Abbott Laboratories Agrees to Conform Testing to FDA Standards

The agreement has significant financial consequences for Abbott.
Publish date:

Abbott Laboratories

(ABT) - Get Report

today said it will make changes in its diagnostic test division to conform with U.S.

Food and Drug Administration

standards, a move that could cause sales to plummet as much as $250 million next year.

The drug and disease test maker will take a pretax charge of $168 million -- $100 million of which will go to the federal government -- and will make processing changes at its Lake County, Ill., manufacturing operations. As part of the consent decree, which an FDA spokesperson would not confirm today, the Abbott Park, Ill.-based manufacturer is not admitting to any violations and no products will be recalled.

Abbott has been negotiating with the FDA since September and spent four years dealing with the federal government over issues of quality control regarding its tests that diagnose diseases. The FDA contended that there was virus contamination in several products -- an allegation disputed by Abbott.

The agreement has significant financial consequences for Abbott. The charge will cut fourth-quarter earnings by as much as 2 cents a share, while earnings for the year may fall as much as 10 cents a share. Before the agreement was announced, analysts polled by

First Call/Thomson Financial

had expected Abbott to earn 45 cents a share in the fourth quarter and $1.67 a share for the year.

"It looks like next year won't be the greatest year for them; they will be dealing with a lot of issues," said Herman Saftlas, an analyst with

Standard & Poor's Equity

, whose firm does not do underwriting

Still, Saftlas said he is not changing his rating of accumulate for Abbott's stock. He also pointed to Wall Street's relatively mild reaction this morning to the news. Abbott's shares were down 1 5/16 at 39 by late morning, but the selling was not as severe as it might have been, Saftlas said.

The company closed down 2 11/16 to 37 5/8.

"In spite of the news, it shows the strength of this company," he said. "Obviously, they are managing the best they can."

The agreement with the FDA means Abbott will stop distribution of some of its tests for up to 12 months. But a majority of the products will continue to be manufactured because they are deemed to be medically important, said Rhonda Luniak, Abbott's director of media relations. While declining to detail the actual changes, Luniak said they pertain to steps and procedures used to manufacture the diagnostic tests.

The deal does not affect Abbott's merger discussions with drug maker



, Luniak said. Some of Alza's shareholders are suing Abbott to block the deal, claiming Abbott failed to inform them on the situation with the FDA when they voted in September. Luniak said it was too premature to discuss whether the FDA agreement would affect the lawsuits.

Steven J. Toll, the managing partner for

Cohen, Milstein, Hausfled & Toll

, one of the law firms representing disgruntled Alza shareholders, called the consent decree "an implicit admission" of guilt by Abbott.

"It's obviously something we're interested in," said Toll, who will be presenting information for his case next on Nov. 23 at a preliminary injunction hearing. "We are going to want to get everything related to the agreement."

Karen Bergman, Alza's vice president of corporate and investor relations, said her company was pleased with the news because "Abbott has been able to resolve the issues of uncertainty with the FDA."