Benzinga  Aug 29  Comment 
Glaukos Corp (NYSE: GKOS) stock skyrocketed Wednesday after one of the company’s major competitors removed its product from the market. What Happened Alcon announced that it's voluntarily withdrawing its CyPass Micro-Stent from the market...
Channel News Asia  Jun 30  Comment 
The chairman of Swiss drugmaker Novartis expects Alcon to be valued at between US$20 billion and US$30 billion when the opthalmic devices unit is spun off to shareholders next year, he said in an interview with Finanz und Wirtschaft.
Wall Street Journal  Jun 29  Comment 
Novartis said it would spin off its Alcon eye-care unit, a business analysts think could be valued at more than $20 billion, the latest move by the company’s new chief executive to reshape the Swiss drug giant.
FiercePharma  Oct 24  Comment 
Novartis' stock dipped 2% after the company beat expectations for both sales and earnings in the third quarter. The culprit is likely Alcon, Novartis’ long-struggling eye division, which investors expected would be spun off or sold next year....
Wall Street Journal  Oct 24  Comment 
The Swiss pharmaceutical giant has delayed a possible spinoff of its eyecare division Alcon until the first half of 2019, amid signs of a turnaround in the ailing business.
Reuters  Oct 24  Comment 
Novartis's third-quarter core net income rose 4 percent at constant currencies, beating expectations, as the drugmaker said it had made "significant progress" in preparing its Alcon eyecare unit for a possible spinoff by the first half of 2019.


Alcon, Inc. (ACL) is one of the world's leading suppliers of eye care products. The global pharmaceutical company organizes its business into three divisions: pharmaceutical, surgical and consumer eye care. The pharmaceutical unit develops glaucoma products (such as Travatan) ocular anti-infectives, combination ocular anti-infective/anti-inflammatory products, ocular allergy products, ocular generics and otic (ear) products. The surgical unit caters to the cataract surgery market with Alcon's Legacy system and AcrySof intraocular lenses. Alcon also began offering laser refractive surgical products after it acquired Summit Autonomous, Inc. in 2000. The consumer eye care unit offers contact lens care products, artificial tears and ocular vitamins. The company is also developing optic and nasal care products. While we continue to believe Alcon's fundamentals remain very strong we've been disappointed by recent pipeline setbacks including Arxxant and Retaane and the delays with Patanese. Although we remain impressed by the performance of the core businesses of Alcon and view the recent Wavelight acquisition as a positive step towards accelerating revenue and earnings growth, we don't believe there's currently enough firepower at Alcon to support the stock's steep valuation.

Alcon's pharmaceutical division continues to put up solid sales numbers with glaucoma and allergy products turning in another quarter of double-digit sales growth and infection/inflammation sales up 8% in the third quarter. Continued global growth of Vigamox (an anti-infective solution to treat ocular infection) and Nevanac, an ophthalmic solution for pain and inflammation associated with cataract surgery, help drive infection/inflammation sales. Another ACL offering, Patanol, is a twice-daily ocular allergy product with a dual-action active ingredient that works as both an antihistamine and a mast-cell stabilizer. Patanol has the potential to gain additional sales from its introduction in Germany and France. Sales should also benefit from the launch of Pataday, a once-daily formulation of Patanol, which hit the U.S. market in January 2007 and is already grabbing sizable share. The pharmaceutical division's allergy sales benefited significantly in the third quarter from strong international sales of Patanol and domestic market share gains from Pataday.

Glaucoma products are also posting strong growth year-over-year and turned in a very strong third quarter with sales up 19%. Travatan Z, launched in October 2006 is a BAC (benzalkonium chloride) free version of Travatan. It helped drive the Travatan product group sales up 31% through the third quarter and contributed to the overall glaucoma related products sales increase of 19% year-over-year to $209 million, beating our forecast by $9 million. Otic product sales disappointed in the third quarter which was attributed to U.S. macro otic sales falling 9.4% during the summer months coupled with increased rebates related to a shift in sales to Medicare Part D.

Despite Alcon's overall otic sales dropping 11% in the quarter year-over-year, Ciprodex which was introduced in 2003, continued to grab market share. Ciprodex is indicated for the treatment of otitis media (infection of the middle ear) in the presence of tympanostomy tubes (AOMT) and otitis externa (infection of the ear canal). The product is higher margin than the older Cipro products. Although we would expect macro sales to rebound, the Medicare Part D rebates will likely continue to bite into revenue. On the third quarter call management hinted that the shift to Medicare Part D reimbursement is expected to continue until it reaches critical mass and that they will look for international growth of pharmaceutical products to mitigate some of this impact. To this end, Alcon launched several new products in Japan which should contribute to international growth. Travatan Z, which was just recently approved for use in Japan and will launch this month, will join Patanol and Vigamox (known as Vegamox in Japan) which were both launched during the second half of 2006. Patanol has been performing very well in the Japanese allergy market, however Vegamox will have an uphill battle gaining market share in Japan due to the already intense competition from other anti-infective products already on the market. Overall Vigamox has performed well internationally and we look forward this trend continuing in other markets, including Germany where it received approval during the second quarter of 2007 and other EU countries where it is seeking approval via the mutual recognition procedure. On the second quarter call, Alcon reported that Vigamox is now the most prescribed fluoroquinolone in the ophthalmology market.

Total pharmaceutical sales were $547 million in the third quarter 2007, up 10.2% year-over-year. For the full-year 2007 we see sales of $2,267 million, up 13%.

Surgical sales increased 10.8% year-over-year to $586 million in the third quarter of 2007. Alcon gained approval for its AcrySof ReSTOR intraocular lens for post-cataract surgery in early 2005 and started shipping the product in May 2005. Approval in Japan came recently. Sales of intraocular lenses increased 12% in the quarter with sales of premium lenses up 35%. Sales benefited from increased international penetration as well as sales of AcrySof ReSTOR Aspheric lenses which launched in July 2007 and began full distribution in the third quarter. AcrySof Toric lenses continued strong single-digit penetration levels. We look for additional growth to come from the aspheric and Toric lenses and hope to see increased U.S. sales of all ReSTOR lenses as more physicians communicate and market the product to their patients. The product should also benefit from a DTC campaign, which should increase patient awareness of the product. Alcon also has a 25-person specialized refractive IOL sales force in place, which is currently targeting large practices and helping them to integrate premium lenses at higher rates. ReSTOR should help improve operating margins at Alcon. The product will be both high growth and high gross margin. Moreover, the approval of dual aspect reimbursement for astigmatism-correcting intraocular lenses by the Centers for Medicare and Medicaid Services (CMS) should work out in Alcon's favor. The CMS recently confirmed that Alcon's AcrySof Toric IOL conforms to this ruling. This should increase the product's availability to Medicare patients. Management noted on the third quarter call that they have seen a penetration rate of about 7%-8% with both the ReStor and Toric lenses and expect this rate to continue. They feel as more physicians see the benefit of the lenses that uptake will continue ton progress.

Meanwhile, Alcon is working on strengthening its refractive surgery franchise and in the third quarter acquired WaveLight AG, a manufacturer of innovative refractive laser and diagnostic systems. Alcon received all required regulatory approvals earlier in the year and in early November announced it was commencing with closing the transaction. WaveLight's key product is the Allegretto laser system for refractive eye surgery, which has a global installed base of 800 units and offers the fastest ablation speed. We believe this acquisition will allow Alcon to regain momentum in the refractive laser market. In our opinion, this acquisition is a step in the right direction for Alcon - the combination of WaveLight's technology with Alcon's global commercial infrastructure should help drive growth in the refractive surgery market.

Consumer eye care sales increased 13.5% year-over-year in the third quarter of 2007 to $202.5 million. The consumer eye care segment continued to benefit from the recall of two competitive contact lens disinfectants during 2006 and 2007. Contact lens disinfectant sales increased 17% with both Opti-Free RepleniSH and Opti-Free Express disinfecting solutions benefiting from the withdrawal of Bausch & Lomb's product. Another company, Advanced Medical Optics, recently withdrew its multi-purpose contact lens solution from the market as the product was linked to an infection. We believe that Alcon will continue to benefit from this withdrawal and have increased our estimates accordingly. Meanwhile, artificial tears products grew 12% year-over-year, on the continuing success of Systane lubricant eye drops, especially in international markets. We would expect to see continued international sales growth in the Consumer Eye segment.

The company moved much of its research and development (R&D) funding back into the U.S. upon favorable new tax laws created by the IRS hoping to increase U.S.-based innovation. The net influence of this move is roughly a 350 basis-point reduction in the overall tax rate. Alcon's tax rate in 2004 was nearly 28%. That number declined to 21.6% in 2005, and could be as low as 18% by 2008. This is another strong driver of the bottom-line at Alcon.

Meanwhile, Alcon is also working on building its pipeline and entered into an agreement with Amgen (AMGN) for the joint research, development, and commercialization of new products in the field of ophthalmology. The companies aim to develop novel treatments for diseases like age-related macular degeneration (AMD), macular edema, glaucoma, allergy, and dry eye. Amgen will provide Alcon with existing and future molecules which may have potential utility in eye disease. We view this alliance as a positive development for the company. Alcon signed another collaborative agreement, this time with NovaCal Pharmaceuticals, for the development of novel anti-infective agents for the treatment of eye, ear, and sinus infections.

Besides this, Alcon entered into an agreement with Eli Lilly and Company (LLY) for the co-promotion of LLY's Arxxant (ruboxistaurin) in the U.S. and Puerto Rico. LLY is seeking approval for the treatment of moderate to severe nonproliferative diabetic retinopathy. While Alcon will be responsible for promoting the drug to eye specialists, including retinal specialists and general ophthalmologists, Lilly will promote the drug to endocrinologists and primary care physicians. Once the product receives final approval, Alcon will make milestone and marketing payments to LLY. In return, Alcon will be compensated on the basis of product sales. This agreement makes good strategic sense as it will allow Alcon to expand its product portfolio to include new pharmaceutical treatments for retinal diseases. It should also help the company bolster its leadership position in ophthalmology. However, we do not see any contribution from this product in the near future given the "approvable" letter issued by the FDA in August 2006. The FDA has requested Lilly to submit additional data to support the clinical evidence provided in the NDA. The FDA is looking for additional efficacy data. Lilly currently has two phase III trials ongoing one in Japan (expected to end in 2007) and another in the E.U. (expected to end in 2008). Nevertheless, the FDA has requested the company to conduct an additional, three-year phase III trial in the U.S., in which case the NDA filing could get delayed by five years. Lilly is currently evaluating its options for this product.

Alcon has had its share of pipeline setbacks over the past few years. In late May 2005, the company received an "approvable" letter from the FDA for Retaane (anecortave acetate). This was expected. Retaane, the company's candidate for the wet form of age-related macular degeneration (AMD, a loss of central vision) failed to meet the pre-determined primary end-point of non-inferiority to Visudyne (QLT, Inc./Novartis) in a phase III clinical trial. The data demonstrated that Retaane maintained the ability to help 45% of patients see clearly after six months. This was just shy of the 49% posted by Visudyne. In addition to Visudyne, there are several other products dominating the wet AMD market. We believe that Lucentis (Genentech) will be the superior product on the market for AMD, and should take sizable market share from Visudyne. Lucentis is better positioned to capture market share than Retaane. Alcon presented encouraging 24-month safety data on Retaane in October 2005. The company met with the FDA in December 2005 to discuss the filing strategy on Retaane. The FDA advised the company to conduct at least one additional efficacy study in order to gain final approval. In March 2007, Alcon submitted an amended filing to the FDA with clinical data from recently completed clinical studies in Europe and Latin America.

In September 2007 Alcon announced that it had received an approvable letter from the FDA for Retaane 15mg for the treatment of wet AMD and that approval will require an additional study, which the company stated it has no immediate plans to conduct. Although Alcon continues to believe that Retaane could play a role in the treatment of wet AMD, the company cited the difficulty in recruiting patients for such a study due to other treatments currently available as their reason for not immediately pursuing the required study. As a sign of faith in the drug, however, Alcon continues to support the Anecortave Acetate Risk-Reduction Trial that is studying the ability of Retaane suspension to reduce the risk for the progression of the dry form to the wet form of AMD. This trial is fully enrolled and is expected to be completed within 3 years. Retaane suspension remains commercially available in several countries outside of the U.S.

The company also provided an update on the development of anecortave acetate for glaucoma. In July 2007, Alcon presented three-month interim results from a phase II study (n=85) showing that anecortave acetate demonstrated potential for prolonged reduction of intraocular pressure (IOP) in a significant percentage of patients after a single administration of the drug. The most frequently reported adverse events included eye pain, foreign body sensation and blurred vision. Findings from this study will be used to determine the protocol for a phase III study, which the company mentioned during the third quarter call is in the works. In the meantime, two additional phase II studies are ongoing. The company plans to file an NDA for this candidate in late 2008 / early 2009. However, we see only limited potential for this product given Macugen, Lucentis and even off-label use with oncology drug Avastin. Meanwhile, Alcon withdrew its marketing application for Retaane from Europe where the European Medicines Agency (EMEA) has also requested the company to submit additional data.

In October 2005, the company was advised by the U.S. Food and Drug Administration (FDA) that it would have to reformulate Patanase nasal spray to gain approval of the product. In January 2006, the company met with the FDA to review plans for testing the new formula. A second meeting with the FDA was conducted to determine the clinical trials required for gaining approval. Alcon announced that it had developed a new formulation for the product and on October 10, 2007 submitted an amended application to its new drug application for Patanase to the FDA, per their request, which included interim six-month data from a previously agreed upon trial. Although it's unfortunate that approval of Patanese has been delayed for so long, it's encouraging to hear that the process is moving in the right direction and we are looking for approval in early 2008.

Going forward, generic competition, rising operating expenses, a weak refractive surgery business and sluggish otic sales are expected to depress earnings growth. International growth of Alcon's pharmaceutical and consumer eye products are picking up but maybe not fast enough to counter the lost sales from patent expirations on four of the company's products over the next three years. The earliest patent expiration is for Ciloxan. The patents for Ciloxan have expired in virtually all of the countries where it is marketed (the U.S. patent expired in June 2004). Alcon is trying to complete the process of converting its clients to the recently launched Vigamox before a generic drug is introduced. Meanwhile, Alcon received a notice from Apotex, Inc. which is seeking FDA approval for its generic version of Patanol and more recently received notice that Barr Laboratories is challenging the patent as well. Barr is not only challenging the patent owned by Alcon which expires in 2015 but is also challenging the patent that covers olopatadine (expiring in 2010), the active ingredient in Patanol, owned by Kyowa Hakko Kogyo Co., Alcon's supplier. Alcon announced that it is confident about its patent position for Patanol and intends to defend the same vigorously. Alcon has subsequently filed a patent infringement suit against Barr. Another product, TobraDex, is scheduled to lose patent protection in the U.S. in December 2008. The company is currently working on bringing a follow-on product to the market before the entry of generics. The NDA for TobraDex ST ophthalmic suspension was filed in June. A response from the FDA should be out in mid-2008. As a result of the upcoming patent expirations, Alcon expects generic competition to increase, which would hurt its future results.


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