inc, which has 38 per cent of the market; and CIBA Vision (UK) Ltd (CV-UK), part of the CIBA Vision group of the Swiss company CIBA-GEIGY AG, which has 34 per cent. Three other suppliers have shares in the range 6 to 9 per cent. Two of these are much stronger players in the CLS markets of certain other countries than they are in the UK. Few new products have been introduced in the last five years but retailers' sales of own-label solutions, which are simply `re-sleeved' versions of branded products, have risen sharply to take over a fifth of the retail market in 1992.

Among suppliers both Allergan and CV-UK are scale monopolists by virtue of the market shares quoted above. Allergan is the stronger company and has made very high profits over the past five years. We conclude that its pricing policy exploits its monopoly position and is against the public interest. The profitability of the CIBA Vision group on its UK CLS business has been modest in recent years and we have reached no adverse finding in relation to CV-UK's monopoly position.

At retail level BTC and BOL together (Boots) are a scale monopolist with 36 per cent of the market, far greater than the second largest retailer, D&A, with around 10 per cent. Boots buys CLS at the lowest prices of any retailer but sells all branded solutions at the recommended retail price (RRP) and gives only a small reduction, averaging 6 per cent on a weighted basis, on its own-label solutions. As a result it enjoys substantial margins. We conclude that Boots' pricing policy for CLS is contrary to the public interest.

We also found a complex monopoly situation among retailers generally, in that a substantial majority of them (including Boots and D&A) sell branded solutions at or only just below RRP. We believe that many more retailers could sell branded solutions at less than the recommended price while still making a sufficient return, and that this situation too operates against the public interest.

We judge that the adverse effects we found would not exist, or would exist to a much lesser extent, if it were not for the regulatory regime. We found that the MCA product licensing regime has significantly slowed the introduction of new products on to the UK market, compared with other developed countries, with the effect of seriously inhibiting competition among suppliers. CLS will in the future be regulated under a recently-adopted EC Directive on Medical Devices, which is expected to lead to more products being allowed into the UK market, but this may not be fully implemented until 1998. There is also a lack of price competition among retailers which we consider would not be possible without the restriction on outlets.

Our preferred remedies therefore concern changes in that regime which would facilitate the entry of new products and new retailers and thus enable the market to work better. We recommend that the regulatory authorities should change the administration of product licences so as to give greater weight to factors influencing users' compliance with lens care regimes (ease of use, cost) and should implement the provisions of the EC Directive on Medical Devices well before 1998. We also recommend that the retailing of CLS should be opened up to all retailers who wish to sell them, subject to satisfying standards for storage and product recall.

If these recommendations are not adopted, we propose that direct price controls be placed on Allergan and Boots. Because of Boots' dominant position in the retail market, these controls would also stimulate price competition among retailers generally.

We found, finally, that many opticians give too little weight to the cost of particular types and brands of solutions in making their recommendations to customers, and fail to give customers information, before they decide to buy contact lenses, about the overall costs of lens care. We recommend that the relevant opticians' bodies should strengthen the guidelines they issue in order to deal with these deficiencies, and should monitor their observance.

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