Swiss drugmaker Novartis plans to spin-off its Alcon eyecare unit, possibly worth as much as $25bn, as new chief executive Vas Narasimhan pushes ahead with his focus on core medicines businesses.
In his latest move to break with Novartis’s past as a diversified drugs business, Mr Narasimhan said Alcon would become a standalone company in the first half of 2019, with shares listed on the Swiss and New York stock exchanges.
Separately, he announced a $5bn share buyback programme, funded from proceeds of the $13bn sale to GSK earlier this year of its stake in their consumer health joint venture.
“A company like ours needs to focus our capital in our areas of strength, which I believe is innovative, world-class medicines,” Mr Narasimhan said. He said he also wanted to boost data and digital. “I feel a sense of urgency to get us to where we are best positioned to really perform,” he told the Financial Times.
Novartis announced a review of Alcon in January 2017 but later said it would await an improvement in the unit’s performance, with “potential action” not expected before the first half of 2019.
Friday’s announcement was in line with that timetable but “we got enough confidence to feel that this was the right time” after an improvement in profit margins and “solid top-line growth”, Mr Narasimhan said.
Alcon reported an operating loss of $190m in 2017 on sales of $6bn, which Novartis said was the result of investments and write-offs.
Joe Jimenez, former Novartis chief executive, had said a spin off could create a company with a market capitalisation of between $25bn and $35bn. However, analysts suggested that was ambitious, with Vontobel estimating a value between $15bn and $23bn. Novartis said it was premature to give guidance.
Alcon was acquired from Nestlé for $50bn in a deal completed in 2010. Novartis transferred the eye drugs part of the business to its main pharmaceuticals division, but struggled to return to growth the remaining parts, which include surgical equipment and contact lenses.
Since taking over as Novartis CEO in February, Mr Narasimhan has announced the GSK transaction and spent $8.7bn buying AveXis, a US specialist in spinal muscular atrophy, a childhood wasting disease. Last October, Novartis strengthened its cancer treatments by agreeing to pay $3.9bn to take over French nuclear medicines business Advanced Accelerator Applications.
The strategic review of Alcon also explored retaining the business, a trade sale and initial public offering. But Mr Narasimhan said a spin-off, with Novartis shareholders receiving Alcon shares, would be tax neutral and in the best interest of shareholders. Novartis had talked to unspecified strategic buyers, but the prices offered “did not reflect the value we see in the company,” Mr Narasimhan said.
Ian Hilliker, analyst at Jefferies, said the spin-off would “ultimately enable Novartis and Alcon to focus fully on their respective growth strategies”. Novartis’s shares were up more than 3 per cent at SFr 74.74 by lunchtime in Switzerland.
Novartis was caught in the international spotlight earlier this year after it admitted paying $1.2m to a company owned by Donald Trump’s personal lawyer Michael Cohen in the year following the US president’s 2017 inauguration. The controversy led to the departure of its top lawyer. “We have been transparent…and we feel the matter is closed,” Mr Narasimhan said.
