Novartis (NVS) stock falls after Alcon spin-off; predicts stable growth ahead

Nearly a year after laying out its transformation strategy, with focus on demerging underperforming business units, Novartis (NYSE: NVS) Tuesday said it completed the spin-off of its eye care devices business Alcon. The company’s shares dropped sharply in the early trading hours following the news.

The move is part of the Switzerland-based pharma company’s efforts to streamline operations and concentrate more on its Innovative Medicines business in the next three years. A dividend-in-kind of new Alcon shares was distributed among Novartis shareholders and holders of the company’s American Depository Receipts – one Alcon share for every five Novartis shares or American Depository Receipts.

Post-spin-off, the management expects to improve its financial position at par with the other leading pharmaceutical firms. The deal will also help the company register stable revenue and profit growth in the coming quarters. Core margins from Innovative Medicines are seen improving to mid-30s in the next few years.

Post-spinoff, the management expects to improve its financial position at par with the other leading pharmaceutical firms

Novartis is all set to expand its product pipeline with around 10 major launches scheduled through 2022 and several more in the future. Since Alcon is a separately traded entity now, both the companies can tap the available growth opportunities while prioritizing resource utilization according to their respective strategies. Alcon’s stock, listed on the Six Swiss Exchange and the New York Stock Exchange, commenced trading Tuesday under the ticker symbol ALC.

“At Novartis, we continue to reimagine ourselves as a leading medicines company powered by breakthrough medicines, data science, and advanced therapy platforms. We are well positioned for the future and I am excited for our associates, our investors, and most importantly for patients,” said Novartis CEO Vas Narasimhan.

Return of Capital

Going forward, the management intends to pay an annual dividend that is higher than the $2.85-per share dividend paid this year, without adjusting the same for the Alcon spinoff. The $5-billion share buyback program announced mid-2018 is expected to complete this year.

Also see: Novartis AG Q4 2018 Earnings Conference Call Transcript

The company will be holding the annual meet on May 22 and 23, at which additional information on its strategic priorities and prospects will be revealed to analysts and investors. Novartis’ shares lost about 10% soon after trading started Tuesday and slipped to a six-month low, paring most of the recent gains.

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