Article preview reprinted from IN VIVO - November/December, 2009
Novartis on Jan 4 announced it was exercising its option to purchase Nestlé's remaining 52 percent stake in eye-care group Alcon for $28.1 billion. The Swiss Big Pharma will finish up paying almost $50 billion for full control of the group, given its controversial attempt to buy out the minority Alcon shareholders for a further $11.2 billion. Read more...
Novartis Eyes Full, $50 billion Alcon Takeover
It came as no surprise when on January 4 Novartis AG announced it was exercising its option to purchase Nestlé's remaining 52% stake in eye-care group Alcon Inc. for $28.1 billion, or $180 per share. The Swiss Big Pharma had as good as committed to do so back in April 2008, when it bought the first tranche of 25% from Nestlé SA for $10.4 billion, or $143 per share. At the time, Novartis agreed to a "put" clause allowing Nestlé to compel it to buy the additional shares between early-2010 and mid-2011 at a price not exceeding $181 per share, or roughly $28 billion.
Given that Alcon's shares fell to less than half of their April 2008 value at the end of that year, Novartis could have bought Alcon for far cheaper by waiting and doing a single purchase. But Nestlé was calling the shots on deal structure, and possibly the timing, too. As Novartis chairman and CEO Dan Vasella, MD, pointed out at the time, the two-step structure was to accommodate Nestlé's desire not to sell all in one go. (See "Novartis' New Kind of Pharma Deal," IN VIVO, April 2008 and "Deals of the Year Nominee: Novartis/Alcon," The IN VIVO Blog, December 15, 2008)
The set-up turned out very nicely for Nestlé, since Alcon's shares then climbed steadily back up during 2009 to slightly above their April 2008 price, just in time for the start of Novartis' option window. Thus Novartis will finish up paying almost $50 billion for Alcon, given that it also on January 4—this time somewhat less predictably—declared its intention to spend another $11.2 billion to buy out the remaining, minority shareholdings--amounting to 23% of the company. That pushes this mega-acquisition, one of several recent examples of Big Pharma seeking to diversify its revenue base beyond prescription pharmaceuticals, up the ranks in dollar value terms to second, behind Pfizer Inc.'s $67 billion acquisition of Wyeth, according to Elsevier's Strategic Transactions. But whereas Pfizer paid about three times Wyeth's 2008 sales, Novartis is paying more than six times Alcon's 2008 sales.
Is it a price worth paying? The merger will create a global eye-care leader with sales of $8.5 billion and over 70% of the vision sector, according to Novartis. Alcon is already the global leader in ophthalmic surgery products, including those for cataract operations (a majority of micro-incision cataract surgeries in 2008 were carried out with Alcon equipment). Its key products include the Infiniti Vision System for cataract surgery, the intraocular lens system AcrySof, and pharmaceuticals such as olopatadine (Patanol) and once-a-day olopatadine (Pataday) for ocular allergy, and the travoprost (Travatan) product line in glaucoma. Alcon's 2008 sales reached $6.3 billion.
Ophthalmology has long been a favorite investment spot for venture capitalists, but big drugmakers now recognize the commercial potential of the space in the wake of the success of the age-related macular degeneration therapy ranibizumab (Lucentis). Moreover, demographic shifts, a dearth of effective treatments, especially for diseases that blind such as AMD, and potentially lower reimbursement hurdles because of the unmet medical need make the fast-growing ophthalmology market an especially attractive one. (See "Venture Eyes Opthalmology--And Likes What It Sees," START-UP, October 2009.) For Novartis, the deal offers greater exposure to a more diversified payor structure with fewer price regulation risks, and a broader range of products attracting discretionary consumer spending.
By taking just the 77% majority ownership of Alcon, Novartis will achieve pre-tax cost synergies estimated at $200 million, mainly from supply chain improvements, leveraging customer access, and purchasing synergies, according to chief financial officer Raymund Breu. That part of the deal will be funded through existing cash and up to $16 billion in debt.
Companies mentioned in this article:
AstraZeneca PLC
Mead Johnson Nutrition Co.
Nestle SA
Alcon Inc.
Novartis AG
Ciba Vision Corp.
Pfizer Inc.
Potentia Pharmaceuticals Inc.
Sanofi-Aventis
Purchase this article online as a PDF and receive it immediately via email. Questions? Call (800) 332-2181. 100% Satisfaction Guaranteed.
Plus: Meet the promising new breed of oncology technologies in Medtech Insight's new 58-page Special Report: Oncology Outlook: How Cutting-Edge Medical Technology Is Improving the Odds for Cancer Patients. Available for purchase online
Limited-time offer: Single-incision laparoscopy or natural orifice surgery: Which will win the day, or is there room for both? Are You Ready For The New Scarless Surgery Revolution? Download you FREE report now
Subscribe to IN VIVO.
IN VIVO delivers:
- Revealing, in-depth coverage of your competitors' strategies
- Incisive projections of future industry trends and their implications for your business
- Expert analysis of key industry developments
- Exclusive interviews with top industry executives and analysts
- In-depth examination of dealmaking, marketing, R&D, regulatory, and finance strategies -- those that were successful and those that missed the mark
Comments