Novartis to spin out Alcon into standalone device company
- After months of reviewing options, Novartis confirmed Friday that it will officially spin out its eye care device business Alcon in the first half of 2019.
- Novartis will retain the ophthalmology pharmaceutical portfolio, including the VEGF inhibitors Lucentis and a late-stage candidate called brolucizumab that's being studied in diabetic macular edema and age-related macular degeneration. This portfolio brought in $4.6 billion in 2017.
- Current Alcon COO David Endicott will be promoted to CEO and Alcon CEO Mike Ball will become the executive chairman.
While Alcon as a whole brought in $6.8 billion in 2017, the business was no longer aligned with Novartis' vision of being a top pharma company with a particular concentration in oncology. The Swiss pharma said the spinout would be tax neutral. Alcon is expected to trade on both the Swiss SIX Exchange and the New York Stock Exchange.
"The spinoff will ultimately enable Novartis and Alcon to focus fully on their respective growth strategies," wrote Jefferies analyst Ian Hilliker in a note to clients.
Novartis picked up the Alcon business in 2011, first paying $11 billion for a 25% stake and then buying Nestle's stake for another $28 billion. The rationale for the deal was the good margins of the business and the non-traditional pharmaceutical offerings.
At the time, Novartis was struggling with patent losses. Its top-selling blood pressure drug Diovan (valsartan) was about to face generic competition, and Alcon was seen as a complement to the contact lens business Ciba Vision, which Novartis already owned.
But the pharmaceutical world has changed over the last several years. During the height of the patent cliff, many of the major pharma companies were looking to diversify their businesses away from the primary care blockbusters that had earned the lion's share of their revenues for the past decade. The thinking at the time was that it would be prudent to have a stake across a variety of different therapeutic areas.
The industry has done an about-face in recent years, instead opting to focus on leading in fewer therapeutic areas. For Novartis, this has meant oncology, neuroscience, respiratory, immunology and cardio-metabolic.
Earlier this year, Novartis sold its stake in a consumer health joint venture to partner GlaxoSmithKline for $13 billion. And three years earlier, Novartis and GlaxoSmithKline swapped assets, with Novartis getting a slate of oncology assets in return for giving up its vaccines business.
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