Alcon sidesteps the Novartis takeover bid in presentation

By Larry Haimovitch

Medical Device Daily Contributing Writer

January 20, 1010

SAN FRANCISCO — It was exactly one year ago that the ophthalmology world was rocked by the stunning news that one of the industry's three market leaders Advanced Medical Optics (Santa Ana, California) was being acquired by Abbott Laboratories (Abbott Park, Illinois) for approximately $1.3 billion.

More recently, there has been a flurry of news that Novartis Pharma (Basel, Switzerland) had acquired a majority ownership in the world's largest ophthalmic company, Alcon Laboratories (Fort Worth, Texas).

Speaking at a very well-attended session at the JP Morgan Healthcare conference, CEO Kevin Buehler carefully avoided any specific comments on this transaction, which is now embroiled in controversy and possible legal action. Instead, he focused on the company's stellar long-term track record of growth and profitability, noting that from 2004 through 2008, Alcon racked up an annual sales growth of nearly 13% per year. With an expansion in its operating margins and a lower tax rate, the company registered an impressive 24% annual net income gain.

Its operating margin of about 35% places it at the top of the list of its peer group of large device and pharmaceutical companies, whose average operating margin is 25%. Even more impressively, its net earnings margin is almost double the 17% net margin of its peer group.

Like most healthcare companies 2009 was a challenging year for Alcon, as its organic sales growth through the first nine months it has yet to report or pre-announce 4Q09 was a tepid 5.6%. The downturn in the economy especially impacted its pharmaceutical business.

Buehler identified four key factors that should the company's growth gong forward. These include: (1) Global brand development, that is growing market share in its key brands globally; (2) Advances in IOL technology, with new products like ReSTOR 3.0 fueling gains (3) Emerging markets like India, China, Russia and Brazil offering enormous opportunities and (4) Benefits of its intensive R&D efforts, with untapped areas like macular degeneration, glaucoma and dry eye particularly interesting.

Alcon has also been much more active in recent times, with strategic alliances and acquisitions. This increased aggressiveness is a departure from the company's historical style, which featured internal product development.

A good example is the announced definitive agreement to buy Optonol (Neve, Llan, Israel). This privately owned company markets a novel miniature surgical implant used to lower intraocular pressure in patients with glaucoma. With this acquisition, Alcon will acquire Optonol's Ex-PRESS Mini Glaucoma Shunt. This agreement will complement Alcon's pharmaceutical products that lower IOP in patients with glaucoma and ocular hypertension, and will be additive to the company's growth opportunities.

Earlier this week, Alcon strengthened its position in the pharmaceutical market, with the announcement that it will purchase the rights in the U.S. for two FDA-approved topical eye care products from Sirion Therapeutics (Tampa, Florida).

The two products purchased are Durezol, a marketed ophthalmic corticosteroid approved for the treatment of inflammation and pain associated with eye surgery, and Zirgan, a recently approved antiviral for the treatment of acute herpetic keratitis (corneal ulcers). In addition to these marketed products, Alcon also acquired the global rights, excluding Latin America, for Zyclorin. This product is currently in clinical development to treat dry eye and other ocular surface diseases.

2010 J.P. Morgan Healthcare Conference

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