Alcon Turnaround Has Novartis Exploring Spin-off

In announcing that Novartis AG is exploring spinning off its Alcon eye-care business, Novartis CEO Joseph Jimenez acknowledged that Alcon has made progress in the past year in executing its turnaround plan under CEO Mike Ball. Novartis revealed it is exploring options for Alcon that include spinning it off, issuing an IPO or keeping it, as it released its otherwise encouraging 2016 financial results.

Alcon lost $120 million in fourth-quarter 2016 and $132 million for the year versus a profit of $281 million in 2015. In talking about strategic moves Novartis is considering for the current year, Jimenez said, “Additionally, we are reviewing options for the Alcon division to maximize shareholder value.”

“We’re just starting the review now,” he told Bloomberg Television. “We’re not down the path too far, but we thought we should be open with it so that, within our own associates, everybody knows that we’re conducting this review.” The review of what to do with Alcon will take all of this year, Jimenez said.

Novartis hasn’t ruled out keeping the Alcon business, but since it fully acquired Alcon for $12.9 billion in 2010, Novartis has invested more than $50 billion in the Fort Worth, TX-based eye-care unit. Last year Novartis moved Alcon’s pharmaceutical portfolio into its Novartis Innovative Medicines division. Alcon today consists mainly of the contact lens and surgical products businesses.

Bloomberg reported that Novartis has already looked at selling parts of Alcon, first the contact lens business in 2015 and then the surgery business last year. When asked Wednesday if Novartis has talked with potential Alcon buyers, Jimenez told Bloomberg Television, “I don’t want to speculate on that.”

Alcon’s 2016 sales of $5.8 billion were down 3% from 2015, and fourth-quarter sales were off 2%.

But Jimenez credited Alcon CEO Ball for guiding Alcon’s turnaround. “Mike Ball and his new management team actually took the vision-care business, which is about 40% of Alcon, and grew it 5%, and this is the third consecutive quarter of growth for that vision-care side of Alcon,” he told Bloomberg Television. “We still have to grow the surgical side, but we’re making good progress and we’re going to conduct the review.”

A good portion of an analysts’ call Wednesday morning was spent on Alcon. The drain on Alcon seems to be in the surgical division, which fell off 3% last year, reflecting lower sales of cataract and refractive equipment and competition in the intraocular lens (IOL) market – this despite Alcon getting US approval last year for the AcrySof IQ ReSTOR +3.0 D Multifocal Toric IOL and EU approval of the AcrySof IQ PanOptix Toric IOL. Sales of surgical consumables grew by 4% last year, but IOL sales declined and other areas were flat, the analysts were told.

On the vision-care side, growth in contact lens sales offset declines in the contact lens care business, Novartis said. In the fourth quarter, contact lens sales grew 7% thanks to greater direct-to-consumer investment.

Overall core-operating income for Alcon was $850 million for the year, which was still down 31% from 2015, but increased investments in marketing and sales and R&D along with an overall decline in sales impacted the bottom line. Priorities that Jimenez outlined for analysts Wednesday morning include returning Alcon to “top-line growth” and strengthening its “innovation and commercial execution.” Novartis also expects to see benefit from a full year of its growth plan investments in Alcon, Alcon’s Ball told the analysts.

For the full year, Novartis’ overall net sales were $48.5 billion, a decline of about 2% from 2015, with net income of $6.7 billion, a drop of 5% from the previous year. After releasing its 2016 results, Novartis’ stock price rose 1.3% on a day the Dow Jones crested 20,000. Novartis will hold its annual shareholders’ meeting in Basel, Switzerland, next month.

Richard Mark Kirkner is a contributing editor to Eye on Innovation. He has covered eye care for more than two decades. – @rmkeditor

Follow Novartis on Twitter – @Novartis, @NovartisPharma

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