Alere Has More Bad News to Report

Rocky first quarter earnings are but the latest blow for the diagnostics giant, which has lost its luster as an acquisition target for Abbott.

Nancy Crotti

Alere lost $10 million in the first quarter of 2016 due to costs associated with its pending merger with Abbott Laboratories, higher legal expenses from ongoing government investigations, and lower sales.

Alere's revenue fell by $35 million, to $578 million, compared with the same period last year, due to negative foreign currency exchange rates, the lack of sales from BBI Group, which it sold in November, and a $6 million drop in pain management sales, the company reported. Profits were off by 0.18 per share, compared with a loss of $6 million or 0.14 per share for Q1 2015.

The revenue was in line with the preliminary $573 million to $593 million range that Alere reported in July. But the $10 million loss was outside the preliminary earnings, which ranged from a loss of $8 million to a profit of $2 million. 

Higher sales of the Waltham, MA-based company's Alere i rapid flu tests and its acquisition of U.S. Diagnostics helped offset the losses, the company said.

"Our first quarter 2016 earnings were in line with our budget, which anticipated a weaker than average 2015-2016 flu season," said Alere CEO Namal Nawana in the statement. "Despite the weaker respiratory season, we're pleased to report that Alere i continued to grow its market presence, generating record revenue during the first quarter of 2016. Based on our current business outlook, we expect improved organic revenue growth in the second quarter and second half of 2016."

Alere recently released its delayed financial reports for the fourth quarter and full year of 2015, concluding that accounting missteps from foreign operations had no material impact on previous reports. Suitor Abbott, which had been waiting on the filings, said it still wanted more information.

In the 10-K filed last week with the SEC, Alere cited "material weaknesses" in its internal control over financial reporting for 2014 and 2015. Those weaknesses have not been remediated, the company added, and could continue to impair its ability to report accurate financial information. Management discovered and corrected errors related to its payment of U.S. taxes on foreign earnings for 2014, according to the report.

Alere makes diagnostics for a variety of infectious diseases, including HIV, dengue fever, tuberculosis, and malaria. Abbott proposed buying it for $56 in cash per share, or $6 billion, in January. Shortly thereafter, Alere revealed that it had received a grand jury subpoena from the U.S. Department of Justice related to its sales practices for 2013 through 2015 in Asia, Africa, and Latin America, and to matters related to the U.S. Foreign Corrupt Practices Act.

Abbott subsequently offered up to $50 million to sever the merger agreement, but Alere's board rejected the offer. Since then, Abbott CEO Miles White has been lukewarm in statements about the merger, though backing out of the merger agreement could be tough for the company. Abbott did not immediately respond to a request for comment on the Q1 earnings.

In July, federal investigators subpoenaed the company's government-billing records dating back to 2010 for patient samples tested at Alere's Austin, TX, pain management laboratory.

Alere also previously disclosed that it had received subpoenas in December 2014 from the U.S. Attorney for the District of New Jersey asking for documents relating mostly to billing and marketing practices in toxicology testing, the Wall Street Journal has reported. Most recently, Alere announced it is voluntarily withdrawing a device that tests the blood of patients who take blood thinners, following reports of inaccurate results.

Nancy Crotti is a contributor to Qmed.

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