Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ALR > SEC Filings for ALR > Form 10-K on 3-Mar-2014All Recent SEC Filings

Show all filings for ALERE INC.

Form 10-K for ALERE INC.


3-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Annual Report on Form 10-K, including this Item 7, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements by forward-looking words such as "may," "could," "should," "would," "intend," "will," "expect," "anticipate," "believe," "estimate," "continue" or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition or state other "forward-looking" information. Forward-looking statements include, without limitation, statements regarding anticipated expansion and growth in certain of our product and service offerings, the impact of our research and development activities, potential new product and technology achievements, the potential for selective divestitures of non-core assets, our ability to improve our working capital and operating margins, our ability to improve our organic revenue growth rates, the effectiveness of steps we may take to improve our operational efficiency, our ability to improve care and lower healthcare costs for both providers and patients, and our funding plans for our future working capital needs and commitments. Actual results or developments could differ materially from those projected in such statements as a result of numerous factors, including, without limitation, those risks and uncertainties set forth in Item 1A entitled "Risk Factors," which begins on page 18 of this report, as well as those factors identified from time to time in our filings with the Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements. This report and, in particular, the following discussion and analysis of our financial condition and results of operations, should be read in light of those risks and uncertainties and in conjunction with our accompanying consolidated financial statements and notes thereto.


Table of Contents

Overview

We empower individuals to take greater control of their health at home, under the supervision of their healthcare providers, by connecting innovative diagnostics in the hands of patients to their healthcare providers. We are a leading global provider of diagnostic products that deliver rapid and accurate results at the point of care, with particular emphasis in the fields of infectious diseases, toxicology, cardiology and diabetes. Our connected device technologies and health information solutions give providers the ability to speed up and customize treatment by enabling timely access to actionable data, from both our connected devices and our personal and electronic health record solutions, as well as decision-support software and analytic tools. Through our health information solutions business, we also offer programs for chronic condition management, coagulation monitoring, smoking cessation, pregnancy management, weight loss and healthy living. Our connected health approach envisions a healthcare system that unites patients with diagnostic tools at their fingertips with providers and payers in a model that provides patients with a better quality of life and improved outcomes, while simultaneously reducing healthcare costs to the system.

Having substantially completed the foundation of our business, during 2013 we focused on re-establishing historic organic revenue growth rates in our point-of-care diagnostics business, and improving our operational efficiency with the goal of generating predictable earnings growth and sustainable, strong cash flow.

Our revenue growth has been impacted by supply challenges for certain of our Alere Triage product lines arising from an FDA inspection of our San Diego facility in 2012. During 2013, we overcame a portion of these supply challenges, and we are now consistently supplying the market with all Alere Triage products, other than our shortness-of-breath and toxicology panels. We expect to return one or both of these panels to the market during the first half of 2014. During 2013, we also continued to increase our market presence with Accountable Care Organizations with our integrated product and service offerings. Our continuing expansion in the growing markets of Asia, Latin America and Africa should also improve organic growth rates over the longer term.

In addition, we expect our new product launches in 2013, including the addition of tests for chloride and creatinine on our epoc Blood Analysis System and the Alere Determine HIV-1/2 Ag/Ab Combo test, as well as the increasingly robust contribution of previously launched products, such as our CD4 analyzer, to contribute to improved organic growth rates in the future. In January 2014, we also announced that the Alere i Influenza A & B test, the first and only commercially available molecular test to detect and differentiate influenza A and B virus in less than 15 minutes, had been launched in Austria, France, Spain, Switzerland, Germany, Italy and the U.K. The Alere i test remains under FDA review and is not yet available for sale in the United States. During 2013, we also made significant progress towards the anticipated launch of Alere Q in Africa during the first half of 2014. Alere Q enables molecular viral load testing for HIV at the point of care and applications for HCV and tuberculosis are in development for the Alere Q platform.

From late 2012 into 2013, we took important steps to build our global enterprise infrastructure, which we believe will enable us to realize more predictable earnings growth and stronger, more sustainable cash flow. During 2013, we standardized a number of our key business processes. Most notably, we began implementation of a global ERP system for many of our business units in the U.S. and Europe, which we have recently completed. We also implemented a global sourcing initiative based in the Philippines, which has enabled a more cost effective scaling of our mail order diabetes business to serve over 700,000 patients. We are already expanding this initiative to include our Alere Home Monitoring business, which we expect to result in further cost efficiencies.

We remain engaged in active and ongoing discussions with multiple parties concerning divestitures of our non-core businesses. During 2013, we completed the sale of one such non-core asset and used $27.5 million of the proceeds from the transaction to repay indebtedness. When


Table of Contents

complete, we expect that these steps will not only sharpen our focus on our mission of enabling healthcare providers to improve clinical outcomes and lower costs, but will also reduce indebtedness and enhance shareholder value.

2013 Financial Highlights

Net revenue increased by $210.6 million, or 7%, to $3.0 billion in 2013, from $2.8 billion in 2012.

Gross profit increased by $73.4 million, or 5%, to $1.5 billion in 2013, from $1.4 billion in 2012.

For the year ended December 31, 2013, we generated a net loss available to common stockholders of $92.5 million, or $1.13 per basic and diluted common share. For the year ended December 31, 2012, we generated a net loss available to common stockholders of $99.5 million, or $1.23 per basic and diluted common share.

Results of Operations

Where discussed, results excluding the impact of foreign currency translation are calculated on the basis of local currency results, using foreign currency exchange rates applicable to the earlier comparative period. We believe presenting information using the same foreign currency exchange rates helps investors isolate the impact of changes in those rates from other trends. Our results of operations were as follows:

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Net Product Sales and Services Revenue. Net product sales and services revenue increased by $212.0 million, or 8%, to $3.0 billion in 2013, from $2.8 billion in 2012. Net product sales and services revenue increased primarily as a result of our acquisitions which contributed an aggregate of $169.4 million of the increase. Excluding the impact of foreign currency translation, net product sales and services revenue in 2013 grew by approximately $229.4 million, or 8%, over 2012.

Net Product Sales and Services Revenue by Business Segment. Net product sales and services revenue by business segment for 2013 and 2012 is as follows (in thousands):

                                              2013            2012          % Increase
  Professional diagnostics                 $ 2,366,204     $ 2,165,216                9 %
  Health information solutions                 533,227         535,422                - %
  Consumer diagnostics                         102,782          89,611               15 %

  Net product sales and services revenue   $ 3,002,213     $ 2,790,249                8 %

Professional Diagnostics

The following table summarizes our net product sales and services revenue from
our professional diagnostics business segment by groups of similar products and
services for 2013 and 2012 (in thousands):



                                                                                   % Increase
                                             2013                2012              (Decrease)
Infectious disease                        $   723,213         $   615,950                   17 %
Toxicology                                    632,727             587,261                    8 %
Cardiology                                    463,281             503,534                   (8 )%
Diabetes                                      225,488             144,441                   56 %
Other                                         321,495             314,030                    2 %

Professional diagnostics net
product sales and services revenue        $ 2,366,204         $ 2,165,216                    9 %


Table of Contents

Net product sales and services revenue from our professional diagnostics business segment increased by $201.0 million, or 9%, to $2.4 billion in 2013, from $2.2 billion in 2012. Excluding the impact of foreign currency translation, net product sales and services revenue from our professional diagnostics business segment increased by $220.1 million, or 10%, comparing 2013 to 2012. Net product sales and services revenue increased primarily as a result of acquisitions, which contributed an aggregate of $167.2 million of the non-currency-adjusted increase. Also, contributing to the increase in revenue were net product sales from our North American flu-related sales which increased approximately $31.9 million, from $43.6 million in 2012 to $75.5 million 2013. Net product sales and services revenue from our professional diagnostics business segment were negatively impacted by the FDA recall matters related to our Alere Triage meter-based products. Net product sales of meter-based Triage products in the U.S. totaled $76.2 million in 2013, as compared to $150.3 million in 2012. Furthermore, net product sales and services revenue from our professional diagnostics business segment was negatively impacted by the disposition of our Spinreact operations in Spain in July 2013, for which sales totaled $15.9 million in 2013 through the date of disposition, as compared to $22.2 million in 2012, a decrease of $6.3 million. Excluding the impact of acquisitions, the increase in flu-related sales during the comparable periods, the impact of the reduction in net product sales from meter-based Triage products in the U.S. and the disposition of our Spinreact operations in Spain, the currency-adjusted organic growth for our professional diagnostics net product sales and services revenue was approximately $101.4 million, or 5%, from 2012 to 2013. This growth rate was additionally impacted by the reduction in CMS' reimbursement rates which became effective on July 1, 2013 for our U.S. mail order diabetes business. Excluding organic revenues from our mail order diabetes business, along with all of the other impacts previously mentioned, our currency-adjusted organic growth was approximately $132.1 million, or 6.9%, from 2012 to 2013.

Within our professional diagnostics business segment, net product sales and services revenue for our cardiology business decreased by approximately $40.3 million, or 8%, to $463.3 million in 2013, from $503.5 million in 2012, primarily as a result of the impact of the FDA review of certain of our meter-based Triage products in the U.S. Net product sales and services revenue for our infectious disease business increased by approximately $107.3 million, or 17%, to $723.2 million in 2013, from $616.0 million in 2012. This change was driven principally by a growth in HIV, flu and malaria revenues during the comparable periods. Net product sales and services revenue for our toxicology business increased by approximately $45.5 million, or 8%, to $632.7 million in 2013, from $587.3 million in 2012, with our recent toxicology-related acquisitions contributing a combined net of $54.1 million of the non-currency adjusted increase. Offsetting the increase in net product sales and services revenue for our toxicology business contributed by acquisitions was a $23.6 million decrease in net product sales related to our Triage toxicology products and reductions in commercial pricing for our pain and rehab businesses implemented in the second quarter of 2012 and fourth quarter of 2013. Our diabetes net product sales and services revenue increased by approximately $81.0 million, or 56%, to $225.5 million in 2013, from $144.4 million in 2012. The increase was primarily the result of our recent acquisitions of AmMed Direct LLC, or AmMed, NationsHealth, Discount Diabetic, LLC, or Discount Diabetic, the Medicare fee-for-service assets of Liberty Medical, or the Liberty business, and Simplex Healthcare, Inc., or Simplex, which contributed a combined net $100.8 million of the non-currency adjusted increase. Included in the $225.5 million of revenue from our diabetes business for 2013 were $153.6 million of mail order diabetes sales, compared to $85.7 million for 2012.


Table of Contents

Health Information Solutions

The following table summarizes our net product sales and services revenue from
our health information solutions business segment by groups of similar products
and services for 2013 and 2012 (in thousands):



                                                                                  % Increase
                                               2013              2012             (Decrease)
Condition and case management                $ 215,160         $ 218,378                   (1 )%
Wellness                                       101,642           104,634                   (3 )%
Women's & children's health                    113,506           120,259                   (6 )%
Patient self-testing services                  102,919            92,151                   12 %

Health information solutions net
product sales and services revenue           $ 533,227         $ 535,422                    - %

Net product sales and services revenue from our heath information solutions business segment decreased by $2.2 million to $533.2 million in 2013, from $535.4 million in 2012. Within our health information solutions business segment, net product sales and services revenues from our condition and case management, wellness and women's and children's health businesses each decreased during 2013, compared to 2012, as we experienced customer terminations, lower state enrollments in wellness programs and lower revenue from homecare services in these businesses, respectively. Given the challenging contracting season, we expect weak sales in the first quarter of 2014, and then expect to resume sequential growth, adjusting for seasonality, within this segment through 2014. Our patient self-testing services net product sales and services revenue increased approximately $10.8 million, or 12%, to $102.9 million in 2013, compared to $92.2 million in 2012, principally driven by an increase in our home coagulation monitoring programs resulting from a larger patient population and a simultaneous reduction in customer attrition rates.

Consumer Diagnostics

New product sales and services revenue from our consumer diagnostics business segment increased by $13.2 million, or 15%, to $102.8 million in 2013, from $89.6 million in 2012. The increase in revenue primarily resulted from an increase in our manufacturing revenue associated with SPD, as SPD successfully launched the Clearblue Advanced Pregnancy Test with Weeks Estimator product in the U.S. during 2013. SPD sales were $178.4 million and $187.8 million during 2013 and 2012, respectively.

Net Product Sales and Services Revenue by Geographic Location. Net product sales and services revenue by geographic location for 2013 and 2012 is as follows (in thousands):

                                              2013            2012         % Increase
  United States                            $ 1,834,807     $ 1,703,929               8 %
  Europe                                       506,684         477,681               6 %
  Elsewhere(1)                                 660,722         608,639               9 %

  Net product sales and services revenue   $ 3,002,213     $ 2,790,249               8 %

(1) Includes, among many others, the following countries: China, Japan, India, South Korea, Australia, Canada, and Brazil.

Net product sales and services revenue of $1.8 billion and $1.7 billion generated in the United States was approximately 61% of total net product sales and services revenue for each of the years ended December 31, 2013 and 2012. The growth in net product sales and services revenue in the United States was primarily due to an increase of $71.1 million in our domestic diabetes net product sales and services revenue, resulting primarily from our recent diabetes-related acquisitions discussed above. The growth in net product sales and services revenue in all geographic regions resulted primarily from the various acquisitions and organic growth, as discussed above.


Table of Contents

License and Royalty Revenue. License and royalty revenue represents license and royalty fees from intellectual property license agreements with third parties. License and royalty revenue decreased by $1.3 million, or 5%, to $27.2 million in 2013, from $28.6 million in 2012. Included in royalty revenues in 2013 was an $8.5 million one-time, up-front issuance fee associated with the license of certain of our molecular intellectual property, compared with an $11.0 million one-time, up-front issuance fee during 2012. We expect to receive ongoing royalty payments under these license agreements in future periods.

Gross Profit and Margin Percentage. Gross profit increased by $73.4 million, or 5%, to $1.5 billion in 2013, from $1.4 billion in 2012. The increase in gross profit during 2013 was largely attributed to the increase in net product sales and services revenue resulting from acquisitions. Cost of net revenue during 2013 and 2012 included amortization of $2.5 million and $4.7 million, respectively, relating to the write up of inventory to fair value in connection with certain acquisitions. Reducing gross profit for 2013 and 2012 was $7.9 million and $3.1 million, respectively, in restructuring charges.

Cost of net revenue included amortization expense of $72.2 million and $72.3 million for 2013 and 2012, respectively.

Overall gross margin percentage was 50% in 2013, compared to 51% in 2012. The decrease in gross margin principally reflects the impact of the reduction in diabetes reimbursement rates that took effect in July 2013, as well as the increased costs of manufacturing certain of our meter-based Triage products.

Gross Profit from Net Product Sales and Services Revenue, Total and by Business Segment. Gross profit from net product sales and services revenue increased by $75.2 million, or 5%, to $1.5 billion in 2013, from $1.4 billion in 2012. Gross profit from net product sales and services revenue by business segment for 2013 and 2012 is as follows (in thousands):

                                              2013                2012             % Increase
Professional diagnostics                   $ 1,224,355         $ 1,151,325                   6 %
Health information solutions                   237,599             236,470                   - %
Consumer diagnostics                            20,319              19,305                   5 %

Gross profit from net product sales
and services revenue                       $ 1,482,273         $ 1,407,100                   5 %

Professional Diagnostics

Gross profit from our professional diagnostics net product sales and services revenue increased by $73.0 million, or 6%, to $1.22 billion during 2013, from $1.15 billion in 2012, principally as a result of gross profit earned on revenue from acquired businesses, as discussed above. Comparing 2013 to 2012, gross profit was negatively impacted by the lower volume of our U.S. meter-based Triage product sales and a reduction in commercial pricing for our toxicology products in our pain management and addiction medicine lines of business, as discussed above. The continued impact of the FDA inspection of our San Diego facility and the related recall of certain of our meter-based Triage products also resulted in increased incremental costs during 2013, principally due to unfavorable manufacturing variances. Cost of professional diagnostics net product sales and services revenue during 2013 and 2012 included a non-cash charge of $2.5 million and $4.7 million, respectively, relating to the write-up of inventory to fair value in connection with our acquisition of Epocal, Inc., or Epocal. Reducing gross profit for 2013 and 2012 was $6.0 million and $2.3 million, respectively, in restructuring charges.

Cost of professional diagnostics net product sales and services revenue included amortization expense of $64.3 million and $64.4 million for 2013 and 2012, respectively.


Table of Contents

As a percentage of our professional diagnostics net product sales and services revenue, gross profit from our professional diagnostics business was 52% in 2013, compared to 53% in 2012. The continued impact of the FDA inspection and the related product recall, discussed above, which resulted in increased incremental costs during 2013, contributed to the lower gross profit.

Health Information Solutions

Gross profit from our health information solutions net product sales and services revenue remained relatively flat at $237.6 million during 2013, as compared to $236.5 million in 2012. Reducing gross profit for 2013 and 2012 was $1.8 million and $0.8 million, respectively, in restructuring charges.

Cost of health information solutions net product sales and services revenue included amortization expense of $6.9 million and $6.7 million for 2013 and 2012, respectively.

As a percentage of our health information solutions net product sales and services revenue, gross profit from our health information solutions business was 45% in 2013, compared to 44% in 2012. The 1% increase in gross margin was primarily due to operational efficiencies realized during 2013 within the condition and case management business.

Consumer Diagnostics

Gross profit from our consumer diagnostics net product sales and services revenue increased $1.0 million, or 5%, to $20.3 million during 2013, from $19.3 million in 2012. The increase in gross profit was primarily the result of an increase in manufacturing revenue, as discussed above, and a $0.7 million charge related to our manufacturing agreement with SPD recorded during 2012.

Cost of consumer diagnostics net product sales and services revenue included amortization expense of $0.9 million and $1.2 million for 2013 and 2012, respectively.

As a percentage of our consumer diagnostics net product sales and services revenue, gross profit from our consumer diagnostics business was 20% for 2013, compared to 22% in 2012.

Research and Development Expense. Research and development expense decreased by $22.2 million, or 12%, to $160.8 million in 2013, from $183.0 million in 2012. Research and development expense during 2013 is reported net of grant funding of $6.6 million arising from the research and development funding relationship with the Bill and Melinda Gates Foundation that we entered into in February 2013. Restructuring charges associated with our various restructuring plans to integrate our newly-acquired businesses totaling $1.8 million and $1.3 million were included in research and development expense during 2013 and 2012, respectively. Amortization expense of $4.9 million and $26.9 million was included in research and development expense for 2013 and 2012, respectively. Included in the $26.9 million of amortization expense for 2012 was $19.2 million related to the write off of certain in-process research and development projects recorded in connection with the Axis-Shield acquisition during the fourth quarter of 2011 which were discontinued in 2012.

Research and development expense as a percentage of net revenue was 5% and 6% for 2013 and 2012, respectively.

Sales and Marketing Expense. Sales and marketing expense decreased by $3.6 million, or 1%, to $639.8 million in 2013, from $643.4 million in 2012. The decrease in sales and marketing expense was primarily driven by lower amortization expense during 2013, compared to 2012. Amortization expense of $228.9 million and $239.9 million was included in sales and marketing expense for 2013 and 2012, respectively. Restructuring charges associated with our various restructuring plans to integrate our newly-acquired businesses totaling $2.8 million and $2.5 million were included in sales and marketing expense during 2013 and 2012, respectively.


Table of Contents

Sales and marketing expense as a percentage of net revenue was 21% and 23% for 2013 and 2012, respectively.

General and Administrative Expense. General and administrative expense increased by $68.5 million, or 14%, to $561.2 million in 2013, from $492.8 million in 2012. The increase in general and administrative expense from 2012 to 2013 was primarily attributable to a $24.6 million increase in expense related to fair value adjustments to acquisition-related contingent consideration obligations, a $4.6 million increase in amortization expense, and a $1.5 million increase in restructuring plans to integrate our newly-acquired businesses, as well as the inclusion in general and administrative expense for 2013 of $7.5 million in excise tax expense related to the domestic sale of our medical device products as a result of the 2.3% excise tax that went into effect January 1, 2013, $5.5 million of costs associated with the conduct of a contested proxy solicitation in 2013 and $6.1 million of costs associated with potential . . .

  Add ALR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ALR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.