Bausch & Lomb Inc. History

Company Perspectives:

Our vision: Bausch & Lomb will be number one in the eyes of the world. Our Mission: As a global eye care company, we will help consumers see, look and feel better through innovative technology and design. Our operating principles: The consumer drives the business. New products are our life. Cost is bad, investment is good. Plan carefully, execute swiftly. There is always a better way. Focus on what's important. Leverage, leverage, leverage. We cannot succeed without each other.

Company History:

Bausch & Lomb Inc. is the United States' leading ophthalmic goods firm and stands as one of the premiere contact lens manufacturers in the world. The company also produces Ray-Ban sunglasses, the best-selling line of sunglasses in the world, as well as several other brands of high-end sunglasses. As of the late 1990s, the company was restructuring to focus on products related to the eye. It sold such unrelated units as its skin care products and its oral care business and directed acquisitions toward high-margin eye care products, such as those for ophthalmic surgery. The company's pharmaceutical unit was also narrowing its focus to prescription and over-the-counter ophthalmics.

Early History

Bausch & Lomb Optical Co., an eyeglass store and manufacturer of eyeglass frames, was founded in 1853 by two German immigrants, John Jacob Bausch and Henry Lomb, in Rochester, New York. Bausch's son Edward learned to make microscopes, and the company prospered after it began to manufacture them. In 1890 Edward Bausch contacted Carl Zeiss, a German optics firm, and soon arranged for Bausch & Lomb to license Zeiss's patents, with the exclusive rights to the U.S. market. The most important patents were to Zeiss's new photographic lens and its first prism binoculars. Bausch & Lomb expanded, opening offices in Chicago, Boston, New York City, and Frankfurt, Germany. Bausch & Lomb gradually became a leading name in optics in the United States, supplying microscopes to schools and laboratories and manufacturing the U.S. Navy's first telescopic gun sights.

In the early 1900s, Zeiss perfected the military range finder. Impressed by U.S. manufacturing expertise, Zeiss eventually decided that, rather than build its own factory, it would allow Bausch & Lomb to manufacture range finders in the United States. In 1907 Zeiss bought 20 percent of Bausch & Lomb, granting the company free use of Zeiss patents in the United States. Zeiss, on the other hand, sold to the rest of the world and was paid in dividends rather than royalty payments. Bausch & Lomb also sent technicians to Germany for training at Zeiss laboratories. Military products accounted for only a small amount of Bausch & Lomb's production, but as the only U.S. manufacturer of many optical products, production was nevertheless vital to the U.S. military. As a result, the U.S. Navy stationed technical experts in the company's plant in 1912.

Bausch & Lomb's arrangement with Zeiss unraveled after the outbreak of World War I. The company had sold the Allies equipment without Zeiss's approval in Europe, which was not one of Bausch & Lomb's markets. In 1915 Zeiss sold its 20 percent share back to Bausch & Lomb, and until 1921, the two companies had no dealings with one another (although Bausch & Lomb continued to use Zeiss patents). Because of the war, Bausch & Lomb became the major U.S. supplier of scientific precision glass, from which the lenses used by the military were ground. After the war, the other U.S. companies that had learned to make the glass stopped production, making Bausch & Lomb the only producer of scientific precision glass in the Western Hemisphere. In 1921 Zeiss made all of its military patents exclusively available to Bausch & Lomb for use in the United States.

In 1926 John Jacob Bausch died, and Edward Bausch became chairman of the board. In the 1937 Bausch & Lomb went public, selling $3.6 million worth of stock to raise working capital. At the time the company made 17,000 products, from eyeglasses to spectroscopes. Bausch & Lomb made 28 percent of U.S. eyeglass lenses and a large percentage of the country's microscopes and binoculars. Even after the offering, the company was still closely held, with family members owning significant percentages of Bausch & Lomb stock and holding most top management positions.

Preparing for World War II

During the late 1930s, as Europe once again headed toward war, Bausch & Lomb focused on becoming self-sufficient by searching for U.S. sources of most materials to make optical glass and by stockpiling two year's worth of foreign supplies. During this time, the firm emerged as a leading provider of professional photographic lenses, particularly for the film industry. Bausch & Lomb's Cinephor coated projection lenses were used by almost all U.S. movie houses, while its high-speed lenses were used for projecting background scenes. Bausch & Lomb was awarded an honorary Oscar for these contributions. With help from these new products, company sales increased from $16.2 million in 1938 to about $21 million in 1940.

Despite these accomplishments, Bausch & Lomb's image was tarnished somewhat by a 1940 federal suit regarding its relationship with Zeiss. The U.S. Justice department charged both companies with antitrust violations because of their agreed-upon division of world markets. The government alleged that this resulted in inflated prices and also questioned the propriety of a German company dictating the sales of optical products by a U.S. company. While denying any wrongdoing, Bausch & Lomb paid a fine and again severed its relationship with Zeiss. The company was expanding for a new rearmament program and bidding on navy contracts, and industry analysts assumed that Bausch & Lomb wanted the incident put behind it as quickly as possible.

During World War II Bausch & Lomb produced optical instruments, including range finders and field scopes. As one of the earliest manufacturers of high-quality sunglasses, the company also benefited from the use of Ray-Ban sunglasses by U.S. Army Air Corps pilots and General Douglas MacArthur.

During the war, the percentage of company output relating to the military soared, but by the early 1950s, military sales had fallen to 15 percent of the total. Sales had increased to about $48.5 million, and the firm had more than 150 prescription labs for grinding and polishing glass lenses throughout the United States. Bausch & Lomb spent less than 2 percent of sales on research and development. Meanwhile, as Japanese firms recovered from the war, they became competitive. In 1951 Bausch & Lomb realized it was slowly losing its competitive edge and began allocating more money--some of it borrowed--into research and development. As a result, the company moved into the growing electronic optics field in 1954. By the early 1960s the firm was spending approximately 6.5 percent of sales on research and development. Bausch & Lomb also upgraded its marketing department to determine customer demand prior to developing new product lines.

In 1959 William McQuilken became the first president not related to the families of Bausch & Lomb's founders. The firm dropped Optical from its title in 1961, reflecting its move into other technologies and measurements. Sales reached $70 million in 1962. The company moved into the school market, which was growing quickly and required inexpensive, rugged instruments. In 1963 the firm released a $12 microscope targeted at the elementary and secondary school market. The instrument, with features usually reserved for expensive models, was made of tough plastics. Bausch & Lomb released two additional school microscopes priced under $50. Company earnings were static for much of the 1960s, however, because low-margin ophthalmic products such as eyeglass lenses and frames still accounted for a sizable portion of its sales.

Development of Soft Contact Lenses in the 1960s

In 1966 Bausch & Lomb made its most important decision since World War II when it negotiated a license to make and sell contact lenses made from a fluid-absorbing hydrophilic plastic. The material had been invented in Czechoslovakia and Western Hemisphere rights were purchased by National Patent Development Corp., from whom Bausch & Lomb licensed them. Bausch & Lomb spent $3.3 million on research and development, learning how to make viable soft contact lenses from the material. Many people experienced so much discomfort with hard contact lenses that they refused to wear them. The company hoped soft contact lenses would garner a huge share of the contact lens market. Bausch & Lomb encountered a few difficulties at the beginning. Because soft contact lenses conformed to the shape of the cornea, people with irregularly shaped corneas initially could not wear them. Other problems cropped up, including eye infections. Further, the U.S. Food and Drug Administration (FDA) classified soft contact lenses as a drug, which meant that Bausch & Lomb's product encountered numerous regulatory hurdles. Nonetheless, many doctors greeted the new lenses with enthusiasm. The firm's Softlens contacts were released in 1971 and sold about 100,000 pairs that year.

Because of the excitement generated by soft contact lenses, Bausch & Lomb's stock tripled in value in less than a year and at one point sold for 75 times annual earnings. At that time, approximately 44 percent of Bausch & Lomb's sales came from scientific instruments, mostly optical instruments sold to medical, industrial, military, film, and educational customers. The company served as the major supplier of lenses for Xerox Corp.'s copy machines. Bausch & Lomb also sold consumer goods, such as microscopes, binoculars, and rifle scopes.

By 1973 Softlens contact lenses accounted for 14 percent of company earnings and 51 percent of revenue. Bausch & Lomb had little competition and made roughly $14 per pair of contact lenses sold. The market for lenses was enormous; surveys found that more than 50 percent of Americans wore prescription glasses or contact lenses, and industry analysts predicted that large numbers of them might eventually get soft contact lenses. Yet the price of soft contacts--more than $300 including prescription and doctor's visit--held down sales. There was also slow acceptance of lenses among some doctors who had been offended by Bausch & Lomb's initial, high-pressure marketing. Additionally, certain doctors and lens wearers were disappointed with the slim selection of lenses offered. Bausch & Lomb worked hard to correct this, spending $3.5 million a year on Softlens research and development and hoping to offer at least five lenses. Despite these problems, trade sources estimated that 350,000 patients throughout the world bought Bausch & Lomb's soft contacts in 1973, and an additional 500,000 customers were added in 1974.

Competitors, however, were eager to enter such a large, untapped market. In 1974 Soft Lenses Inc. won FDA permission to produced soft lenses for vision correction. Warner-Lambert Co. received approval to produce lenses for therapeutic reasons and also applied to furnish vision-corrective lenses. Bausch & Lomb managed to maintain a large portion of its market share because of a three-year lead, name identification, and marketing strategies that reduced retailers' inventory costs. The company also cut wholesale prices by 25 percent, reducing retail of lenses by between $25 and $30 a pair. Despite price cuts, soft lenses accounted for 27 percent of company sales in 1979 and 63 percent of profits. By 1979 Bausch & Lomb still had a 55 to 65 percent share of the soft contact lens market, which had grown to $400 million a year. The firm was also selling gallons of lens cleaning and soaking solutions. Its saline solution had a 56 percent market share, its lens lubricant had 50 percent, and its daily cleaner 32 percent. In 1979 Bausch & Lomb began a lens fitting system that allowed 90 percent of new lens wearers to be fit with the firm's new Ultra Thin lenses with a single visit. The company also introduced a prescription version of its AmberMatic sunglasses, which darkened as light levels increased.

Diversification in the 1980s

In 1980 Daniel Gill, a former marketing specialist with Abbott Labs, became Bausch & Lomb's company chairman. He felt that the company was too dependent on contact lenses and too bloated by low-performance products. Gill restructured the company by selling off low-profit businesses. One of the first to go was prescription eyeglasses. Gill justified this change because the firm had missed a trend to plastic lenses and was also being pinched by cheaper imported lenses. Yet with its traditional business gone, the company went into upheaval, and many top managers left.

The market for soft contact lenses continued to grow more competitive as it grew larger. By 1982 competitors included such large companies as Johnson & Johnson, Revlon, and Ciba-Geigy. Although Bausch & Lomb continued to hold nearly half of the market, new competitors were introducing products Bausch & Lomb either did not have or had no lead on, such as gas-permeable hard lenses, extended-wear soft lenses, bifocal contacts and color-tinted contacts. The competitors pushed these products with expensive television advertising campaigns. While Bausch & Lomb's cost for producing soft contacts had dropped to $1.50 to $2 each, American Hydron reported that it was nearly finished with a system that would produce contacts for $1.

Bausch & Lomb moved quickly into the extended-wear lens market, an area in which it had been losing new lens wearers. While waiting for FDA approval of its own lens, Bausch & Lomb leased an extended-wear system from American Medical Optics. The lenses were lathe cut, not spin cast like the Softlens, and cost $7 to $8 a pair to manufacture. When FDA approval came in 1984, Bausch & Lomb displayed its marketing power by supplying new lenses to 90 percent of the U.S. outlets selling contact lenses within a month. Within four months the company's extended-wear lenses had 37 percent of the market and stood as the leading brand. Part of that success came through aggressive pricing. The lenses wholesaled for $20 a pair, while the industry average was $30. As a result, Bausch & Lomb was soon embroiled in a price war with rival CooperVision.

Sunglasses sales were also improving. The firm had signed a $50,000-a-year agreement with Unique Product Placement in 1982 to feature Ray-Bans in films. The Ray-Ban Wayfarer line did particularly well. The company sold 16,000 pairs in 1982, but after Tom Cruise wore them in the 1983 film Risky Business, sales jumped to 360,000. Wayfarers were also worn by actors on the Miami Vice and Moonlighting television series. By 1986 sales reached 1.5 million, and Ray-Ban's 40 lines accounted for one-third of the $500 million U.S. market for premium sunglasses.

Meanwhile restructuring within Bausch & Lomb continued. In 1983 the company entered a new business when it bought the Charles River Laboratory, the world's largest supplier of laboratory mice and rats, for $108 million in stock. Though the business was not related to optics, it offered a steady supply of cash and operating profit margins of more than 20 percent. In 1984 most of the $217 million instrument business was sold to its management, except for microscopes and telescopes. The unit had lost $16 million over the two preceding years.

Bausch & Lomb earned $74.7 million on sales of $698.9 million in 1986, despite a leveling off of soft contact lens sales. The market was damaged by reports of people wearing extended-wear lenses and subsequently developing eye infections. The biggest market for contacts, women between the ages of 18 and 25, began shrinking. The firm fought to maintain sales and market share by introducing new contact lens technologies. In 1987 it won FDA approval to sell lenses with a Teflon-like surface that protected against protein buildup and made the lenses more comfortable. Bausch & Lomb also tried new marketing strategies such as introducing disposable contact lenses meant to be worn for a week or two and then thrown out. The primary difference between the disposable and regular soft lenses was the packaging, which was less expensive and durable for the disposables. Bausch & Lomb faced tough competition for this niche, however. Johnson & Johnson beat them to market by introducing its Acuvue lenses before Bausch & Lomb's SeeQuence.

Despite the leveling off of the contact lens market, Bausch & Lomb continued to expand by moving into businesses using similar distribution methods, especially ear, mouth, and skin care products. The company's strategy was to offer technologically advanced products that had few competitors and therefore high margins. Bausch & Lomb also began focusing on sales outside of the United States, an area which accounted for only 17 percent of sales in 1984. In 1986 the firm agreed to a joint venture with Beijing Contact Lens Ltd. to produce contact lenses and solutions in China. Bausch & Lomb then bought Dr. Gerhard Mann Pharma, an ophthalmic drugs company based in West Germany, for $97 million. The firm also began designing and marketing products specifically for countries in Europe, Asia, and Latin America. For example, Bausch & Lomb had mainly sold adjustable metal-frame sunglasses in Japan because the firm's more popular plastic models did not offer comparable fit. In 1987 Bausch & Lomb redesigned its plastic sunglasses and sales took off.

In 1988 Bausch & Lomb bought Dental Research for $133 million. Included in this sale was Interplak, a patented, sophisticated electric toothbrush used to remove plaque. The device had been sold on the retail market, but Bausch & Lomb used dentists to let consumers know about it, and its sales climbed to approximately $110 million by 1989. In 1989 the firm acquired 80 percent of Voroba Hearing Systems, a maker of hearing aids. Bausch & Lomb also announced plans to introduce a line of sunglasses containing a synthetic version of melanin, the pigment that protects the skin from ultraviolet rays.

Rapid Growth in the Early 1990s

By 1990, sales outside of the United States accounted for 40 percent of the firm's total sales. When Bausch & Lomb began concentrating on international sales, it gave local managers more flexibility. One result was that European sales managers pushed for flashier styles of Ray-Ban sunglasses. These styles proved popular and fetched higher prices than in the United States. Partly due to this, operating income doubled in Europe between 1987 and 1990. In 1991 half of Ray-Ban's new styles were developed for international markets, and by 1992 Ray-Bans accounted for 40 percent of premium international sunglasses sales. Managers in China advised making contact lenses there inexpensive, in order to make money from volume rather than sales margin. As a result, lens sales in China were third in the world in 1992, after the United States and Japan.

By the early 1990s, Gill's restructuring seemed a clear success. Sales were growing more than 10 percent a year, the company was expanding internationally, and it had moved away from its dependence on contact lens sales. The company's pharmaceuticals were beginning to pay off their start-up costs, and the firm's debt was relatively low. By 1994 the company's stock price had tripled since 1981, including two stock splits. Gains in earnings had averaged almost 14 percent over the previous ten years. Gill boasted in 1994 to Financial World "I think the bulk of the world would give us credit for having moved the company from the Bausch & Lomb of the 1980s to today." However, in a startling reversal, Gill was forced to resign in shame only a year later.

Sunglasses sales had begun to slow in 1992 and 1993, and the growth of disposable contact lenses (a market that Bausch & Lomb had declined to enter) had eaten into both B&L's sales of traditional contact lenses and its sales of contact lens solutions, which are not needed by users of disposable contact lenses. However, earnings in the mid-1990s continued to meet Gill's ambitious goal of 15 percent, a fact that seemed to reassure edgy analysts. The bubble burst a short time later when SEC investigations in 1994 and 1995 forced the company to restate their 1993 and 1994 sales and earnings figures, which led in turn to a lawsuit by the shareholders. Around the same time a class-action lawsuit was filed against Bausch & Lomb by customers upset about the company's practice of marketing one type of contact lens as several different products with a range of prices. Eventually, 17 states initiated deceptive-trade investigations.

Redirecting Efforts in the Late 1990s

In 1995 Gill resigned and was replaced by outsider William Waltrip, who set about restoring the company's tarnished image and boosting its faltering growth. The following year, the class-action suit was settled when Bausch & Lomb agreed to pay $68 million in restitution to customers. In 1997, the company ended the deceptive-trade investigations by agreeing to pay $100,000 to each of the states involved.

In 1996, Bausch & Lomb began to refocus on its eye-related products in earnest. It sold both its dental implant business and its oral care business, the former to a group of investors and the latter to Conair Corp. Although the company continued to acquire new businesses, its purchases all related to eye care. In 1996 it purchased the sports sunglasses producer Arnette Optic Illusions and a manufacturer of daily wear disposable contact lenses, Award plc. The following year, it acquired the sunglasses brand Killer Loop Eyewear from Benetton Sportsystem. Late in 1997 the company made two related acquisitions: the $300 million purchase of Chiron Vision Corporation, a manufacturer of equipment used in cataract and refractive surgery and products used to treat progressive eye disease, and the $380 million purchase of Storz Instrument Company, a manufacturer of ophthalmic surgical instruments, diagnostic equipment, intra-ocular lens implants, and ophthalmic pharmaceuticals. Early in 1998 the company combined the product lines of the two companies to form a new division: Bausch & Lomb Surgical. The pharmaceutical line of Storz was placed in Bausch & Lomb's pharmaceutical division.

In keeping with the company's efforts to divest its non-eye-related businesses, Bausch & Lomb announced its intention to sell its skin care business to the Andrew Jergens Company in 1998. Jergens agreed to pay $135 million cash and to assume certain liabilities for the Curel and Soft Sense brands.

Principal Divisions: Bausch & Lomb Pharmaceutical Division; Eyewear Division; Thin Film Technology Division; Vision Care Division; Bausch & Lomb Surgical.

Principal Subsidiaries: Arnette Optic Illusions, Inc.; Charles River Laboratories, Inc.; Dahlberg, Inc.; Polymer Technology Corp.; Revo, Inc.

Further Reading:

• "Back in Focus," Financial World, November 1, 1979.
• "Bausch & Lomb," Fortune, October 1940.
• "Bausch & Lomb to Acquire Chiron Vision for $300 Million," Business Wire, October 21, 1997.
• "Bausch & Lomb: Hardball Pricing Helps it to Regain its Grip on Contact Lenses," Business Week, July 16, 1984.
• Benoit, Ellen, "Through a Glass, Slowly," Financial World, November 28, 1989.
• Du Bois, Peter C., "The Old Fish Eye," Barron's, November 25,1974.
• "Getting One-Up on the Japanese," Business Week, October 19, 1963.
• Hirsch, James S., "Bausch & Lomb Applies an Above-die Neck Strategy," Wall Street Journal, February 27, 1990.
• Jacob, Rahul, "Trust the Locals, Win Worldwide," Fortune, May 4, 1992.
• Leinster, Colin, "A Tale of Mice and Lens," Fortune, September 28, 1987.
• "Long Grind," Time, January 24, 1938.
• Maremont, Mark, "Judgment Day at Bausch & Lomb," Business Week, December 25, 1995, p. 39.
• "Optical Restraint of Trade?" Time, April 8,1940.
• Phalon, Richard, "Bausch & Lomb's Myopia," Forbes, December 5, 1994, p. 14.
• Reingold, Jennifer, "Above the Neck: Can Bausch & Lomb Maintain Its Focus by Broadening Its Scope," Financial World, January 18, 1994, pp. 30-33.
• ------, "Bausch & Lomb: Clouded Vision," Financial World, May 23, 1995, pp. 16-17.
• Reynes, Roberta, "New Contact Lens Competition Focuses on Bausch & Lomb," Barron's, August 1, 1983.
• Troxell, Thomas N., Jr., "Broader Focus," Barron's, August 18, 1986.
• Wilner, Richard, "Outlook Dimming for Bausch & Lomb," New York Post, April 24, 1997.

Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.

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