Novartis Said to Consider Selling Contact Lens Care Division

  • The business reported sales of $646 million last year
  • Contact lens business is part of Novartis's Alcon unit

Novartis AG is considering the sale of its contact lens care products as the Swiss drugmaker seeks to improve growth at its eye-care unit, Alcon, according to people with knowledge of the matter.

The lens-care business may draw interest from competitors, the people said, asking not to be identified because the deliberations are private. The proposed sale is at a preliminary stage and the company may decide against a disposal, the people said. A sale could bring in as much as $1.6 billion, according to one analyst’s estimate.

A slump in the contact lens care business contributed to curtailing growth at the Alcon unit in the second quarter, leading to Novartis missing analysts’ estimates for profit in the three-month period. The company is focused on jump-starting innovation at Alcon, Chief Executive Officer Joe Jimenez said in an interview last month.

“With the market shift to daily disposable lenses, Novartis will be questioning whether the lens care business is core or unnecessary,” said Nick Turner, an analyst at Mirabaud Securities Ltd. who rates Novartis “neutral.” “On the one hand it is high margin and will be a loss to division cash flow, but if Alcon continues to be a drag on group performance, its days could be numbered.”

A representative for Novartis declined to comment.

Deal Price

Shares of the drugmaker climbed 1.1 percent to 89.45 Swiss francs at 2:05 p.m. in Zurich. The stock has declined 3.2 percent this year.

Revenue at Novartis’s contact care business -- which sells products to clean, store and moisturize lenses -- fell 7.4 percent to $646 million last year. A sale of the business may generate as much as $1.6 billion, according to Fabian Wenner, an analyst with Kepler Cheuvreux in Zurich, who rates Novartis a “buy.” Safra Sarasin analysts said the business probably wouldn’t bring in more than $1 billion.

In July, Novartis said the biggest opportunity for the lens-care business was in emerging markets, where most people still use monthly and weekly contact lenses that require cleansing and storage. The company started using new pricing and packaging for the products in June.

Alcon Stumbles

Sales at the Alcon unit overall grew 3.2 percent to $10.8 billion last year. Novartis acquired a majority stake in the eye-care company from Nestle SA for $28.3 billion in August 2010, and then paid another $12.9 billion in April 2011 for the remaining publicly traded stock.

This year, Alcon’s performance has been impaired by a decline in surgical equipment sales in the U.S. and in emerging markets, as well as increased competition from generics for some eye treatments. Its revenue dropped 8 percent to $7.5 billion in the first nine months.

Novartis is doing a “deep analysis” of Alcon’s businesses, and in January will report on a plan “to get this business back to a decent growth rate,” Jimenez told analysts and investors in October.

Novartis said it bought Admune Therapeutics LLC in October to gain access to targeted cancer therapies. Jimenez said that acquisition may serve as a model for future deals to strengthen its eye-care unit and boost the pipeline of its generic drugs business Sandoz.

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