Alere Shares Soar After Releasing Partial 2015 Financial Results

  • Results include 2015 performance and revenue timing revisions
  • Company still working on earlier revenue recognition issues

Alere Inc., the company that’s in a contentious $5.8 billion deal to be acquired by Abbott Laboratories, rose the most since the day the offer was announced after it submitted partial financial results for 2015 to U.S. securities regulators, more than four months after delaying the annual report.

The filing to the Securities and Exchange Commission fell short of all the details normally found in a 10-K. Still, the information on Alere’s revenue and profitability, plus debt and cash on hand, may be enough to satisfy obligations to its bondholders. The company now has until Aug. 31 to meet the creditors’ deadline. Alere rose 11 percent to close at $43.62 Friday in New York.

The filing was awaited by investors and Abbott, which offered to pay as much as $50 million in exchange for ending the acquisition after the medical testing company said it wouldn’t submit the report on time. Alere initially said the delay stemmed from its analysis of how it recognized revenue in China and Africa from 2013 through 2015. It later disclosed a U.S. investigation into its overseas businesses.

Alere’s Friday gain was the biggest since Feb. 1, when Abbott announced its intention to acquire the medical testing company. While analysts said the disclosure late Thursday didn’t raise any new issues that would have constituted a material breach of its contract, the stock remains well below Abbott’s offer of $56 a share.

Abbott continues to wait for the full, audited details of Alere’s financial performance, a certified form 10-K and details related to “all of Alere’s outstanding issues,” said Scott Stoffel, an Abbott spokesman.

Revenue Recognition

Alere said an extensive analysis found that it had incorrectly accounted for revenue in 2013 through 2015, for example by recognizing payments when products were shipped to distributors but not yet paid for. The accounting issues won’t affect the total amount of revenue generated, and the misstatements won’t be material for any of the earlier individual years, though the cumulative effects of reflecting those changes would be material to the year ended December 2015, the company said in a statement.

The preliminary results for the year ended Dec. 31, 2015, and the first quarter ended March 31, 2016, include information on Alere’s performance and revisions to properly account for revenue that had been previously misstated, the company said.

Revised financial statements for 2013 and 2014, along with quarterly reports for 2015, still will be filed to the SEC along with the full 2015 results in a 10-K report, Alere said, without giving any guidance on the timing. The company previously said it would file a proxy statement required to approve the pending acquisition by Abbott shortly after the 10-K is submitted.

‘Material Weaknesses’

An ongoing review is expected to conclude that “one or more material weaknesses exist in the Company’s internal control over financial reporting in the areas of revenue recognition and income taxes,” Alere said in the statement. As a result, the company’s procedures and controls over financial reporting and disclosure weren’t effective as of December 31, 2015, the statement said.

Preliminary net income from continuing operations in 2015 totaled between $10 million and $25 million, and ranged from a loss of $8 million to income of $2 million in the first quarter of 2016, Alere said in the statement. Revenue was $2.45 billion to $2.48 billion for the full year and $573 million to $593 million in the first quarter. Alere said it had $492 million in cash as of March 31, and $3.02 billion in debt.

Rocky Road

The path taken by Alere has been rocky since Abbott said Feb. 1 that it agreed to buy the company and assume or refinance its $2.6 billion in debt. After delaying the 10-K filing, Alere disclosed in March that it was under investigation for violations of the U.S. Foreign Corrupt Practices Act and had been subpoenaed by the Justice Department over sales practices in Africa, Asia and Latin America.

Alere said July 11 that it was voluntarily recalling a medical testing device used to measure levels of the blood-thinning drug warfarin after the U.S. Food and Drug Administration questioned the effectiveness of software updates meant to fix earlier questions about its accuracy. The recall will cost $70 million to $90 million in 2016, Alere said.

For its part, Abbott has been trying to back away from the agreement. Chief Executive Officer Miles White threw a wrench into investor expectations during the company’s first-quarter earnings call in April when he declined to reiterate his commitment to the deal. One week later, Abbott announced that it was buying rival medical device maker St. Jude Medical Inc., its biggest acquisition ever at $25 billion.

While White said at the time that he had financing “broadly” arranged for both acquisitions, he declined to comment further on Alere, saying it would be inappropriate to say anything while the company was working through its issues.

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