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Novartis may spin off Alcon eye-care unit

January 26, 2017
Life sciences

Novartis AG said it may spin off its ailing eye-care business Alcon, one year into a slower-than-expected turnaround for that business.

The Swiss pharmaceutical giant said it would explore all options for the Alcon business, which sells eye-care technology such as contact lenses and devices for lens replacement surgery.

The potential spinout comes seven years after Novartis gained full ownership of Alcon, a move that it had hoped would allow it to capitalize on the fast-growing eye-care market. In total, it paid about $51.6 billion for the business.

Chief Executive Joe Jimenez said he wouldn’t rule anything out, but suggested that a public market spinoff could “create a big opportunity for our shareholders” due to the scarcity of listed eye-care device companies of its size. He said the company would announce its decision near the end of the year.

The decision comes as the company struggles to revive growth at Alcon. A year ago, Mr. Jimenez had hoped that fresh leadership and a new focus on devices — he moved Alcon’s ophthalmology drugs into Novartis’s broader pharmaceuticals division — would return Alcon to growth in the second half of 2016.

Instead, Alcon is still struggling, with sales flat in the fourth quarter, though Mr. Jimenez said there were signs of improvement, noting that contact lens sales grew for the third consecutive quarter.

Separately, Novartis said earnings and revenue for the whole business fell in the fourth quarter, largely due to the strength of the dollar. It also announced a share buyback worth up to $5 billion.

Net income fell 11% to $936 million in the three months to Dec. 31, compared with $1.05 billion in the same period a year earlier, while revenue declined 2% to $12.32 billion.

Adjusting for the strength of the dollar, revenue and net income were flat, as falling sales from old cancer medicine Gleevec offset growth of some of Novartis’s newer drugs.

Novartis is leaning heavily on two newer drugs — Entresto for heart disease and Cosentyx for psoriasis and some rheumatoid diseases — to offset a sharp decline in sales from Gleevec, which last year started to face competition from cheaper competitors.

While Cosentyx has ramped up quickly since its launch in 2015, notching sales of $1.1 billion last year, Entresto has so far proven a disappointment. Also launched in 2015, it generated sales of just $170 million last year, missing even Novartis’s own modest goal of $200 million.

Still, Mr. Jimenez said he expected momentum to increase this year, thanks to the company’s heavy investment in an expanded sales force, more favorable coverage from health insurers and the recent endorsement of major cardiology groups in the U.S. and Europe.

“Everything we’re seeing on Entresto is giving us confidence for the future,” he said, adding that the company expects prescriptions to triple over the course of 2017.

Novartis said it expected 2017 sales to be broadly in line with last year at constant currencies, with new drugs offsetting Gleevec’s decline. It said core operating income this year would be broadly in line or decline at a low single digit percentage from 2016, at constant currencies.

By Denise Roland

Source: MarketWatch

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