Novartis CEO lays out turnaround plan to revive flailing Alcon unit

Novartis CEO Joe Jimenez

Novartis' ($NVS) Alcon eye care unit has been a thorn in the company's side for a while now, with slumping numbers taking a toll on sales. CEO Joe Jimenez has said that he would reveal a plan to get business back on track, and now, that time has come. The Novartis helmsman is giving Alcon till the end of the year to clean up shop and is shifting a few things around to give the unit a fighting chance.

Sales at Alcon dropped 13% to $2.3 billion during Q4, feeding into earnings that missed the Street's estimates. To turn business around, the company is appointing former Hospira CEO F. Michael Ball as Alcon's new head, stepping in for Jeff George who "decided to leave Novartis," the company said in a statement. Ball's "experience in ophthalmology, as well as medical devices, will be instrumental in accelerating innovation and growth at Alcon," Jimenez said.

Alcon's new CEO, F. Michael Ball

Novartis is also combining Alcon's ophthalmic business with its broader pharmaceuticals unit, lightening the unit's load as it prepares to embark on its turnaround plan. Alcon will hold onto its contact lens business and its equipment for cataract surgery, two areas that have faced ongoing declines in revenue. The company expects to see "low single digit growth" in the next year as a result of the changes, Novartis said in a statement.

"We are focused on executing that turnaround plan," Jimenez told The Financial Times. "We haven't thought what happens if it fails because we believe we can do this. If we get to the end of the year (without a return to growth) then we have to ask a harder question."

The plan at first blush looks "brutal" but is also good news for investors, Citigroup analyst Andrew Baum told the FT. Novartis is also laying out a group-wide cost-cutting plan to save $1 billion a year by 2020, and drastic changes at Alcon could help the company achieve this goal.

But other analysts do not see Alcon's problems disappearing in the blink of an eye. There's no "quick fix" to the company's financial woes, Berenberg analyst Alistair Campbell said earlier this year. Novartis knows that it has "lagged behind on innovation in both the intraocular lens and drug segments but fixing both will not happen overnight," Campbell said.

Google and Novartis are teaming up to develop Google's "smart lens" technology for glucose monitoring and presbyopia.--Courtesy of Google

Still, the company has a few bows in its quiver that could help it succeed in the year ahead. Novartis is working with Alphabet ($GOOG) to develop a smart lens for ocular medical uses and glucose monitoring, and the project is "progressing well," Jimenez said in September. The pair plans to test a first prototype of the product, a smart lens for vision correction in people with presbyopia, or age-related farsightedness, on humans in 2016.

Novartis may also consider selling its contact lens care business to further lighten its load. A deal could bring in $1.6 billion for the company, Kepler Cheuvreux analyst Fabian Wenner said earlier this year. And a sale could happen sooner rather than later as Novartis struggles to generate some much-needed growth for Alcon.

"With the market shift to daily disposable lenses, Novartis will be questioning whether the lens care business is core or unnecessary," Mirabaud Securities analyst Nick Turner told Bloomberg earlier this month. "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."

- read Novartis' statement
- here's the FT story (reg. req.)

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