Alcon reports 2009 fourth quarter results

Feb 11 2010

Alcon, Inc. (NYSE:ACL) reported that global sales rose 14.5 percent to $1.72 billion for the fourth quarter of 2009, or an 8.5 percent increase excluding the impact of foreign exchange fluctuations. Reported net earnings for the fourth quarter of 2009 grew 8.0 percent to $458 million, or $1.51 per diluted share.

Non-GAAP adjusted net earnings would have grown 15.1 percent to $488 million, or $1.61 per diluted share, compared to net earnings for the fourth quarter of 2008. Adjusted net earnings in the fourth quarter of 2009 exclude a $30 million tax provision related to a potential retroactive change in tax law regarding the deductibility of foreign currency losses that was not included in the company’s 2009 guidance. For the full year 2009, Alcon, Inc. reported global sales of $6.50 billion, an increase of 3.3 percent over 2008 global sales of $6.29 billion, or 6.3 percent excluding the impact of foreign exchange fluctuations. Net earnings for 2009 declined 2.0 percent to $2.01 billion, or $6.66 per share on a diluted basis. Non-GAAP adjusted net earnings for 2009 would have risen 13.3 percent to $2.05 billion, or $6.81 per diluted share compared to adjusted net earnings in 2008, which included the impact of a $236 million tax benefit. Adjusted net earnings in 2009 exclude $19 million of pre-tax costs related to a reduction in force and $30 million related to the aforementioned tax provision. Reconciliations of reported and adjusted results for the quarter and full year are included in the financial tables below. “Our results in the fourth quarter clearly show improving dynamics in the eye care market and positive momentum in Alcon’s key brands that supported solid organic sales growth in the quarter,” said Kevin Buehler, Alcon’s president and chief executive officer. “We built momentum throughout the year to deliver on the Alcon business model of sustainable organic growth, global market share gains and core margin improvement. While selected market challenges remain, these encouraging trends and the long-term strategic drivers of our business position Alcon well to deliver sustainable growth.”

“We built momentum throughout the year to deliver on the Alcon business model of sustainable organic growth, global market share gains and core margin improvement. While selected market challenges remain, these encouraging trends and the long-term strategic drivers of our business position Alcon well to deliver sustainable growth.”

Buehler added, “In response to an unprecedented economic environment, we took management actions early in the year to align spending to strategic priorities. These actions allowed us to achieve solid financial results while bolstering our commercial presence in emerging markets like China and India and enhancing our research capabilities through the ESBATech and AstraZeneca transactions.”

Sales Highlights Summarized below are sales highlights for the fourth quarter of 2009. All growth comparisons are for the fourth quarter of 2009 compared to the fourth quarter of 2008. Organic sales growth rates exclude currency impacts and acquisitions and are non-GAAP measures that are reconciled in a table at the end of this release.

• U.S. sales rose 10.1 percent as prescription demand strengthened further and cataract procedure volumes improved.
• International organic sales growth was 7.3 percent (+18.0 percent reported), driven by an 11.5 percent organic rise (+19.3 percent reported) in emerging markets.
• Sales of pharmaceutical products in international markets rose 12.0 percent organically (+22.5 percent reported) as the company’s expanded sales forces in Europe and Japan contributed to continued market share gains.
• Global glaucoma pharmaceutical reported sales rose 31.2 percent, led by a 24.4 percent increase in global sales of the TRAVATAN^® family of products (TRAVATAN^®, TRAVATAN Z^® and DuoTrav^® ophthalmic solutions) and the continued strength of the Azopt^® and AZARGA^® ophthalmic solutions, which together rose 29.2 percent globally.
• Global sales of advanced technology intraocular lenses rose 42.6 percent organically (+50.0 percent reported) following additional U.S. market share gains of the AcrySof^® IQ ReSTOR^® +3.0 lens and continued adoption and utilization of the AcrySof^® IQ Toric lens by cataract surgeons.

Earnings Highlights Summarized below are earnings highlights for the fourth quarter of 2009. All growth comparisons are for the fourth quarter of 2009 compared to the fourth quarter of 2008.

• Gross profit margin was consistent with management expectations at 74.0 percent, compared to 79.2 percent in 2008. The year-over-year change was primarily attributable to fluctuations in foreign exchange rates and increased royalty expense in 2009.
• Selling, general and administrative expenses increased to $521 million, or 30.4 percent of sales. The 16.0 percent rise in fourth quarter 2009 expense is partially attributable to an increase in legal reserves and prior year comparison which included an insurance recovery and a reduction in expense associated with deferred compensation programs.
• Research and development expenses rose 29.1 percent to $204 million to represent 11.9 percent of sales as the company continued to invest in research to enhance its capabilities and pipeline. This increase reflects the licensing payment to Potentia. Pharmaceuticals, the addition of a full quarter of ESBATech expenditures and higher internal project spending.
• Strong sales growth contributed to operating profit of $537 million, or 31.3 percent of sales, compared to $573 million in the fourth quarter of 2008. This decline was mainly the result of the fluctuating currency impact on gross margin in each quarter and timing differences in research and development expense.
• Other income/expense changed from an expense of $82 million in 2008 to income of $13 million in 2009, mainly due to losses on the company’s investment portfolio in 2008 compared to gains in 2009.
• The company’s effective tax rate was 17.3 percent, primarily due to the impact of the $30 million tax provision noted previously.
• Net earnings in the fourth quarter of 2009 rose 8.0 percent to $458 million, or $1.51 per diluted share. Excluding the $30 million period charge to tax expense in the fourth quarter 2009, adjusted net earnings would have grown 15.1 percent to $488 million, or $1.61 per diluted share.

Other Highlights

• In October 2009, the German requirements were met to complete the acquisition of the outstanding shares of WaveLight AG and the listing of the related shares was terminated. As a result, WaveLight became wholly owned by the company.
• On December 14, 2009, Alcon announced it had entered into a definitive agreement to acquire Optonol, Ltd., providing the company with entry into the surgical glaucoma segment with the Ex-PRESS™ Mini Glaucoma Shunt. The company completed this acquisition in January 2010.
• On January 18, 2010, Alcon announced it will purchase the rights in the United States for two FDA-approved topical eye care products, Durezol™ (corticosteroid for ocular inflammation and pain) and ZIRGAN™ (antiviral for acute herpetic keratitis), and the global rights, excluding Latin America, for the development product Zyclorin™ targeted for dry eye and other ocular surface diseases.
• Alcon submitted a Premarket Approval (PMA) application in the United States for the AcrySof^® Cachet^® phakic intraocular lens in September, 2009. The AcrySof^® Cachet^® phakic intraocular lens is a refractive AcrySof^® IOL for patients with moderate to high myopia.
• Alcon submitted Triesence^® injectable suspension for approval in the European Union in September 2009.
• On December 1, 2009, Patanase^® nasal spray received labeling approval for the treatment of symptoms of seasonal allergic rhinitis in pediatric patients as young as six years old.
• On January 4, 2010, Novartis AG announced it had exercised its option to purchase the remaining shares in Alcon, Inc. held by Nestle S.A. pursuant to the agreement executed on April 7, 2008. Concurrent to the option exercise, Novartis submitted to the Alcon board of directors a proposal for a merger of Alcon with Novartis to be effected under Swiss merger law. Under the terms of the merger proposal, holders of the approximately 23 percent of Alcon shares that are publicly traded would receive 2.8 Novartis shares for each Alcon share. The proposed merger is contingent upon, among other things, approval by the Alcon board of directors, the closing of the purchase and sale transaction related to the Novartis option exercise as well as receipt of required regulatory approvals.
• On January 20, 2010, the Independent Director Committee of the Alcon board of directors, with the assistance of independent financial and legal counsel, issued their formal response to the Novartis merger proposal. This committee rejected the merger proposal based on its assessment that the price offered and other terms were not acceptable.
• Alcon’s board of directors voted to propose to shareholders a dividend of 3.95 Swiss francs per share. At exchange rates in effect on February 10, 2010 this equalled approximately $3.69 per share, compared to $3.64 in 2009. The proposed amount reflects an increase in the targeted dividend payout ratio from 50 percent in 2009 to 55 percent in 2010. The proposal will be voted on at the company’s Annual General Meeting of shareholders to be held on May 20, 2010. The U.S. dollar equivalent received by shareholders will be based on the Swiss Franc/U.S. dollar exchange rate in effect on the date of payment, which currently is scheduled for June 7, 2010.

Financial Guidance

The company expects full year 2010 organic sales growth to return to the mid-to-high single digits and full year 2010 diluted earnings per share to be between $7.30 and $7.55. The full year guidance assumes renewal of the U.S. Research and Experimentation tax credit in the second half of 2010 with retroactive application. This guidance also excludes any costs and/or reductions in sales associated with potential health care reform initiatives in the United States, as well as costs related to a potential change in control to and/or merger with Novartis.