Alere Shares Whiplash as Investors Debate Latest Investigation

  • Company says it received federal subpoena on billing practices
  • Alere already investigated for foreign bribery allegations

Alere Inc. investors went on a wild ride in the last 24 hours as the shares plunged following a report of a second U.S. Justice Department investigation of the medical test maker, then rebounded after the company said the probe was narrow in scope.

Alere’s shares fell 29 percent to $31.47 on Wednesday -- their biggest one-day drop ever -- after the Wall Street Journal reported that the Justice Department’s criminal-fraud unit sent the company a subpoena. Later that night, Alere issued a statement saying the investigation was focused on an area that accounts for less than 1 percent of its sales and isn’t material. That sent the shares bouncing back, and they were up 22 percent to $38.28 at 1:35 p.m. in New York on Thursday.

Along with the legal implications of the probe, it could also impact whether or not potential misconduct by Alere will help Abbott Laboratories get out of its offer to buy the troubled company for $5.8 billion. Alere also remains under investigation for alleged violations of the U.S. Foreign Corrupt Practices Act and sales practices in Africa, Asia and Latin America.

The saga between the two companies is unlikely to abate in the near term, as Abbott and investors wait for Alere to file formal documents with the U.S. Securities and Exchange Commission detailing its financial performance for 2015 and the first half of 2016, along with revisions for the previous two years.

Abbott Wants Out

Abbott has said it wants to exit the deal, and Alere is now trading in the same range it was the week before Abbott agreed to buy it for $56 a share in cash and take responsibility for Alere’s $2.6 billion of debt.

Mark Massaro, an analyst at Canaccord Genuity, said the initial nosedive of Alere’s shares was unjustified. The new investigation has a “zero probability” of breaking the deal, he predicted in a note to clients. Raj Denhoy, an analyst at Jefferies, agreed, writing that the latest issue “appears to be immaterial.”

That may not stop Abbott from trying to back out. Earlier this year, Alere rejected an offer of as much as $50 million to rip up the contract. Alere expects Abbott to sue to break the deal next, after Alere files its delayed annual report, CNBC reported, citing people familiar with Alere’s planning.

The latest investigation of Waltham, Massachusetts-based Alere concerns its billing practices for U.S. government insurance programs, including Medicare for the elderly, Medicaid for the poor and Tricare for the military, Alere said in a statement. The July 1 subpoena to Alere Toxicology Services Inc. seeks records dating back to 2010 related to patient samples tested at the pain management laboratory in Austin, Texas. The Journal reported that the Justice Department was interested in whether Alere might have covered co-payments for patients in those programs, which is illegal.

Cooperating Fully

Alere said it is fully cooperating and “believes the matters to which the subpoena relates are not material.”

Peter Carr, a Justice Department spokesman, Jackie Lustig, an Alere spokeswoman, and Scott Stoffel, an Abbott spokesman, all declined to comment further on Wednesday.

For a Bloomberg Gadfly column on the Alere-Abbott deal, click here.

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