Novartis focus on still-ailing Alcon shifts to 2017

(Reuters) –Novartis‘ (NYSE:NVS) struggling Alcon eye care division will take longer to turn around than expected, the Swiss drugmaker’s Chief Executive Joe Jimenez warned on Tuesday as he reported a smaller than forecast fall in third quarter net income.

Alcon’s sales this quarter will be “flat to down slightly,” Jimenez said, after predicting earlier this year that the division’s new head Michael Ball would have it growing at a low-single-digit percentage rate by the year-end.

Novartis has blamed a failure to innovate and inconsistent customer service for the problems at Alcon, a business the company gradually bought from food maker Nestle in deals totaling $51 billion, but could eventually sell.

Ball, a former Hospira CEO hired to run Alcon in January, has seen the contact lens business improve, but intraocular lens and cataract equipment revenue is still lagging.

“It’s probably going to be flat to down slightly, but it will be improved growth momentum going into 2017,” Jimenez said of Alcon, whose sales fell 3% in constant currencies to $1.4 billion, with an operating loss of $50 million.

Novartis said its net income fell 4% to $2.938 billion, beating the average analyst forecast of $2.9 billion in a poll by Reuters, while sales slipped 1% to $12.1 billion, compared with a forecast of $12.25 billion.

Shares in Novartis shares were down 0.7% in early trading, against a 0.1% gain for the broader European healthcare index.

“Alcon declined more sharply than we or consensus forecast,” Bernstein’s Timothy Anderson said in a note. “Investors will continue to ask where the green shoots of recovery will emerge.”

GENERICS AND BOLT-ONS

Novartis’s main pharmaceuticals business got some help from Gleevec, whose sales fell less than expected following the expiration of a U.S. patent, to $834 million.

Jimenez now predicts Novartis’s combined hit from generic rivals in 2016 will be less than $3 billion, lower than previously forecast.

He confirmed previous 2016 full-year forecasts for Novartis’s core operating income to be broadly in line with last year, or decline by a low-single digit percentage.

Cosentyx is helping offset Gleevec’s decline, with Novartis predicting its new psoriasis drug would hit “blockbuster” status of $1 billion this year.

Jimenez is also “constantly scanning for bolt-ons” of $2 billion to slightly more than $5 billion to boost his pipeline or expand geographic reach. Acquisition timing is playing a role as Novartis mulls the sale of its 13 billion Swiss franc ($13.07 billion) stake in rival Roche.

“Things don’t always line up perfectly in terms of having that target ready or a couple of bolt-ons… to redeploy those funds,” Jimenez said.

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