UPDATED March 1, 2017, with analyst comment, share price.
Alere (NYSE:ALR) said today that it’s once again unable to file its annual report by the deadline, after an ongoing probe into its accounting practices turned up yet another irregularity, this time with how it recognized revenues in Asia.
The news adds fuel to the fire over the pending $5.8 billion acquisition of Waltham, Mass.-based Alere by Abbott (NYSE:ABT); both companies have filed lawsuits over the merger, with Abbott eager to spike the deal and Alere insisting that it go through.
ALR shares closed down -3.9% at $38.30 apiece yesterday in heavy trading (and ticked down another -0.1% to $38.26 per share in after-market trading yesterday), on a report that Alere told Abbott about the new irregularities in mid-February. In a regulatory filing today, Alere said the annual filing delay is “because the company is reviewing certain aspects of revenue recognition at its Korean and Japanese locations.”
“Alere’s management recently became aware of information that could impact the timing of certain revenue transactions in 2013, 2014, 2015 and the 1st 3 quarters of 2016. As part of this revenue recognition review, the company is reviewing inappropriate conduct at the company’s subsidiary in South Korea, Standard Diagnostics, Inc.,” according to the filing.
The review, although not complete, is expected to result in changes to fiscal 2013 and 2014 revenues of zero to $5 million, a $5 million to $10 million reduction to the 2015 top line and a $$5 million to $10 million sales increase for the 1st 3 quarters of last year, Alere said.
The diagnostics company belatedly filed its 2015 annual report in August 2016, finding “immaterial errors” in its revenue recognition processes and “material weaknesses” in the way it recognized revenues and accounted for income taxes. Today the company said that probe is not complete and is expected to result in an admission that its “disclosure controls and procedures and internal control over financial reporting” were not effective as of Dec. 31. because it still hasn’t gotten a handle on its revenue recognition problems.
Although the absolute dollar amounts are not concerning, the residual material weakness in controls creates additional uncertainty, BTIG analyst Dane Leone said.
“It is still concerning that this issue was not caught during the review and restatements last year,” Leone added.
“This is not the headline Alere shareholders want to see given the current Abbott battle, but we would point out the fact that there is no ‘bad revenue,’ this revision just relates to timing,” Raymond James analyst Nicholas Jansen said.
The $5.8 billion deal with Abbott, announced in February 2016, ran into trouble right out of the gate: A March 2016 subpoena from the U.S. Justice Dept. sought documents on Alere’s dealings with 3rd-party distributors and foreign healthcare officials and the company was late in filing its full-year results for 2015. By April of that year Alere had rejected a $50 million offer from Abbott to spike the buyout; in July the DoJ initiated another probe into Alere’s billing practices for pain management payments from government insurance programs.
Alere sued Abbott the next month, looking to force its would-be acquirer to obtain all antitrust approvals required to complete the acquisition. In early September 2016, Delaware Chancery Court Judge Sam Glasscock put the lawsuit on the fast track and urged the companies to try and talk things out; an attempt at mediation failed later that month.
Abbott filed a counter-suit in November 2016, the same day that the Centers for Medicaid & Medicare Services revoked enrollment for Alere’s Arriva diabetes division after finding that it submitted claims for 211 deceased patients. The next month Abbott filed a new lawsuit seeking to spike the deal altogether, citing a “substantial loss in Alere’s value.”
ABT shares closed down -0.8% at $45.08 yesterday and were down -1.5% to $37.72 each today in early afternoon trading.
Material from Reuters was used in this report.