You might not think the contact lens industry needs shaking up: After all, you can buy daily lenses from 1-800 Contacts or Walmart for as little as $40 for a 30-day supply. But the founders of Hubble Contacts – Ben Cogan, 27, and Jesse Horwitz, 28 – figure that by selling its own lenses, produced for it by one of the world’s largest contact lens manufacturers, for $30 a month on a subscription basis they can undercut major brands like J&J’s Acuvue and Valeant’s Bausch & Lomb. The goal is to disrupt the industry the way Dollar Shave Club and Harry’s shook up the shaving market. Also like Harry’s, New York-based Hubble hopes to add a coolness factor to a staid product. With its colorful boxes, modern design and decidedly non-medical name, Hubble is the first Instagram-friendly contact lens brand. Since Cogan, who used to work at Harry’s, and Horwitz, who was at Columbia University’s endowment, quit their jobs to launch the company in November, they’ve raised nearly $24 million, giving the company a valuation around $100 million, from investors that include Greycroft Partners, Wildcat Capital Management and FirstMark Capital. While Hubble is a pinprick in the $10 billion contact-lens market worldwide, with nearly 25,000 subscribers, FORBES estimates revenues will surpass $20 million in 2017. The duo, who were on the FORBES 30 Under 30 list this year, stopped by our offices recently for a conversation that has been edited and condensed:
Amy Feldman: Why contact lenses?
Ben Cogan: I am a contact lens wearer, and have been for a long time. The price of my contacts spiked in 2015. I learned that there are four big players – J&J’s Acuvue, Valeant’s Bausch & Lomb, Cooper Vision and Novartis’s Alcon – that have dominated the market for a long time and the margins are very high.
Jesse Horwitz: Ben started telling me about contact lenses. We spent the first quarter of 2016 digging through the regulations and going through the FDA’s database. There were 160 manufacturers. Most do hard contact lenses, and even most that do soft lenses don’t have enough manufacturing capacity. Once you whittle away at it, there were very few you could partner with. Bausch & Lomb and J&J are huge. Our manufacturer, St. Shine Optical, is one of the largest in the world. We have an exclusive on their daily disposables in the U.S.
Feldman: Why was a giant contact lens manufacturer willing to give you an exclusive?
Cogan: We have certain minimums to maintain exclusivity. We do well, and they sell a lot of lenses in the U.S, or we don’t do well and we lose that exclusivity.
Feldman: How did the launch go?
Cogan: We had a really successful three-month period post-launch. The whole point of the business is that we are half the price of other brands. We are $30 a month, or $360 a year. That compares to $700 a year or more that’s typical for dailies.
Horwitz: Price was the reason that dailies didn’t get market penetration. They’ve been stuck below 30% market penetration. So Dr. Brian Levy, former chief medical officer at Bausch & Lomb, who is an investor and advisor of ours, said, “Let’s make dailies cheaper so people can get this healthy experience.” When people aren’t stretched on budget, they wear them as prescribed, and don’t turn a one-day lens into a weekly lens.
Feldman: How many people wear contact lenses?
Cogan: There are 40 million in the U.S. The vast majority are between 15 and 45, and more are women. If you are spending $700 a year, it’s a ton of money.
Feldman: But aren’t the lenses 1-800 or Walmart sells pretty cheap?
Cogan: There are online contact sellers that we respect a lot. But the wholesale cost is higher than our consumer cost, so they cannot drop the price below ours. And only 10% or so of people buy from Walmart or Costco. The majority buy from their optometrists, and the economic incentives push them toward more expensive lenses.
Feldman: Why are contact lenses so expensive?
Cogan: I think they are expensive because they can be. People are willing to pay hundreds of dollars. They don’t realize they have choices.
Horwitz: It’s like a lot of healthcare products. Consumers do what they are told.
Feldman: And vision insurance doesn’t cover much of the cost.
Horwitz: Part of how monthlies and weeklies have maintained dominance is that you can say with $100 or $150 vision benefit, you’re not out of pocket. But then you need to turn around and buy the solution and the case, so you are actually out of pocket more. It’s just happening later when you go to CVS and buy solution.
Feldman: Why couldn’t someone else sell lenses as cheaply as you do?
Cogan: The primary reason is that the gross margins for our competitors are just much higher than ours. When you have really high profit margins, it is not in your interest to lower prices.
Feldman: You do only the daily lenses?
Cogan: Yes. In the rest of the world, dailies are 70% of contacts sold. It is only in the U.S. that dailies are a smaller percent of the market.
Feldman: What are the regulatory issues?
Cogan: Contacts are a medically approved device, and they need FDA approval in the U.S. We could only sell a lens with FDA approval.
Feldman: So the manufacturer needs FDA approval, but you don’t?