Alere’s Device Recall Stirs More Questions About Abbott Deal

Updated on
  • Abbott says it’s disappointed; review of deal continues
  • Analysts say financial filing from Alere expected by Friday

Alere Inc. is recalling a device that monitors patients taking a sensitive blood-thinning medicine, a move that may further destabilize its pending acquisition by Abbott Laboratories.

The voluntary withdrawal, which will cost between $70 million and $90 million this year, was requested by the U.S. Food and Drug Administration after it questioned the effectiveness of software updates meant to address earlier concerns about the technology’s accuracy.

Abbott, which has tried to end the $5.8 billion deal after Alere disclosed a U.S. investigation of its overseas businesses, said Tuesday that it is disappointed by the recall and assessing its impact on its review of Alere’s books. Abbott agreed to purchase Alere for $5.8 billion in February. Less than a month later, Alere delayed filing its 2015 financial report with U.S. securities regulators, and in March said that it had been subpoenaed by the Justice Department over sales practices in Africa, Asia and Latin America.

“Abbott is seeking to better understand this withdrawal as part of its ongoing review of financial and other information to ensure that all outstanding issues at Alere are clearly understood, including its delayed financial statements and the criminal grand jury subpoena alleging violations of the Foreign Corrupt Practices Act,” Abbott spokesman Scott Stoffel said.

Alere’s shares fell 3.4 percent to $38.61 at the New York close. They’re trading 31 percent lower than Abbott’s offer of $56 a share, meaning investors are skeptical the deal will close at that price level. Abbott rose less than 1 percent to $42.47.

Analysts said they expect Alere to file some type of financial information with the Securities and Exchange Commission by the end of the week to meet its obligations to bondholders. Even if the company doesn’t release details of its full 2015 performance, information including revenue, a measure of profitability, cash and debt would be required, Bill Bonello, an analyst at Craig-Hallum, said in a note to clients.

“Irrespective of whether full or partial information is filed, we believe investors will gain some comfort behind the company’s financial reporting given the increasingly lengthy delay since its last results filed with the SEC,” Bonello wrote.

Alere declined to comment.

The device being withdrawn from the market, sold as INRatio and INRatio 2, is used to monitor warfarin, a popular anti-clotting drug that requires regular checks to make sure dosing is correct.

The decision to pull the device shouldn’t be material to the Abbott acquisition, Mark Massaro, an analyst at Canaccord Genuity in Boston, said Tuesday in a note to clients. If the company files a 10-K report that raises no significant new issues, the shares could jump back to near $56, while another complication could send the stock as low as $33 a share, Massaro said. He rates the stock hold, with a $44 price target.

Even though Alere reworked the software and ran additional tests, the FDA concluded that the improvements weren’t sufficient. The INRatio devices generated $16.3 million in sales in the first nine months of 2015, Alere said in a regulatory filing. That’s less than 1 percent of total revenue in the period.

Past Warning

Alere warned patients with certain medical conditions, including anemia, inflammatory ailments and infections, not to use the INRatio devices in 2014 because they could give a low reading. The company said it had received reports of nine serious adverse events linked to the device’s test strips, including three deaths.

Alere still sells a home monitoring service that works with patients using equipment from a variety of manufacturers to check their blood clotting levels.

Patients on warfarin must be carefully monitored since too much of the drug can lead to uncontrolled bleeding, and too little allows potentially deadly blood clots to form. Alere is working with the FDA and Roche Holding AG to transition patients still using INRatio and INRatio 2 to a similar product from the Basel, Switzerland-based company, according to a person familiar with the discussions.

(Adds analyst expectations of SEC filing by Friday in fifth paragraph.)
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