Joseph Jimenez, CEO, Novartis
Harry Kirsch, CFO, Novartis
F. Michael Ball, CEO, Alcon
David Murray, CFO, Alcon
David Endicott, COO, Alcon
Franck Leveiller, Head, Global R&D, Alcon
James Bradner, M.D., President, Novartis Institutes for BioMedical Research
Vasant Narasimhan, M.D., Global Head of Drug Development and Chief Medical Officer, Novartis
NUMBER OF EMPLOYEES: 23,000 (122,985 total)
GLOBAL HEADQUARTERS: Fort Worth, Texas
As the world’s only fully accredited teaching hospital aboard an aircraft, the Flying Eye Hospital is quite a sight to behold. Designed to bring the best medical technology and training to the developing world, the third generation of the flying hospital was built in a donated MD-10 jet in 2016. Orbis International (a non-profit dedicated to increasing eye care standard and availability in over 90 countries) operates the Flying Eye Hospital. Alcon, Novartis AG’s eye care division, has supported Orbis for 34 years with grants, donated equipment, and volunteers.
In October 2016, the new Flying Eye Hospital took its three-week maiden voyage to the northern Chinese city of Shenyang. Once there, the hospital’s volunteers demonstrated a number of eye surgeries using advanced equipment to Chinese ophthalmologists in the plane’s operating room.
Preventable forms of blindness are common in China—according to Alcon, cataracts account for about 40 percent of all blindness there. Unfortunately, less than half of China’s ophthalmologists perform cataract surgery. Lack of a national training program makes it challenging to increase the amount and caliber of eye care professionals, many trainees have insufficient hands-on training, and less than a third of junior ophthalmologists end up performing regular surgery post-graduation. Dr. Zhang Bin, an attending physician at He University Eye Hospital, is in the minority in that he has performed hundreds of cataract surgeries. But he recognized the need to improve eye care access for the 8 million people living in and near Shenyang, where some of his patients travel three hours for treatment. When he heard the Flying Eye Hospital was coming to town to train local eye care professionals and treat local patients, he signed up right away.
Dr. Zhang had never performed a corneal transplant before training with Orbis. By the end of the week, he was performing the surgery unassisted and doing so well that his surgery was shown in the classroom for other trainees’ observation. And although he’s performed hundreds of phaco cataract surgeries, he learned a new set of skills operating with Alcon’s high-tech surgical equipment on the plane.
“At some point I’ll be able to train others and make phaco cataract surgery more accessible,” Dr. Zhang told Alcon. “People shouldn’t have to travel to another city for surgery.”
Though Alcon’s philanthropic efforts flourished, for the second year in a row the Novartis division struggled with diminishing sales. Though not quite as drastic of a decline as 2015’s
9 percent tumble, FY 2016 sales (ended Dec. 31) fell 3 percent to $5.8 billion. Tasked with leading the slipping division beginning in February 2016, former Hospira CEO F. Michael Ball was not quite able to rescue Alcon from the decline it was on due to struggling surgical equipment sales, exacerbated by too few innovative product offerings. Alcon also crippled customer loyalty by cutting spending on surgeon training and education.
“If you look at the mistakes that were made that have led to the slowdown, we were not as vigilant enough...on ensuring that the innovation pipeline would result in continued growth,” Novartis CEO Joe Jimenez said in an interview with Reuters. “The second is, I think we went a little too far on cost savings, we reduced some of the services that they had grown accustomed to at Alcon.”
ANALYST INSIGHTS: B. Braun has remained fairly quiet in 2016 and year-to-date in 2017. B. Braun is focused on its goals to have a more cohesive company set to come to fruition in 2020. It remains a solid “brick and mortar” service company that provides consistent support and aims to work with its customers to achieve better and more affordable healthcare. Who could not agree with that?
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
Surgical sales continued to struggle in 2016, falling 3 percent to $3.5 billion. Intraocular lens (IOL) sales performed weakly due to competitive pressures, as well as slowing equipment sales—primarily LenSx for cataract surgery and Wavelight for refractive surgery, which have reached high penetration in their market segments. These circumstances were somewhat offset by the continued growth of cataract disposable surgical supplies sales, which were up 3 percent from the year prior. The Surgical business made progress toward sales growth in 2016, and the release of a number of new offerings in this segment will attempt to drive expansion of revenue next year.
One product (launched in September 2016) that may be able to pull surgical sales out of their rut is the NGENUITY 3D Visualization System, a videoretinal surgery platform designed to assist surgical procedures through high-resolution 3D imaging of the back of the eye. Rather than bending their necks to see through a microscope’s eyepiece, retinal surgeons can operate while looking at a high definition screen. Notably, surgeons can use NGENUITY 3D to magnify images while maintaining a wide field of view and use digital filters to customize the view mid-procedure.
“This digital platform offers more than just enhanced visualization. It will impact our therapies and the way we manipulate tissue,” said Dr. Allen Ho, professor of ophthalmology at Thomas Jefferson University and director of retina research at Wills Eye Hospital in Philadelphia, Pa. “The easier it is for surgeons to perform these long, delicate surgeries, the better they can perform for our patients who count on us to provide them with the best possible care.”
The CyPass Micro-Stent for use in conjunction with cataract surgery to lower intraocular pressure in adult patients with mild to moderate primary open-angle glaucoma was launched at the American Academy of Ophthalmology (AAO) annual meeting in October. CyPass lowers intraocular pressure (IOP) by enhancing aqueous outflow through the eye’s natural drainage pathways and minimizes tissue disruption. It marks the first in Alcon’s portfolio in a new segment of glaucoma treatment called minimally invasive glaucoma surgery (MIGS), formed by the February 2016 acquisition of privately held, U.S.-based Transcend Medical.
“We expect the MIGS technology to be a great addition to our device pipeline and to establish Alcon’s presence in this new surgical category to treat glaucoma,” Alcon CEO F. Michael Ball said when the acquisition was announced. “It will provide a less invasive means of lowering IOP than traditional invasive glaucoma surgery, with the goal of lowering the dependency of topical ocular medication. This acquisition also expands Alcon’s leadership in glaucoma and cataract treatment as part of our Surgical business.”
The December FDA approval of the AcrySof IQ ReSTOR +3.0D Multifocal Toric lens—designed to address presbyopia and pre-existing corneal astigmatism at the time of cataract surgery in adult patients who desire good near, intermediate, and distance vision with an increased potential for spectacle independence—also set the stage for potential growth in surgical sales. The new intraocular lens combines two technologies that simultaneously correct presbyopia and corneal astigmatism.
Vision Care sales were flat in 2016 at $2.3 billion—a rise in contact lens revenue offset the drop in contact lens care products. The division was driven mainly by the July release of the Dailies Total1 Multifocal contact lenses, the first and only water gradient lenses designed for people with presbyopia. An alternative to bifocals or reading glasses, the technology addresses end-of-day dryness and discomfort many contact lens wearers over 40 years old experience.
Vision Care also revealed the new AIR OPTIX plus HydraGlyde monthly replacement contact lenses at the AAO annual meeting. The lens is composed of a silicone hydrogel and features HydraGlyde Moisture Matrix technology for longer-lasting surface moisture. The lenses were launched with a power range of +8.00D to -12.00D.
Will Alcon Stay in the Novartis Family?
Alcon’s revenue struggles have begun to raise rumors that Novartis is looking to divest the business. Diminished 2016 sales for cataract and refractive equipment, paired with competitive pressure in the IOL market, curtailed surgical sales. Down 2 percent from 2015, Jimenez expects growth in Novartis as a whole to resume after some delay.
“Unfortunately, 2017 is going to look a lot like 2016,” Jimenez said in an interview with AAO. “We expect the next growth phase of this company to begin toward the end of this year,” he said, adding that the company anticipates annual growth beginning in 2018.
Keeping Alcon in the fold does fit Novartis’ overall strategy of establishing the division in a position as a leading surgical instruments maker, according to a statement made by Alcon general counsel Felix Ehrat in a Zurich mergers and acquisitions conference reported by Reuters. And when pressed about the prospect of an Alcon sale, Ehrat advised that such a pledge “wouldn’t be clever,” but quickly added “never say never.”
Ball has implemented a turnaround effort to pull Alcon out of the mire, but following the move of its ophthalmic drugs business to Novartis’ main pharmaceuticals division, much talk has arisen about Alcon’s potential status on the chopping block—especially if Ball’s efforts fail.
“Alcon will either be fixed or sold,” David Evans, an analyst at Kepler Cheuvreux, wrote in a note to investors.
“Alcon has not developed over the past two years as we had expected,” Novartis Chairman Joerg Reinhardt told Reuters. “Even though Novartis would continue to push the turnaround, all options were open in the future. In the long run, the question arises as to whether we are the best owner for Alcon.”
Needless to say, investors and customers will be keeping a close eye on Alcon from here on out.