Novartis Reports ‘Good Operational Performance’ for 2017, Alcon Decision Possible in 2019

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BASEL, Switzerland—Novartis AG, (NYSE: NVS) parent of contact lens company Alcon, reported Wednesday that its full-year sales rose 2 percent (1 percent at constant exchange) to $49.1 billion and net income increased 12 percent to $7.7 billion (15 percent at constant exchange) in fiscal 2017. Net income increased “ahead of operating income, mainly due to higher income from associated companies,” the financial report noted. Novartis also noted that it has made “significant progress” in the ongoing strategic review of the Alcon business unit, which achieved sales growth in every quarter of fiscal 2017.

As VMAIL reported, Novartis announced in early 2017 that it would undertake a strategic review of its Alcon unit in order to explore all options to maximize value for shareholders. As of October 2017, Novartis said it had "made significant progress on developing a potential capital markets solution" for its Alcon business unit.

“Alcon returned to growth in 2017, with full year sales growing 4 percent and core operating income growing 5 percent as a result of improved operations, innovation and customer relationships,” the announcement noted. “Alcon grew sales in every quarter of 2017 and accelerated core operating income margin in the second half. As communicated in October, key criteria for a final decision and timing remains [contingent upon] Alcon sales growth and margin improvement, which need to be demonstrated for multiple quarters leading to potential action not likely before first half of 2019.”

Novartis noted that it has transferred ophthalmic OTC products, and “a small portfolio of surgical diagnostic products,” to Alcon as of Jan. 1. Total 2017 sales for these businesses totaled about $800 million, according to the announcement.

In the fourth quarter, Alcon sales totaled $1.6 billion (up 6 percent at constant exchange) in the fourth quarter, with surgical growth of 9 percent and vision care growth of 2 percent, which included “continued double-digit growth of Dailies Total1, partly offset by declines in the weekly/monthly portfolio,” the announcement noted. Stock-in-trade movements accounted for about 1 percent of Alcon growth in the quarter.

Alcon reported an operating loss of $78 million in the fourth quarter, compared with a loss of $120 million in the year-ago period. The improvement was “driven mainly by higher sales,” Novartis reported. Alcon’s core operating income rose 36 percent to $221 million.

For the full year, Alcon achieved sales of $6.0 billion, a 4 percent increase, with surgical sales rising 5 percent due to the “strong performance of the vitreoretinal portfolio and cataract consumables,” while vision care sales increased 3 percent due to the continued double-digit growth of Dailies Total1. Alcon’s operating loss increased to $190 million from $132 million in the prior year “mainly due to growth plan investments and higher impairment charges related to business development activities, partly offset by higher sales,” the announcement noted.

“Novartis had a good year in 2017,” chief executive officer Joe Jimenez said in the announcement. “Cosentyx reached multi-blockbuster status, Entresto delivered over $500 million in sales and Alcon returned to growth. It was a landmark year for innovation resulting in a rich late stage pipeline.”

Vas Narasimhan, the company’s designated chief executive officer as of Feb. 1, said his priorities will be to drive “our next growth phase by strengthening operational execution, delivering more breakthrough innovation, pivoting to become a data centric, digitally enabled organization, building trust and reputation and transforming our culture. I feel privileged to lead Novartis at this exciting time."

In addition, Novartis said it expects net sales to increase in the low- to mid-single digits at constant exchange, while core operating income is expected to grow in the mid- to high-single digits in 2018.