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Novartis Increases Growth Potential Through Integration of Alcon

Novartis recently provided an update on its long-term strategy and vision for continued growth, as well as an overview of its plans for the new Alcon  Division. The company says its diversified healthcare portfolio across high-growth segments in healthcare, as well as geographic distribution, provides it with strength and advantages to benefit from current trends in healthcare as well as protection from macroeconomic effects.

The company is on track to deliver against the strategic priorities set out in 2010. Over the last 18 months, the company achieved:

    — Double-digit sales growth through growth of new products that are rejuvenating the portfolio and integration of Alcon

    — Double-digit core operating income growth increasing its operating leverage
   
    — Improved productivity and profitability resulting in margin improvement
   
    –Double-digit sales growth in emerging markets
   
    –Increasing leadership in innovation, resulting in 17 regulatory approvals in the US and Europe in the Pharmaceuticals Division
   
    –Returning over $15 billion to shareholders via dividends and share buyback

Further, Novartis says  the acquisition of Alcon offers it a solid growth platform in the eyecare segment. “Alcon is enhancing future prospects for Novartis–it brings to us a fast growing business in the eyecare segment. This transaction was about long-term growth and not just cost synergies,” says Joseph Jimenez, CEO of Novartis. “We believe that Alcon has significant growth potential by leveraging the Novartis expertise in research, market access and reimbursement, among others.”

The company says it sees Alcon as a new growth platform in eyecare, pointing out the following goals for Alcon:

 — Aspiration for high-single to low-double-digit sales growth

 — Annual cost synergies of $350 million by 2013 expected

 — Operating leverage and synergies to drive margin expansion to best in class levels

 — Largest commitment in industry on ophthalmology research and development to continue to develop new technologies and therapies

By delivering against the Novartis strategic priorities, Alcon says it expects to create further value by continuing to outgrow its market segments through market development, market share increases and introduction of innovative new treatments and surgical options. Including revenue synergies achieved over time, the new division aspires to achieve growth in the high-single to low-double-digit range, mainly driven by delivering against the following priorities:

   
— Growth of cataract procedures globally
   
— Increase in the value of cataract procedures through the conversion to phacoemulsification
   
— Penetration of advanced technology intra-ocular lenses (IOLs) and the introduction of LenSx, a novel refractive laser surgical platform
   
— Share increase across the pharmaceutical portfolio, especially dry eye and glaucoma outside the US
   
— Building of Vision Care global commercial capability
   
— Successful launch of Dailies Total 1, a new technology for daily disposable contact lenses
   
— Market and brand development in key emerging markets

Novartis says it believes Alcon is leading innovation in eyecare, with 15 key regulatory approvals in 2010, 11 key approvals so far in 2011 and continued regulatory filings over the next three years, including new technology platforms in the surgical field. The company will explore novel pharmaceutical treatments for glaucoma and macular degeneration in an effort to expand its leadership in the ophthalmic pharmaceutical market. In spite of competitive glaucoma product patent expirations, Alcon expects that its glaucoma portfolio including benzalkonium chloride free (BAK-free) formulations of Travatan and DuoTrav along with Azarga and a new combination product, will continue to grow over the next five years in the low-single-digit range, barring unforeseen events.

The company plans to expand its leadership in the pharmaceutical treatment of glaucoma and macular degeneration, through the research and development of novel treatments. With what Novartis calls the largest research and development investment in ophthalmology, the company says its commitment is further enhanced by the Novartis Institutes for BioMedical Research (NIBR) capabilities. Investments in eyecare research and development are planned to increase to the low double digit range as a percent of sales, while leveraging the know-how and resources of NIBR by following the pathways philosophy to identify new targets and treatments. Through a balanced pipeline, the launch of new products and emerging high potential research projects, Alcon is expected to further grow while continuing to expand margins despite higher R&D investments.

Additionally, margins are expected to be bolstered through the capture of $350 million in annual cost synergies by 2013 and leverage of Novartis infrastructure for market access and in emerging markets. Alcon expects that by leveraging Novartis’ scale, it will increase its savings from procurement from currently one to two percent to five to six percent, thus significantly reducing its cost base and contributing to margin improvements.

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