Novartis to demerge underperforming eyecare business Alcon

For the past few years, Novartis (NVS) has been concentrating more on the development of new drugs by bringing innovation and technology into operations. The company’s efforts in that direction got a major boost when Vas Narasimhan took charge as the new CEO last year.

Under the new leadership, the Swiss pharmaceuticals giant is currently on the path of transformation, with an increased focus on specialized therapeutic solutions including gene-therapy and neuroscience, while pursuing eternal tie-ups to venture into underexplored areas of drug development such as research in disease-related proteins.

Today, Novartis announced a plan to spin off its eye care division Alcon, in line with a strategy formulated by Narasimhan to overhaul the product portfolio. While the value of the new entity is not known, it is expected that Alcon will be spun off next year.

It is learned that the company decided to get rid of Alcon after efforts to bring it to profitability failed, amidst falling revenues. It was widely speculated that Novartis would make a final attempt to salvage Alcon by taking it public.

While the value of the new entity is not known, it is expected that Alcon will be spun off next year

The demerger of Alcon, a relatively weaker performer among the various business divisions, marks a departure from the earlier strategy of reducing the dependence of branded drugs through diversification. Interestingly, the conditions that once made drugmakers look for alternative avenues – competition from generic versions of branded products and delays in the development of new drugs – remain broadly unchanged.

Separately, the company said it intends to use the proceeds from the recent sale of its stake in GlaxoSmithKline (GSK) to repurchase shares worth $5 billion. The $13-billion transaction was announced last month.

Earlier this year, Novartis acquired AveXis (AVXS), a pharma firm engaged in the development of drugs for rare diseases, for $8.7 billion, taking forward its strategy to bring new drugs to the market.

Shares of Novartis gained nearly 4% since the announcement, continuing the upward movement that started earlier this week after hitting a multi-year low.