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Novartis takes step toward global leadership in eye care industry
If a two-part deal with Nestlé is completed, Novartis would own up to 77% of Alcon by 2011.
 Samir Shah |
Novartis AG has agreed to purchase a slightly less than 25% stake in Alcon from Nestlé S.A. with the option to buy Nestlé’s remaining shares after 2010. Completion of the second part of the two-phase deal would send the Swiss company to the top of the global eye care industry.
“As we look towards the future for Novartis, we’re looking for new growth platforms,” Samir Shah, MD, head of Novartis’ global neuroscience and ophthalmology business, told Ocular Surgery News in a telephone interview.
“We see [ophthalmology] as a major growth area for the future. We’ve been in the [ophthalmology] field for over 25 years, and we want to continue to build in that particular therapy area,” he said.
Doug MacHatton, vice president of investor relations and strategic corporate communications for Alcon, called the deal a validation of Alcon as an industry leader.
“The management team at Alcon welcomes Novartis as an investor and believes the possibility of having a strategic investor is a positive development for Alcon and the eye care industry,” he told OSN.
Terms of the deal
Novartis agreed to purchase 74 million shares of Alcon common stock from Nestlé at $143.18 per share. The $11 billion purchase is expected to close this summer.
Between Jan. 1, 2010, and July 31, 2011, Novartis will have the option to purchase Nestlé’s remaining 52% stake at $181 per share for a total of approximately $28 billion. Upon completion of the second part of the deal, Novartis would own up to 77% of Alcon.
Novartis would have purchased all of Nestlé’s shares at one time, company officials said, but it was not able to as a result of Nestlé’s transaction requirements. Officials said that Novartis was subsequently able to purchase the first round of Alcon shares at a discount, with an overall premium for the deal of 13%.
Both phases of the deal will require regulatory approval, but neither will require shareholder approval on the Novartis side. Additionally, no approval is necessary from the Alcon minority holders, as the deal is a private transaction between Novartis and Nestlé, Novartis officials said.
Upon completion of the first part of the deal, a representative of Novartis will sit on Alcon’s board of directors. However, the companies will remain separate entities.
“There will be no changes in the management or products in the first stage. There’s no question about that,” Mr. MacHatton said.
“We’re going to maintain a strong presence as Alcon in this business,” he said.
Assessing the deal
Novartis officials consider Alcon to be a leader in the ophthalmology industry. “It’s No. 1 in sales, but it’s also No. 1 in terms of its reputation with the customers,” Dr. Shah said.
Among Alcon’s most successful lines are Travatan (travoprost) for glaucoma, Vigamox (moxifloxacin 0.5%) for ocular infections and Opti-Free contact lens care products. Some cataract surgery products include the Infiniti Vision System and AcrySof IOLs.
Still, in finance articles and blog postings in the days after the deal was announced, many analysts said that Novartis had agreed to pay too much for the Alcon stock.
“You can never tell the success of a merger in the short term,” said Les Funtleyder, an analyst with Miller Tabak, which focuses on the health care industry. “It takes 4 or 5 years of operating performance to know whether you overpaid and then, if so, by how much.”
Mr. Funtleyder also emphasized that the financial ramifications of the deal will not be completely clear until the second phase is complete. “They don’t complete the deal until the second stage in 2011, and the other caveat here is a lot can change in almost 3 years,” he said.
Products
Specific plans for what will happen if the second part of the deal is finalized are still in the works.
“Both Novartis as well as Alcon management will review the opportunities as appropriate and determine what makes sense in terms of benefiting not only the two organizations but, more importantly, benefiting our customers,” Mr. MacHatton said.
Currently, CIBA Vision is the eye care unit of Novartis. The company also owns the marketing rights to Lucentis (ranibizumab, Genentech) outside the United States and worldwide marketing and sales rights to Visudyne (verteporfin, QLT).
Both Alcon and Novartis sell contact lens solutions, although Mr. MacHatton noted that Alcon sells multipurpose solutions, while Novartis offers hydrogen peroxide solutions.
“That’s probably the largest potential big-picture overlap, although many people view those products as competing in two different markets,” he said.
Mr. MacHatton called any other product duplications “relatively small in terms of the total sales of the two companies,” but he could not comment on what measures would be taken to deal with those overlaps.
“At the second stage, it’s going to be up to our senior management and [Novartis Chairman and CEO Daniel Vasella, MD] to decide how he would wish to collaborate in the future, and that can take a variety of forms,” Dr. Shah said.
Growth
“I do think, from a Novartis standpoint, that they think there’s opportunity beyond the existing product set for both Alcon and Novartis,” Mr. Funtleyder said.
“As long as diseases exist that are not treated, there is opportunity,” he said.
Dr. Shah specifically pointed to the growing worldwide elderly population and the resulting increased rate of age-related eye disease, as well as emerging markets in China, India and other countries, as potential areas of growth.
“Novartis, being as large as it is, has strengths in the emerging growth markets which a specialty eye care company may not have,” he said.
However, Alcon has already taken a step in the direction of geographical growth. The company revealed a week after the deal with Novartis was announced that it would build a manufacturing facility in Singapore. The two developments were not related, Mr. MacHatton said.
Alcon began evaluating potential locations in Asia more than a year ago, and negotiations with the government of Singapore began about 7 months ago, he said. The building is expected to be completed in 2012, and products will be distributed throughout Asia, according to an Alcon press release.
The move is “reflective of the global demand for eye care and for quality products to improve vision and enhance life,” Mr. MacHatton said.
In terms of research and development, Dr. Shah said that synergies between Novartis and Alcon will most likely take advantage of that fact that Alcon offers drugs for the front of the eye, such as glaucoma medicines and infection solutions, while Novartis offers products focused on the back of the eye.
“We’ve got a complementary skill set between Novartis and Alcon,” he said.
Business as usual
In the near future, it appears that practitioners will not be affected by the purchase.
“I would say it’s pretty simple from [the physicians’] point of view: It’s business as usual,” Mr. MacHatton said. “We are going to continue to support them. We’re going to continue to service them with the same level of customer service, both from a sales side as well as from a technical service side.”
Mr. MacHatton said customers will likely benefit from increased research efforts, out of which new products are likely to come.
“When you look at bringing two world-class organizations together, one that is more broadly focused in multiple areas of the global health care products field and one that is intently focused on one segment of that which is the eye, I think only good things can come for customers,” he said.
“In addition to the benefits that may arise in the pharmaceutical side, we’re going to continue to develop new and better IOLs, new and better viscoelastics, new and better equipment for surgery, whether it be cataract, refractive or vitreoretinal,” he said.
A bigger trend?
Recently, the industry has seen Warburg Pincus buy out Bausch & Lomb, Bausch & Lomb purchase eyeonics and Carl Zeiss Meditec acquire Acri.Tec AG.
“What this investment by such a well-respected, diversified health care company indicates is that we have a really exciting industry with a lot of good demographics,” Mr. MacHatton said of the Novartis-Alcon deal. “There are unmet medical needs and global opportunities for growth.”
Referring to the Warburg Pincus and Novartis deals, Mr. Funtleyder said, “Two deals don’t make a trend, but it certainly raises enough questions that maybe there’s more to come.”
There may be a move toward diversification in general on the part of larger companies, he said.
“You’ll see the diversification play out in a lot of different ways because there’s as many companies as there are business models and strategies,” Mr. Funtleyder said. “It’s not necessarily going to be all acquisitions.”
For more information:
- Les Funtleyder can be reached at Miller Tabak + Co., 331 Madison Ave., New York, NY 10017.
- Doug MacHatton can be reached at Alcon Laboratories, 6201 South Freeway, Fort Worth, Texas 76134; 800-400-8599; e-mail: doug.machatton@alconlabs.com.
- Samir Shah, MD, can be reached at Novartis International AG, CH-4002 Basel, Switzerland; 41-61-324-1111.
- Jessica Loughery is an OSN Staff Writer who covers all aspects of ophthalmology.