Written by Bill Finger, Managing Director, Kineticos
Abbott has been making many strategic moves this year. In February, they announced that they planned to acquire Alere, Inc., a major player in the point of care diagnostics space. In April, they announced plans to acquire St. Jude Medical, a medical device business, to enhance their cardiovascular business. Additionally, Abbott sold its medical optics business to Johnson & Johnson in September.
The Alere transaction is not playing out as expected. According to a report by Bloomberg (Abbott Files Suit), Abbott Laboratories has filed suit to end its purchase of Alere, Inc., sparking interest in the Precision Medicine and Diagnostic industry. The deal, reported in February 2016, indicated that Abbott would purchase Alere, Inc. for $5.8 billion, and increase Abbott Diagnostics’ sales to approximately $7 billion.
It certainly has been a rocky road between the two companies. The deal was announced in February; however, by April, Abbott was already working to end the acquisition due to the inaccuracy of financial information provided by Alere during diligence. Alere, Inc. delayed filing its 10K report, which is vital to Abbott having a clear picture of Alere’s financial strength.
Given this turn, Abbott offered to pay for the expenses related to the transaction, estimated around $30 to $50 million. The board of Alere, Inc. rejected this offer, which certainly did not sit well with Abbott. Both sides agreed to mediation, which didn’t work, so now it is up to the courts to settle this dispute. Meanwhile, Alere, Inc.’s shares have sunk 8% since the announcement.
The proposed deal would have joined companies that both have a clear focus on Point of Care and other technologies aimed at reducing costs, and improving diagnostic testing options for medical providers and patients. It also would have also boosted the range of product offerings by Abbott to include tests in influenza, and drugs of abuse to the current menu that includes precision medicine genetics tests to aimed at guiding drug treatments.
In addition to the product portfolio improvement, the Point of Care market is estimated to reach $39.6 billion by 2021, with a CAGR of 9.8% according to Markets and Markets. This deal would have joined two of the largest players addressing the point of care market, improving the ability to realize cost savings and improved global access to point of care diagnostics.
Abbott has taken criticism this year for the decisions to acquire Alere, Inc. and St. Jude, as well as the sale of the medical optics business. For Alere, Inc. the criticism has to do with financials as described above. For St. Jude, it surrounds FDA feedback on battery life, and rumors that the cardiac implants are susceptible to cyber attacks.
This all being said, Abbott stands behind the decision to pursue the deals, as they align well with their strategy in medical devices and diagnostics. I have learned that having a strategy for product portfolio growth is vital for any size company, even one as large as Abbott. Understanding the market dynamics and trends, what customers need and are willing to buy, what innovators are developing, and most of all – what will improve patient care globally is vital to the success of any organization.
If you would like to receive emails containing insights on life sciences topics relevant to you, please subscribe
Bill Finger, Managing Director of Kineticos’ Diagnostics Practice, brings 20 years of diagnostics and laboratory experience to the team. His team is focused on helping diagnostic companies maximize their commercial potential at the corporate and product levels while ensuring companies operate in an efficient manner.