Alere Inc. (ALR)

ALR 
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Alere Inc. (ALR)

Q2 2011 Earnings Call

July 27, 2011; 08:30 am ET

Executives

Ron Zwanziger - Chairman & Chief Executive Officer

David Teitel - Chief Financial Officer

Doug Guarino - Director, Investor Relations

Analysts

John Putnam - Capstone Investments

Peter Lawson - Mizuho USA

Constantine Davides - JMP Securities

Greg Simpson - Wunderlich

Ashim Anand - Natixis

Dane Leone (ph) - Macquarie

Justin (ph) - Goldman Sachs

Bill Bonello - RBC Capital

Zarak Khurshid - Wedbush Securities

Jeff Frelick - Canaccord

Dan Leonard - Leerink Swann

Presentation

Operator

Good morning and welcome to the Alere Inc. conference call to discuss second quarter 2011 results. All participants will be in listen-only mode. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Doug Guarino. Please go ahead.

Doug Guarino

Thank you Sue and good morning and welcome to the Alere conference call to discuss our results for the quarter ended June 30, 2011. We are joined today by Ron Zwanziger, Chairman and CEO; and David Teitel, CFO.

Before we get to that discussion now I would first like to draw your attention to the fact that certain matters discussed in this conference call will constitute forward-looking statements within the meaning of the U.S. securities laws. These statements reflect our current views with respect to future events or financial performance and are based on management's current assumptions and information currently available.

Actual results and the timing of certain events could differ materially from those projected or contemplated by the forward-looking statements due to numerous factors, including without limitation our ability to successfully acquire and integrate our acquisitions and to recognize the expected benefits of restructuring in new business activities; our exposure to changes in interest rates and foreign currency exchange rates; our ability to successfully develop and commercialize products; the market acceptance of our products; continued acceptance of health management services by payors, providers and patients; our ability to develop enhanced health management programs through the integrated use of innovative diagnostic and monitoring devices and to recognize the expected benefits of this strategy; the impact of health care reform legislation as well as future reform initiatives; the content and timing of decisions by regulatory authorities as well as the impact of changes in reimbursement policy, both in the United States and abroad; the effect of pending and future legal proceedings on our financial performance, and the risks and uncertainties described in our periodic reports filed with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2010, as well as in our quarterly reports on Form 10-Q. Our company undertakes no obligation to update forward-looking statements.

Additionally, please note that during this call we may discuss non-GAAP financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available on the company’s website at www.alere.com.

With that let me turn the call over to Alere Chairman and CEO, Ron Zwanziger. Ron.

Ron Zwanziger

Thanks Doug and good morning everyone. From a short-term financial perspective, this was a disappointing quarter and during this call we will describe several mainly transitory matters that affected our financial results. These issues did not diminish the strong momentum in our base diagnostic business, which had an organic growth rate of 7% and cardiology, which has slightly over 10% growth or our optimism about the future, which continues to strengthen.

Specifically our revenue in earnings for the quarter were negatively impacted in three major areas. Underperformance in specific segments of our health management unit, higher than expected litigation costs in our consumer products joint venture and modest delays in our new products sales ramp.

I will briefly discuss each of these issues now with Dave providing more details later in the call. First, addressing health management, which was by far the largest issue. Despite a high request for proposal pipeline, our high win rate of new business opportunities and record referrals from physicians for our health management services, broad economic pressures have continued to depress revenues and margins in certain segments of the health management business.

Specifically our Women & Children’s revenues were negatively impacted in Q2 by the loss of a drug therapy due an FDA labeling decision. Additionally the group is currently experiencing delays in implementing high risk pregnancy programs for Medicaid beneficiaries due to a longer than expected formal contracting process.

Separately we have stated to see changes in behavior around the willingness of States to commit funds for programs already underway, such as smoking cessation, which suggest these programs may under-perform during the remainder of the year.

Finally, the home monitoring segment of our health management business was impacted by a reinforcement related adjustment to our coagulation monitoring revenues during this quarter. The mechanics of change will be discussed by Dave later in the call.

Finally, in context of this issue is particularly unfortunate in line to recent investor concerns about new direct thrombin inhibitors that have begun to enter the market as potential alternatives to warfarin.

We believe that it is a reasonable assumption that new compatible course and overall reduction in a very large number of individuals that take warfarin today. On the other hand home monitoring of warfarin currently has a very low overall penetration rate, which provides an opportunity for sustained growth, even if the total number of people on warfarin declined.

Additionally the lower cost and higher compliance rate achieved through our home monitoring program, early indications of a possible high incident of side effects for the new DTIs, as well as the notation on who will be a suitable candidate for the new drug therapies gives us confidence that while our growth may decline over the next several years, our home monitoring business will nonetheless continue to grow and successfully co-exist with the new compounds.

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