The fate of Alcon Inc. has long been under consideration by parent company Novartis AG. In early 2018, the Basel, Switzerland-based company said it expected to conduct a spin-off or IPO for its ophthalmic devices business. Now, it has started to detail those plans, committing to a spin-off of the Alcon devices business that's slated to complete during the first half of next year.

Novartis will retain the ophthalmic pharmaceuticals business, which had $4.7 billion in 2017 revenues, that was part of Alcon when it was originally acquired for a total of about $52 billion in 2011 after taking an initial stake in 2008.

Free standing

The resulting spin-off will remain headquartered in Switzerland, with stock market listings planned on both the New York Stock Exchange and the Swiss Exchange. The new company will have about 20,000 employees and a 2017 revenue equivalent to around $7 billion. In the U.S., Fort Worth, Texas. is expected to continue to be a key location for Alcon. The post-spin-off Novartis will be focused entirely on innovative medicines; it expects that each business will be able to better address its particular market.

"This is consistent with our strategy and also enables us to focus our capital where we believe we can generate the highest returns and also leverage our strengths in R&D, as well as in the marketing and sales and manufacturing of pharmaceuticals," said Novartis CEO Vas Narasimhan on a June 29 conference call about the spin-off.

"This allows Alcon to focus on the eye care business and on its distinct business model, as well as the product development cycles, which are unique to the medical device business." he continued. "It will also allow us to have the capital flexibility to invest in future growth areas within medical devices in ophthalmology."

Mike Ball, the current Alcon CEO, will become chairman-designate of Alcon starting July 1. His role will be to prepare Alcon for the spin-off, as well as to recruit a board for Alcon. Ball will also meet with investors, both existing Novartis shareholders and other potential investors, in preparation for the spin-off.

Once it would become an independent company, he will be the chairman for Alcon. He will be stepping down from the Novartis executive committee. Alcon's chief operating officer, David Endicott, will become the CEO of Alcon starting on July 1, assuming operational management duties from Ball.

Down to business

"Alcon is a device leader in eye care, which is a large and attractive growing market. It's about $20 billion dollars in size and it's got some significant megatrends at its back: aging population, growing middle class and emerging markets, changing lifestyle, and I really think, a desire for both young and old to be spectacle independent," said Ball on the call.

He noted that Alcon has two main businesses: surgical and vision care. Surgical accounts for about $3.7 billion in revenue, while vision care is around $3 billion. Both are growing at an annual rate of about 4 percent. Ball noted that Alcon claims the top market spot in ophthalmic surgical implantables, consumables and equipment, as well as in vision care for contact lenses and dry eye ocular health.

Ball said that the focus for Alcon through 2016 and 2017 was on improving the customer experience, while the emphasis now is on ramping up growth.

"We're executing on our growth plan and also investing in market segments that I think can be nicely expanded, such as the presbyopia market with contact lenses, the advanced technology intraocular lens (IOL) market, and also the dry eye market," said Ball. "There are also some other expansion opportunities. This is a marketplace that has some great potential still in it."

Alcon hasn't been particularly active on the dealmaking front in the last few years. Some its most recent activity dates back to 2016, including a partnership with Powervision Inc. to develop fluid-based accommodating intraocular lenses (AIOL) for cataract patients that includes an option to purchase the company as well as the acquisition of minimally invasive glaucoma surgery device company Transcend Medical Inc.

Pipeline promises

"To support these franchises, we've been working really hard over the past couple of years to reinvigorate our pipeline, both organically and inorganically," said Ball of Alcon's efforts. "As we look at the pipeline, what you see is the real strength of the pipeline hits in and around late, early 2021. So, I feel like the moves that we've been making over the last couple of years are really starting to pay off."

Alcon plans four surgical product launches through 2020, with an additional five product launches in vision care during that time frame. Into 2021 and beyond, the company aims to introduce new contact lens, intraocular as well as cataract and vitreoretinal technology platforms.

In order to proceed with the spin-off, shareholders must approve it at the February 2019 annual general meeting (AGM). Novartis initiated the process of separating out the Alcon business in January 2016 after the transfer of the ophthalmic pharmaceuticals business into the medicines business.

Novartis also reported it would conduct a $5 billion share buyback that's slated to complete by the end of 2019. It's funding the share buyback and the recently reported $8.7 billion acquisition of gene therapy company Avexis Inc. by divesting to Glaxosmithkline plc its stake in their consumer health joint venture for $13 billion.

"Our strategic review examined all options for Alcon ranging from retention, sale, IPO to spin-off. The review concluded that a spin-off would be in the best interests of Novartis shareholders and the board of directors intends to seek shareholder approval for a spin-off at the 2019 AGM," said Novartis chairman Joerg Reinhardt. "This transaction would allow our shareholders to benefit from potential future successes of a more focused Novartis and a standalone Alcon, which would become a publicly traded global med-tech leader based here in Switzerland."