UPDATED: Novartis divvies up troubled Alcon; rejigs R&D and manufacturing to save $1B

Novartis ($NVS) has a problem with its eye-care unit Alcon: It's not performing. As expected, the division dragged down the Swiss drugmaker's fourth-quarter and full-year financials. But the company's sales and earnings didn't fall short just because of Alcon.

So, change is afoot: Novartis is moving most of Alcon's prescription eye drugs into its pharma division. Some mature drugs--worth $900 million to $1 billion in sales--will move from pharma to the generics unit, Sandoz, where they'll be actively promoted.

Meanwhile, Novartis will be centralizing some R&D and manufacturing functions to save money--$1 billion by 2020. The company will meld manufacturing, now handled division by division, into one operation, with an eye to improving capacity planning and allowing new technologies to be adopted companywide more quickly.

In R&D, the moves are similar to Novartis' business services efforts, which drew together support functions like purchasing, accounting and other back-office functions. Common operations such as pharmacovigilance and regulatory work will join up, while clinical strategy and trial execution will stay within the divisions. Some sales and marketing work will be centralized, too, namely analytics and market research, with actual brand and product work staying put.

Michael Ball

Alcon's chief, Jeff George, is out, and former Hospira CEO Michael Ball is coming in to run what's left--surgical and vision care products. Pharma's current R&D chief, Vas Narasimhan, will take the new job as global head of drug development and chief medical officer, reporting to CEO Joe Jimenez. Andre Wyss, currently head of Novartis business services and president in Switzerland, will become president of operations as well, taking on the integrated technical ops and government and public affairs.

With sales growth lost to currency effects, Novartis posted $12.52 billion in Q4 sales, a decline of 4%, and $49.4 billion for the year. Analysts had expected revenue to drop by 2% on M&A. The drugmaker managed quarterly earnings per share of $1.14--$5.01 for the full year--and both fell short of analyst estimates.

Besides the weakness in Alcon sales, the generics business Sandoz lagged; though sales volume grew, prices slid, leaving net sales flat, Bernstein analyst Tim Anderson said in an investor note. In previous quarters, Sandoz had helped make up softness at the eye care unit.

Novartis' pharma business beat Bernstein's forecast, despite a disappointment from the much anticipated heart-failure med Entresto. The drug only tallied $5 million for Q4, and during the company's earnings call, executives acknowledged that the launch has been slower than expected. That's about to change, however, they promised, as payer deals start kicking in.

- see the release from Novartis

Editor's note: This story was updated with analyst comments and details from the company's earnings call.