Novartis AG (ADR)(NYSE:NVS) has indicated that the long-awaited spin-off of Alcon, its eye care business, will be delayed until 2019. Currently the value of Alcon is estimated to be over $25 billion. According to the pharmaceutical giant, a strategic review that was recently concluded indicated that a spin-off could lead to the creation of additional shareholder value. Analysts at Deutsche Bank said this might make some investors unhappy since they were expecting the spin-off to come next year.
“The timing of an expected spin/IPO may disappoint some investors that were hoping for this in 2018,” wrote Deutsche Bank analysts in a client note.
Recovery of sales
Per Joe Jimenez, the chief executive officer of Novartis, the delay is being caused by the need to have sales of Alcon recover. In Q3 sales of the eye unit rose by 7% while the overall revenues of Novartis went up by 2% to reach a figure of $12.4 billion.
The turnaround at Alcon began last year when the top management at the division was swapped out following a long period of persistent sales decline which were blamed on stagnating innovation and lackluster customer service. But despite the improvements in sales the investments that were made in new hires and marketing had an impact resulting in the division posting an operating loss of $50 million.
Expiry of patents
Alcon was acquired by Novartis from Nestle in 2010 at a price of $50 billion. The eye drugs were transferred to the main pharmaceuticals division but the remaining parts of the business have struggled to grow profitably.
In the last two years Novartis has also suffered from poor sales due to the fact that patents of some of its top-selling drugs have expired. This has however been offset in the most recent quarter by a rapid growth of new drugs such as Entresto which is aimed at patients with heart failure and Cosentyx which is used in the treatment of psoriasis. Consequently Jimenez has indicated that the full-year results of the pharmaceuticals giant will match guidance.
In Tuesday’s trading session shares of Novartis fell by 3.24% to close the day at $83.13.
