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Has Novartis given up on Alcon?

🕐 3 min read

Novartis, which spent several years and more than $50 billion acquiring the Alcon eye-care company, is ready to give up on the business.

After more than a year of efforts to turn around the Fort Worth-based business, Europe’s second-largest drugmaker on Wednesday said it was considering all options for the embattled division, including a spinoff or initial public offering. Profit from the business plummeted 31 percent last year even as Novartis sought to improve its operations by appointing a new manager, injecting funds to bolster its customer service and making small acquisitions.

In recent months, Novartis had considered selling parts of Alcon, including the unit that made devices for eye surgery, people familiar with the matter said, asking not to be identified because the plans were private. A spinoff or IPO of the business may now be the best option as finding buyers has proven to be challenging, the people said. The company weighed selling its contact lens operations in 2015, people with knowledge of the discussions had said previously.

“Now is the time for us to take a look at what’s in the best interests of Novartis shareholders for that unit,” Chief Executive Officer Joe Jimenez said in an interview with Bloomberg Television’s Anna Edwards and Manus Cranny. “This is going to include all options, including retaining the business to exiting the business.”

Novartis expects to provide an update on its review of the options for Alcon, which sells surgical equipment for ophthalmologists and contact lenses, by the end of the year, the Basel, Switzerland-based company said Wednesday in a statement.

“We’re starting to see a turn on that business,” Jimenez told reporters. The management team “is on the right track.”

Shares of Novartis climbed 1.7 percent to 70.75 Swiss francs as of 1:06 p.m. in Zurich trading. The stock declined about 15 percent last year.

Under the stewardship of Jimenez’s predecessor Daniel Vasella – who oversaw a string of acquisitions including the purchase of a stake in crosstown rival Roche Holding – Novartis in 2008 acquired a 25 percent stake in Alcon for $11 billion from Nestle as a first step in taking over the business. The investment was aimed at reducing Novartis’s reliance on pharmaceuticals as new drugs faced delays and sales of other medicines were being eroded by cheaper versions.

Jimenez, who took the helm at Novartis starting in February 2010 while Vasella stayed on as chairman, acquired a majority stake in the eye-care company from Nestle for $28.3 billion a few months later, and then paid another $12.9 billion in April 2011 for the remainder.

But things began souring in 2015, with Alcon’s performance impaired by a decline in surgical equipment sales in the U.S. and in emerging markets, as well as increased competition from generics for some eye treatments.

As things deteriorated, Jimenez told investors in October 2015 that Novartis was doing a “deep analysis” of Alcon’s businesses, and that he hoped to come up with a plan “to get this business back to a decent growth rate.”

The Swiss company boosted its investment in Alcon last year to accelerate sales and improve customer service, and made some small acquisitions to bolster its pipeline. Other steps to fix the operations included moving the ophthalmic pharmaceutical drugs from Alcon to the pharmaceuticals division a year ago, and appointing a new chief for the unit.

But the turnaround, which Jimenez had hoped to see in 2016, has “taken a bit longer,” the CEO told investors at a conference in San Francisco earlier this month.

Sales at Alcon declined 3 percent to $5.81 billion last year as revenue from surgical equipment fell. This year, the sales may remain mostly flat or grow by a “low single digit” percent, Novartis said on Wednesday. Core operating income, a measure of profit, plummeted to $850 million.

Bloomberg’s Naomi Kresge and Ed Hammond contributed.

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