Most investors would probably be pleased with a share price gain of 33% in just over three years, but more than 50% sounds a lot better.
The stock that has chalked up these gains is Alcon Inc. (ALC, Financial), the Swiss-based eye-care company. From the time it was spun off into a separate entity by Novartis AG (NVS, Financial) in April 2019, Alcon’s stock enjoyed a steady ascent, hitting an all-time high of $88.50 in December of last year. The going has been rocky in the past eight months, though, as the share price has dropped 22% to just over $69.
Hoping to regain its footing, Alcon this week struck a deal to buy North Carolina-based Aerie Pharmaceuticals Inc. (AERI, Financial) for $770 million, which works out to $15.25 per share, a 37% premium to Aerie’s last closing price. The acquisition gives Alcon two more approved drugs, both eye drops, as well as an eye disease product currently in late-stage testing.
Alcon also obtains several vision products in earlier stages of testing, including three retinal implants, bolstering its pipeline.
The acquisition did not move the dial on Alcon’s share price by much, up just a few dollars. And I do not expect the purchase to offset some of the shorter-term issues the company is facing, even though the deal adds to Alcon’s pursuit of a stronger position in the therapeutic eye drop space.
After all, sales of both marketed products Alcon’s getting have been sluggish, going from about $70 million combined in 2019 to $112 million in 2021 and an expected $130 million to $140 million this year. One of the drugs, Rocklatan, can cause more eye redness than standard treatments, and both medicines are involved in a market where many options are generic, making obtaining insurance coverage a challenge, reported Biopharma Dive. Sales were also impacted by the Covid-19 pandemic.
Trying to paint a brighter picture, Aerie executives pointed out that revenue from the two drugs are now growing “above glaucoma market rates.”
Both Aerie and Alcon think the products will do better in the latter’s hands given Alcon’s global reach, financial resources and commercial capabilities.
Investors may be wary of Alcon stock because the company recently lowered its guidance for sales and earnings for 2022, citing supply chain issues, unfavorable foreign exchange impacts and ongoing inflationary pressure, among other reasons. Yet analysts rate the stock a buy, with 16 offering a 12-month median price target of $85, with a high estimate of $90 and a low of $73.
The deal is expected to close in the fourth quarter of this year. Alcon plans to fund the deal through short- and long-term debt.
