All Change at Alcon

Novartis had a rough end to 2015; its year-on-year Q3 sales fell 6 percent to $12.27 billion (its third missed quarter in a row) – and their Alcon division is taking most of the blame. Alcon’s sales have been declining since 2014, its Q3 2015 sales dropped 12 percent to $2.35 billion – and this seemed to prompt Novartis into executing some remedial actions. First, Jeff George has been replaced as Alcon division head and Chief Executive Officer (after only 20 months in the job) by long-time Allergan executive, Mike Ball, the man who most recently, as Hospira’s CEO, engineered its $17 billion sale to Pfizer back in September 2015. Second, Alcon’s ophthalmic drug unit – which generated over a third of its revenue last year – is to be folded into Novartis’ pharmaceutical division, leaving an Alcon that will focus on its surgical equipment and vision care businesses.

Novartis’ CEO, Joe Jimenez, gave Reuters his thoughts on how this situation came to be: "We were not as vigilant enough […] on ensuring the innovation pipeline would result in continued growth”, adding “I think we went a little too far on cost savings; we reduced some of the services that they [ophthalmic surgeons] had grown accustomed to at Alcon.” To back that up, Jimenez said Novartis would invest $200 million in Alcon, to boost advertising, including direct-to-consumer marketing. He expects to see a turnaround in Alcon’s fortunes, forecasting single-digit growth by the end of 2016.

An unnamed industry insider has speculated on what this could mean for Alcon, noting:

• Alcon has taken a battering – will its competitors make the most of its current state before it bounces back?
  
• Given Alcon has lost its pharmaceuticals business to Novartis, and if its innovation pipeline is weak, it looks like acquisitions might be on Alcon’s agenda
  
• If Alcon are going all in for customer service, that’s great news for their surgeons – but it will take money to provide it

… and added some “what ifs”:

• Alcon doesn’t turn it around – will it be sold on? Or will it be that just parts of Alcon are sold off?
  
• What will it mean for ophthalmology if one of the key players in the market – one that has (historically) played a significant role in driving change in the industry – struggles?

The “what ifs” are unlikely come true. Ophthalmology is a market that continues to grow, and Jimenez has already said that the proposed changes are “designed to reignite product innovation in Alcon’s businesses”. Can you remember a time in ophthalmology where Alcon hasn’t been strong?