Abbott moves ahead on St. Jude, Alere deals, but investors fret

(Reuters) - Abbott Laboratories said on Wednesday it was pushing ahead to complete its planned purchases of medical device maker St. Jude Medical Inc and diagnostics company Alere Inc despite lingering questions about product safety and government investigations.

Traders gather at the booth that trades Abbott Laboratories on the floor of the New York Stock Exchange, December 10, 2012. REUTERS/Brendan McDermid/File Photo

Abbott Chief Executive Officer Miles White on a conference call with analysts said he hoped to acquire St. Jude by the end of the year and praised the smaller company’s handling of claims by short-seller Muddy Waters that its implantable heart devices posed cyber security risks.

Although White said Abbott was pursuing all necessary regulatory approvals to acquire Alere, he did not go so far as to predict the deal would be approved. “We’ll work through regulatory approvals and see what happens,” White said on the call.

Shares of Abbott fell 2.7 percent to $40.04 while Alere rose 2.3 percent to $43.36 and St. Jude dipped 0.6 percent to $79, all on the New York Stock Exchange.

Stifel Nicolaus analyst Rick Wise attributed Abbott’s decline to lingering uncertainty about the St. Jude and Alere deals, and worries about declining overseas sales of Abbott’s baby formulas.

“There’s a lot of concern and noise,” he said. “Any hint of anything is making people anxious.”

Abbott agreed in February to buy Alere for $5.8 billion, to acquire its diagnostic tests performed at home and in doctors’ offices and hospitals.

Just two months later it agreed to pay $25 billion for St. Jude, a leading maker of heart devices. The combined price of the two deals amounted to half of Abbott’s market valuation.

The relationship between Abbott and Alere cooled after the target company failed to file financial statements and disclosed probes into billing and foreign sales practices.

Moreover, in July, at the request of the Food and Drug Administration, Alere recalled its INRatio device used to monitor levels of the widely used blood thinner warfarin because it was found to generate faulty results.

In August, Alere filed a lawsuit accusing Abbott of dragging its feet on key antitrust submissions to sabotage the deal.

Separately on Wednesday, Abbott reported a quarterly profit that edged past estimates as strength in its medical devices business more than offset a decline in its nutrition unit.

Excluding items, Abbott earned 59 cents per share on sales of $5.30 billion in the third quarter.

Analysts, on average, expected earnings of 58 cents per share on revenue of $5.29 billion, according to Thomson Reuters I/B/E/S.

Global sales of nutritional products, including baby formula Similac and Ensure for adults, fell 2 percent to $1.76 billion. Sales of the products outside the United States dropped 9.4 percent, largely due to declines in China, which is requiring manufacturers to reregister their baby formulas with the government to greater ensure their safety.

“The situation in China is leading to a lot of unusually high (price) discounting,” Stifel Nicolaus’ Wise said.

In the longer term, however, he said Abbott could benefit as many rival makers of infant formula vanish from the Chinese market due to stricter regulations.

Also on Wednesday St. Jude reported its quarterly adjusted profit was 99 cents, missing the average estimate by 2 cents.

St. Jude is facing multiple problems, including an investigation by the FDA over claims its heart devices have defects that make them vulnerable to fatal cyber hacks.

The company has sued short-seller Muddy Waters and cyber research firm MedSec Holdings after they claimed flaws in the cyber security of Abbott’s devices.

St. Jude CEO Michael Rousseau said on a conference call on Wednesday he expected Muddy Waters to continue to “mislead” investors and patients about the cyber safety of its devices.

Muddy Waters released several videos on Wednesday morning that claimed to be demonstrations of how attacks could be launched on St. Jude’s implanted heart devices.

Reuters was unable to independently confirm claims in the videos, which were posted on a new website set up by Muddy Waters,

A St. Jude spokeswoman said the company had not verified the claims in the videos.

In an unrelated matter last week, St. Jude said it will recall some of its 400,000 implanted heart devices due to the risk of premature battery depletion, a condition linked to two deaths in Europe.

St. Jude and Abbott on Tuesday announced a $1.12 billion deal to sell some of their devices to Japan-based Terumo Corp, an important step toward completing their tie-up.

Reporting by Ransdell Pierson in New York and Natalie Grover in Bengaluru; Additional reporting by Jim Finkle in Boston and Bill Berkrot in New York; Editing by Martina D’Couto and Jeffrey Benkoe