You’re almost certainly reading this on a computer, smart phone or other hand-held device. That’s one of the reasons Alcon Inc. (ALC, Financial) is so optimistic about its prospects. The global leader in eye care is sure to benefit from the rapid increase in problems like myopia.
Myopia, also called nearsightedness, is the most common cause of impaired vision in people under age 40, according to an article in All About Vision. And the incidence of myopia is growing so fast that by the year 2050, it’s expected that about half the people in the world will be myopic. The aging population will also be a boon to the company, thanks to the incidence of cataracts in older people.
Alcon had been part of Novartis (NVS, Financial) since 2011, when it was acquired for $12.9 billion. Novartis first bought 25% of Alcon in 2008 for about $11 billion.
The marriage didn’t work. So after nearly eight years under the Novartis flag, Alcon started trading as an independent company on April 9 after being spun off by its Big Pharma parent. Its shares closed at $58.33 on its first day of trading, up 38 cents, which is not bad considering the Dow declined more than 190 points. It gives Alcon a market value of nearly $30 billion.
The first-day close is above the range of $40 to $50 that some analysts expected, according to Barron’s. The company is now valued at about 30 times projected 2019 earnings of $1.90 a share.
Wells Fargo analyst Larry Biegelsen began coverage of Alcon on April 9 with an outperform rating and a price target of $66, calling the company a “powerhouse” in the eye-care market.
It appears investors thought Novartis might have gotten the worst part of the deal. Shares of the Swiss giant dropped more than $11.50 to $83.41. That’s not surprising. When the divestment was announced, Pharmaphorum reported Moody’s downgraded Novartis’ rating, with the agency suggesting the move increases the company’s reliance on riskier, innovative medicines development.
Alcon CEO David Endicott said in an interview with CNBC that the company just wasn’t a good fit with Novartis. He cited the short time horizon of a company in the medical equipment business versus a pharma company, where it takes years to develop a drug and bring it to market. With the shackles off, Endicott said Alcon can press forward with the innovations that will enable the company to expand its leadership in a market BioSpace estimates to be $23 billion. Last year, the company's sales were $7.1 billion. Surgical revenue rose 7% to more than $4 billion while vision care revenue climbed 3% to more than $3.1 billion.
For its part, Novartis is trying to cast the divesture in the best light possible. In the Pharmaphorum article, the company said it will now be able to put more money into and focus greater attention on its core medicines business. It seeks a financial profile that is more consistent with its big pharma peers and their higher margins.
Disclosure: The author holds no positions in any of the companies mentioned in this article.
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