Novartis Finds Defense in Alcon

When Bernstein Research upgraded Novartis (NVS) to outperform in May, the firm dubbed the stock one of the three best-positioned drugmakers to withstand future patent expirations. Novartis' plan to acquire a majority stake in fellow Swiss firm Alcon (ACL) -- a deal that progressed Tuesday -- is a defensive step in the right direction, according to some on Wall Street.

The wave of patent expiry, pricing pressures as well as higher regulatory hurdles in the U.S. have already begun to plague Big Pharma companies. Refocusing and restructuring initiatives have been the rule and not the exception as these behemoths search for the blueprints to the future model of success.

In a recent in-depth research report looking at the sector through 2015, Bernstein analyst Tim Anderson remarked, "This will mark a time unlike any other that the industry has seen from the standpoint of the number of drugs, and the volume of sales, that will be lost over a multi-year period."

U.S. sales of five of Novartis' products -- Zelnorm, Lotrel, Trileptal, Lamisil and Famvir -- accounted for $3.1 billion in sales in 2006, but only $1.7 billion in 2007.

But Novartis and other pharma companies will hit the real "cliff" in earnest in 2011, according to the Bernstein Research team.

In 2012, Novartis will lose patent exclusivity of hypertension drug Diovan, the high blood pressure medicine that garnered $5 billion in sales in 2007.

Gearing Up for New Market Realities

Late in 2007, Novartis announced a cost-cutting plan, involving 2,500 job cuts, and also "Project Forward," its refocusing operation toward specialty pharmaceuticals. The company's strides toward a majority stake in Alcon, an eyecare company that generated a profit of $1.6 billion last year, are one measure to this second end.