Diagnostics

In move to nix $5.8B Alere deal, is Abbott shrewdly aiming to lower price tag?

Abbott wants out of its plan to buy Alere for $5.8 billion, but the point-of-care testing company is a perfect fit for Abbott, an analyst believes.

handshake, break, deal

Abbott Laboratories announced Wednesday that it has filed a complaint with a Delaware court to force a termination of its proposed $5.8 billion purchase of Alere, the market leader in point-of-care-testing.

But is the Illinois company simply playing hardball to lower the price tag?

In the news release, Abbott alleged that Alere has a lot of issues that has prompted it to reconsider the deal, adding that Alere is no longer the company it was 10 months ago when the deal was announced. Those are:

  •  government eliminating the billing privileges of a substantial Alere division
  • the permanent recall of an important product platform,
  • multiple new government subpoenas, including two new criminal subpoenas, and a
  • five-month delay in filing its annual report (10K) coupled with admissions of internal control failures requiring restatement of its 2013-2015 financials.

However, an analyst believes that Abbott may be thinking it is overpaying for the Massachusetts company.

“I have a feeling Abbott is hinting at the fact that they overpriced this company,” said Divyaa Ravishankar, a diagnostics market expert at Frost & Sullivan, in an email. “It could very well be a gimmick/tactic to bargain the deal down.”

Ravishankar believes that at least some of the issues that Abbott points to in the news release are things that Abbott must have been aware of when it made the acquisition announcement.

“There is evidence that Abbott got into this knowing the news/issues on product recalls,” she said. “So, why make a huge fuss now?”

The permanent recall that Abbott cites to in the news release refers to the coagulation monitoring device INRatio and INRatio 2 PT/INR Monitoring System whose problems Alere disclosed in December 2014. The devices were producing incorrect results. Alere spent 2015 in R&D efforts to “rectify and provide enhancement to the software module,” Ravishankar said. In December 2015, the company submitted to the FDA that it had fixed the problem, but FDA wasn’t convinced.

As a result, Alere removed the device from the market in July.

Ravishankar believes that the other difficulties that Abbott points to  —  Alere unit Arriva Medical saw its Medicare enrollment revoked when it allegedly submitted claims for 211 deceased patients —could be grounds for reconsidering the purchase price.

“In the light of recent events it can be said for sure that $5.8 billion might seem like a steep [price] for Alere,” she declared. “It might be best to reassess the assets of this company.”

All the more true because the point-of-care testing company is a perfect fit for Abbott to gain marketshare in the point-of-care testing (POCT) market. Here’s some analysis that Frost did to show where Roche, Alere and Abbott have footholds in the space. (click image for larger view)

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Source: Frost & Sullivan Analysis

“You can see how Alere beautifully fits the missing links in POCT for Abbott, justifying its presence in every possible POCT,” Ravishankar said.

Meanwhile, an Abbott spokesman would not comment on whether the legal move is a way to lower Alere’s price.

“The termination of the transaction is warranted based upon Alere’s behavior in running these businesses in a way that destroyed value,” said Scott Stoffel, an Abbott spokesman, in an email. “We agreed to purchase a company that was represented to be something it is not. We have tried to learn the details and evaluate these issues and have been met with consistent refusal to provide transparency at every step, including after agreeing to do so in a verbal legal settlement.”

Meanwhile, Alere issued its own strongly-worded statement:

Abbott’s lawsuit is entirely without merit. As Abbott well knows, none of the issues it has raised provides it with any grounds to avoid closing the merger.

Alere has fully complied with its contractual obligations under the merger agreement and is highly confident that the merger will be completed in accordance with the terms set forth in the merger agreement. Alere will take all actions necessary to protect its shareholders and to compel Abbott to complete the transaction in accordance with its terms.

Stay tuned for more drama.

Photo: Kuzma, Getty Images