Case study – Alcon – Novartis Spin-Off: Alcon to become standalone Trading Company

Novartis AG intends to spinoff its ophthalmology division, Alcon, into a separately-traded standalone company.

Preset: Novartis acquired Alcon in 2011. The Alcon business wasn’t performing as per Novartis management’s expectations. Alcon did well in between but not as expected.

What is the meaning of spinoff?

Spin-offs are divisions of companies or organizations that then become independent businesses with assets, employees, intellectual property, technology, or existing products that are taken from the parent company.. As a result of spinoff, the subsidiary company is no longer owned or controlled by the parent company and there are two separate publicly traded companies. Prior to the spin-off, shareholders only own the parent company’s stock, whereas after the spin-off they own shares in both the parent and the subsidiary.

Core business focus for Noavrtis: 

This spin off will allow Novartis to focus better on its legacy drug business.

Novartis has a strong oncology portfolio of drugs like Afinitor, Exjade, Jakavi, Zykadia, Tasigna, Jadenu and Kisqali. Oncology business for Novartis indeed doing well. However, Novartis is facing the loss of patent protection for some of the key drugs. Consequently, the company has refocused its business and plans to focus on building its portfolio in markets.

In January 2016, Novartis undertook a strategic review of its business and consequently transferred Alcon’s ophthalmic pharmaceuticals to the Novartis Innovative Medicines Division. The business generated sales of $4.6 billion in 2017 and also holds the potential blockbuster candidate, RTH258 (brolucizumab), which is being evaluated for neovascular AMD and diabetic macular edema. Novartis plans to retain the ophthalmic pharmaceuticals as part of its pharmaceuticals portfolio.

New standalone entity:

• The Alcon Division now comprises only surgical and vision care, and generated $7 billion in 2017 sales.
• The new company will employ more than 20,000 employees.
• Mike Ball will become the chairman-designate of Alcon, effective Jul 1, 2018.
• Ball will report to Vas Narasimhan, CEO of Novartis. Ball will focus on preparing Alcon for the intended spin-off.