Novartis Snags Remaining 23% Stake in Alcon with $12.9B Cash and Share Deal

Acquired firm will become drug giant’s ophthalmology growth development engine.

Novartis will acquire the remaining 23% stake in eye-care firm Alcon that it does not already own through a $12.9 billion deal that values each Alcon share at $168. The acquisition will be effected through a share swap of up to 2.8 Novartis shares per Alcon share, plus a cash payout contingent on the value of the Novartis shares. The boards of both Alcon and Novartis have shaken hands on the proposed merger, which is still subject to antitrust clearance and shareholder approval. Completion is expected during the first half of 2011.

Alcon claims to be the world’s largest and most profitable eye-care company, with overall sales in 2009 reaching $6.5 billion, and net income of $2 billion. Novartis says the two firms already have complementary portfolios of eye-disease drugs, and full ownership of Alcon will allow it to establish a fifth growth platform as part of its healthcare portfolio. On completion of the merger Alcon will become the second largest division within Novartis. The latter’s existing CIBA Vision contact lens business and Novartis ophthalmic medicines will be integrated into Alcon, forming a new business with more than $8.7 billion in annual sales covering 70% of the eye-care segment, the firm states.

“Alcon is a great strategic fit for Novartis,” comments Joseph Jimenez, Novartis CEO. “The growth synergies here are significant, as Alcon will be the eye-care development engine for our best in class research organization, and will leverage the Novartis market access capabilities outside the U.S. “

“This merger will create a stronger eye care business with a broader commercial reach and enhanced capabilities to develop more new and innovative eye-care products that address unmet clinical needs,” adds Kevin Buehler, Alcon president and CEO. Buehler will head the new Alcon division within Novartis if the deal receives final ratification. Annual expected synergies following completion of the deal are expected to be in the region of $300 million, including the $200 million in synergies achievable from Novartis’ existing 77% ownership of Alcon.

Novartis’ takeover of Alcon has been effected in stages. In April 2008 Novartis and Nestlé entered into an agreement for the sale of Nestlé’s 77% majority stake in Alcon to Novartis in two steps. The total cost to Novartis for the 77% majority stake of Alcon was $38.7 billion ($168 per share). This deal led to Novartis acquiring the first 25% in Alcon for $10.4 billion in July 2008. The remaining 52% of its agreed 77% holding was acquired in August 2010 for another $28.3 billion.

Novartis’ business is currently split into five units: pharmaceuticals; vaccines and diagnostics; generics (the Sandoz business); OTC products; animal health; and the contact lens business CIBA Vision.

Novartis’ ophthalmology products within its pharmaceuticals division include Visudyne (verteporfin) for the treatment of wet age-related macular degeneration, pathological myopia, and ocular histoplasmosis. Its Zatidor/Zaditen product is approved for the treatment of allergic conjunctivitis. The firm projects a 2011 regulatory filing date for candidate AIN457 as a treatment for noninfectious uveitis.

Switzerland-based Alcon’s business is split into three ophthalmology divisions: surgical, pharmaceuticals, and consumer vision care. The firm’s marketed pharmaceutical products include treatments for glaucoma and eye allergies, infections, and inflammation. Its late clinic-stage and registrational pharmaceutical pipeline includes anti-infectives and treatments for glaucoma and dry eye.

Alcon recorded global pharmaceutical sales of $758 million for the three months ended September 30, up from $659 million in the same period last year. Of the total figure, glaucoma therapy products achieved sales of $316 million in 3Q 2010 (up from $286 million during Q3 2009). Infection/inflammation therapy sales reached $241 million, up from $199 million in Q3 2009.