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Alere Q3 Revenues Down 4 Percent as Would-Be Acquirer Abbott Sues for Breach of Contract

NEW YORK (GenomeWeb) – Alere today filed its financial results for the third quarter of 2016, reporting a 4 percent decrease in revenues year over year.

The filing puts the firm back on track with the timing of quarterly earnings reports filed with the US Securities and Exchange Commission. But Alere's results missed analyst revenue and EPS forecasts and its shares tumbled 13 percent in early afternoon trading on the New York Stock Exchange.

Adding to its woes, on Thursday Alere was sued by would-be acquirer Abbott for breach of contract. Abbott said that it was looking to obtain documents and information as promised under their pending $5.8 billion merger agreement.

For the three months ended Sept. 30, Alere reported revenues of $582.4 million, down from $603.8 million in the prior year period, and missing the consensus Wall Street revenue estimate of $605.5 million.

The firm reported a 10 percent decline in cardiometabolic disease revenues to $188.7 million from $209.0 million; a 4 percent fall in toxicology revenues to $155.9 million from $162.6 million; flat growth in consumer diagnostics revenues at $19.3 million from $18.7 million; a 25 percent fall in license and royalty revenues to $2.5 million from $3.3 million; and a 28 percent decline in other revenues to $32.6 million from $45.4 million.

Infectious disease revenues stood out as the business segment showing strong growth; revenues were up 11 percent to $183.4 million from $164.8 million.

Organic growth declined almost 1 percent, and revenue growth was offset in part by declines of $15.0 million from the divestiture of BBI in November 2015, and $12.0 million in mail order diabetes business. Foreign currency effects reduced revenue by $4.0 million.

Q3 net income from continuing operations was $22.0 million, or $.19 per share, compared to a net loss of $2.4 million, or a loss of $.10 per share, in the prior-year period. EPS missed analysts' average estimate of $.54.

The firm said that during Q3 it spent $41.0 million in merger and legal expenses, $12.0 million in investments in infrastructure and performance improvement initiatives, and $5.0 million in acquisition costs.

The company ended the quarter with cash and cash equivalents of $566.2 million.

Alere's R&D expenses in the quarter were $31.4 million, down 13 percent from $36.0 million in Q3 2015. The firm reported $231.3 million in SG&A expenses, up 11 percent from $207.8 million in the year-ago period.

Alere's earnings report comes a day after Abbott sued it for breach of contract.

"The objective of the lawsuit is to obtain important information before the transaction is completed," an Abbott spokesperson told GenomeWeb in an email. "The suit does not ask the court to break the deal."

"Abbott has reluctantly sought court intervention only after months of repeatedly and unsuccessfully attempting to get Alere to honor the agreement and provide information about business practices that are the focus of criminal and civil investigations that came to light after the merger agreement around federal anti-corruption, anti-kickback and US healthcare laws," Abbott said.

Abbott would be responsible for the company upon close and has the right to understand these issues so that it can prepare to address them immediately, the firm added.

Alere declined to comment on the lawsuit.

After Abbott agreed earlier this year to acquire Alere, uncertainty emerged when Alere delayed filing its 10-K report with US securities regulators. Abbott then requested termination of the deal, which Alere refused.

Alere sued Abbott in August in a move designed to push its potential acquirer to fulfill its obligations under the terms of their merger agreement and act promptly in obtaining the required antitrust approvals.

In September, the Delaware Chancery Court recommended that the parties consider mediation, and the companies agreed that they would engage in that manner. However, Alere made clear in a subsequent SEC filing that "mediation concluded without resolution," and that the matter was still pending.

In early October, Alere said a Delaware Chancery Court order provided a detailed, confidential schedule of actions that must be taken at specific times to achieve the antitrust clearances required by the merger agreement. The firm said that the court order also required that Abbott provide Alere with notice of all future talks with antitrust regulators, and enable Alere to join in those talks.

Alere also announced that its shareholders had approved the merger and that the Ministry of Commerce of the People's Republic of China had decided not to block the deal.

Then on a conference call to review Q3 financial results, Abbott CEO Miles White said that although he would be very limited in his comments about Alere, he still had faith in its business and the merger's potential.

The dip in Alere's share price today comes after the firm led October's winners in the GenomeWeb Index with a 3 percent increase in stock price.

Shares of Alere were down 13 percent to $36.74 in early afternoon trading on the New York Stock Exchange, while shares of Abbott were up more than 2 percent to $39.25.

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