Novartis, Abbott, GE, Siemens, and Other Healthcare Giants Are Reversing Previous Diversification Strategies

Novartis/Alcon

After assessing strategic options for Alcon, Novartis is spin-ning it out to shareholders. As a result, both companies will now rivet on their core strengths –pharmaceuticals and oph-thalmic devices, respectively. When Novartis acquired Alcon in 2011 for $52b, the business included surgical, vision care and ophthalmic pharmaceuticals. In 2016, Novartis absorbed Alcon's drug business, leaving Alcon as pure play ophthalmic surgical device and diagnostic company. For years, Novartis had been seeking to drive Alcon to more profitability – its revenue topped $1.8m, a 7% increase and its operating in-come improved to $90m in Q1 2018 after losses in 2017. Now, Alcon can be expected to be a stronger competitor in the ophthalmic surgery space, where it already dominates.

Other companies are also adopting a tighter strategy. After a tumultuous M&A binge of buying up rare drug and other biopharmas, gutting R&D, and then raising prices to astro-nomical levels, Valeant Pharmaceuticals is changing its name to Bausch Health Cos., another step toward remaking the company and distancing it from past controversies. The company plans to increase R&D spending by about 15% this year to $425m and embrace its most storied businesses. Bausch & Lomb, founded in 1853 as an optician’s shop in Rochester, N.Y. Valeant still faces stiff challenges. Its debt was more than $25b at the end of 2017 and sales have slowed, partly because the company sold assets to pay down debt. Valeant’s market cap is about $6.3b, well below the peak three years ago of $90b,

Abbott Laboratories

At the start of 2013, Abbott Laboratories spun off its brand-ed pharmaceutical business, which has traded since then as Abbvie Inc. Prior to the split, Abbott Laboratories was a mas-sively diversified healthcare firm with operations in diagnos-tics, medical devices, nutrition and pharmaceuticals. At the time, investors were skittish about AbbVie, as more than 50% of its revenue was dependent upon Humira, a drug used to treat rheumatoid arthritis that was facing a patent cliff in 2016. Now, five years later, non-Humira sales are an-ticipated to grow from approximately $9.6b in 2017 to more than $16b in 2020, and then to grow to over $35b in 2025. Abbott Labs remains a diversified titan, with a great range of branded consumer products that cover cardiovascular treatments, diabetes, diagnostics, medicines, neuromodula-tion and nutrition. But it too is shedding noncore assets. In 2017 Abbott sold to J&J its Abbott Medical Optics (AMO) franchise for $4.3b. J&J rebranded the business “J&J Vi-sion”, which operates cataract surgery, laser refractive sur-gery and consumer eye health segments.
Johnson & Johnson

GE Healthcare

In June 2018 GE announced plans to spin off its healthcare unit as a standalone business. GE is looking to streamline operations and focus on its aviation, power, and renewable energy units.

Siemens

Seeking to simplify its corporate structure, Siemens listed 15% of its medical imaging and diagnostics unit, now called Healthineers, which now functions more autonomously from the parent.

Keywords: Healthcare Investment Banking, Healthcare M&A, Healthcare mergers