Novartis to Spinoff Alcon Eye Care Device Biz and Initiates $5-Billion Share Buyback

On June 29, 2018, Novartis announced its intention to spinoff Alcon, its eye care division, into a separately traded standalone company. The planned spinoff would enable Novartis and Alcon to focus fully on their respective growth strategies. The transaction is subject to general market conditions, tax rulings and opinions, final endorsement by the board of directors, and shareholder approval. The transaction is expected to be completed in 2019.

In addition, Novartis said it will initiate a share buyback of up to $5 billion to be executed by the end of 2019, which will be largely funded through the proceeds of the divestment to GlaxoSmithKline of Novartis’ consumer health joint venture stake, net of the AveXis acquisition payments.

“Our strategic review examined all options for Alcon ranging from retention, sale, [initial public offering] to spinoff. The review concluded that a spinoff would be in the best interests of Novartis shareholders and the [b]oard of [d]irectors intends to seek shareholder approval for a spinoff at the 2019 [annual general meeting]. This transaction would allow our shareholders to benefit from potential future successes of a more focused Novartis and a standalone Alcon, which would become a publicly traded global medtech leader based here in Switzerland,” said Joerg Reinhardt, chairman of Novartis, in a company press release.

Novartis acquired Alcon in 2011 in a transaction that included the surgical, vision care, and ophthalmic pharmaceuticals businesses. In January 2016, Novartis began the process of creating two businesses with the transfer of Alcon's ophthalmic pharmaceuticals to the Novartis Innovative Medicines Division. The ophthalmology pharmaceuticals business will continue to develop as part of Novartis, with 2017 sales of $4.6 billion and the potential blockbuster medicine, RTH258 (brolucizumab), in development for neovascular age-related macular degeneration and diabetic macular edema. The Alcon Division is now fully focused on surgical, vision care, and eye-care devices.

“We continue to execute our strategy to focus Novartis as a leading medicines company. Alcon has returned to a position of strength and it is time to give the business more flexibility to pursue its own growth strategy as the world's leading eye-care devices company. We will work to ensure a smooth transition for Alcon and Novartis associates while preparing for the launch of RTH258 and building our leading ophthalmology pharmaceuticals business," said Vas Narasimhan, MD, CEO of Novartis, in the company press release.

“The share buyback is fully aligned with our strategic capital allocation priorities, reflects our strict financial discipline and our confidence in future top line growth and margin expansion,” Narasimhan added.

Alcon leadership

The leadership of the Alcon spinoff will be as follows:

Mike Ball, a member of the Novartis executive committee, will become chairman-designate of Alcon, effective July 1, 2018, stepping down from the executive committee. Ball will report to Novartis CEO Narasimhan and will focus on preparing Alcon for the intended spinoff. He will begin the process of recruiting a board of directors (BoD) for Alcon and meeting Novartis shareholders, and other potential investors, in preparation for a potential spinoff. If Alcon becomes an independent company, Ball would become chairman of the Alcon BoD.

David Endicott, chief operating officer (COO) of Alcon since July 2016, will be promoted to CEO of Alcon, also effective July 1, 2018. In light of the potential spinoff, Endicott will not become a member of the Novartis executive committee. He will also report to Narasimhan until the potential spinoff. Over the coming weeks, Ball will hand over operational management responsibilities to Endicott. 

Endicott is an experienced leader in medical devices and pharmaceuticals having also previously held senior leadership positions with Allergan and Hospira. As Alcon COO, he played an integral role in the turnaround of the business.

“This promises to be the beginning of an exciting new chapter for everyone associated with Alcon. The planned spinoff will be key to strengthening our leadership in the large, attractive, and growing global eye-care devices market. As [c]hairman-designate, I look forward to working closely with David Endicott and the entire team at Alcon to deliver continued innovation for our customers and patients, while creating shareholder value through long-term, sustainable growth,” Ball said in the press release.

If the Alcon spinoff is completed, it would create a new Switzerland-based company with global scale and reach comprising more than 20,000 employees, with around $7 billion in 2017 sales. Fort Worth, TX, will continue to be a key location for Alcon.

Actions started earlier this year to make Alcon an operationally autonomous medical devices business will continue in preparation for a spinoff, as stated by Novartis.

Source: Novartis