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Abbott to pay U.S. $100M
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November 2, 1999: 5:13 p.m. ET
Settlement stems from probe into health-care firm's diagnostics unit
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NEW YORK (CNNfn) - Abbott Laboratories said Tuesday it will pay the U.S. government $100 million and temporarily stop making almost 300 medical-testing devices to resolve allegations it did not follow good manufacturing practices at its Lake County, Ill., facilities.
Abbott, the nation's largest manufacturer of medical-diagnostic tests, will restate third-quarter financial results to reflect the charges.
The $100 million payment is the largest amount of money ever paid by a company regulated by the Food and Drug Administration for a civil violation of the Food, Drug and Cosmetic Act, the FDA said.
Abbott (ABT) didn't admit to any violations of federal regulations at its Lake County, Ill., diagnostics plant in agreeing to the consent decree, which is subject to court approval. The company said its testing practices provide accurate results and no products will be recalled.
"The issues have to do with manufacturing processes and not with known instances of patient harm," said FDA medical devices chief Dr. David Feigal.
The company said medically necessary diagnostic products for hepatitis, cancer, drug monitoring and fertility will continue. However, it will halt manufacturing and distributing other testing products until it proves that it conforms to federal quality standards.
Analysts said the halted products will cause Abbott to lose about $250 million in sales in fiscal 2000.
"This decree allows us to resolve these issues comprehensively and systematically without disruption to patient care worldwide," CEO Miles D. White said. He said the company will work with the FDA to ensure the diagnostic manufacturing operations are in full and complete compliance "as rapidly as possible."
Abbott stock fell nearly 6 percent, dropping 2-5/16 to 38 Tuesday. Shares recently hit a 52-week low of 36-1/16 in the wake of the company's disclosure of the government investigation in late September.
To cover the $100 million payment to the government and charges associated with actions required by the Food and Drug Administration, Abbott said it will take a one-time pretax charge of $168 million, or 8 cents per diluted share.
Restated third-quarter net earnings including an adjustment to taxes will total $466.1 million, or 30 cents per share, down from the previously reported $587.2 million, or 38 cents per share. Abbott earned $532 million, or 34 cents per share, in the year-earlier period.
The settlement also may reduce fourth-quarter earnings by 2 cents per share and full-year 2000 earnings by about 10 cents per share, the company said.
Company spokeswoman Rhonda Luniak said Abbott did not expect the consent decree to have a significant impact at the Lake County facility.
Analysts also said the problems with the FDA may cause Abbott's pending acquisition of California drugmaker Alza Corp. to take longer and cost more. The $7.3 billion deal was originally set to close by year-end.
Jonathan Osgood, analyst at Deutsche Bank Alex Brown, said the news of the FDA deal overall was more positive than negative because it removes a looming cloud. But he called the $100 million payment "a very steep fine, very steep."
Neil Sweig, analyst at Ryan Beck/Southeast Research, cut earnings estimates in the wake of the announcement.
"We still think the Alza deal will be completed, but maybe not by the end of the year and maybe not at the current price," Sweig said. 
--from staff and wire reports
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Abbott
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