Abbott Laboratories has brought down the cost of its acquisition of the diagnostics maker Alere, but some might say that it is still overpaying. First announced at a price of $56 per share for a total value of around $5.8bn, the deal will now go ahead at $51 per share, or $5.3bn.
This marginal reduction in the financial outlay comes despite Abbott’s seemingly strong case that a material adverse change had occurred in Alere’s long-term prospects, following missteps including missed reporting deadlines, two separate US Department of Justice investigations and a market withdrawal of one of its technologies amid accuracy concerns. Abbott must now focus on making this deal work – or strengthening its operations in other areas to compensate.
Abbott’s efforts to extricate itself from a deal that looked increasingly poor culminated with a lawsuit against Alere being filed late last year. The list of disasters and disappointments associated with Alere at that point was already pretty long (Can Abbott kill the Alere deal?, December 8, 2016).
Abbott must now make the best of the situation in which it finds itself. But it is beset by other woes which mean it probably cannot look to its cardiovascular business – the only other unit larger than diagnostics – for rescue. Last week the company withdrew its Absorb dissolving stent from market in Europe, with the exception of postmarketing registries (Abbott’s troubled Absorb stymied in Europe, April 10, 2017). And its other recent acquisition, that of cardiovascular device maker St. Jude Medical, has also brought trouble.
Last week the FDA sent a letter to Abbott stating that St. Jude had sold defibrillators knowing that the type of battery used in them could in some cases be drained rapidly, before recalling the defibrillators last autumn. St. Jude did not inform its own management or a medical advisory board that the battery problems had led to the death of a patient.
The devices are the Fortify, Unify and Assura defibrillators, manufactured at a plant in Sylmar, California, which the FDA inspected in February. In the same letter, the FDA also warned of cybersecurity risks with the Merlin@home software, used in a monitor also made at the Sylmar plant.
Abbott responded to the FDA’s criticisms in March, but the FDA has found the response to be insufficient. It has given Abbott 15 working days to implement further fixes; if the group does not address the FDA’s concerns fully this time it could be liable to seizure, injunction, and civil money penalties, the agency said.
Perhaps Abbott can find respite in its other segments, diabetic care, neurology and ophthalmics. But these are much smaller than cardiovascular or diagnostics, and it would take significant investment for them to have a marked effect on Abbott’s bottom line. Considering how its last two major deals have gone, growing these units through M&A could be considered a risky strategy.