Running head: BUSINESS MODEL GENERATION 1
1
Business Model Generation 1
Liberty University
BUSINESS MODEL GENERATION 1
2
BUSINESS MODEL GENERATION 1
Executive Summary
Alere, Inc. (ALR) is a “World leader in rapid diagnostics at the point of care, with a focus
on cardio metabolic disease, infectious disease, and toxicology” (Alere, 2018, para. 1). Ron
Zwanziger formed MediSense in 1981 and left the company in 1991 to form SelfCare, which
was offered as a public stock in 1996. SelfCare was known for the production of equipment for
the diagnostic testing of coronary, poison detection, and infectious disease detection. The
company promotes their diagnostic products via its sales and distribution supply chain; and the
consumer drug analysis products through retail drugstore outlets and grocery stores. The firm
realized many name changes over the next two decades through several acquisitions and a joint
venture with Procter & Gamble. In 2010, the firm’s name was changed to Alere and began
trading on the NYSE. During the third quarter of 2014, Zwanziger proposed taking the company
private for $3.82 billion, but the offer did not materialize. However, in October of 2017, Bartz
(2017) explains, “Abbott Laboratories closed an Alere acquisition at the reduced price of $5.3
billion, making the surviving entity the market leader player in the $7 billion point-of-care
diagnostic space” (para. 1).
The key activities for Alere are production and research / development programs.
Improvements could be realized by relocating production to areas where labor is cheaper or in
areas where the majority of the products are sold. The medical field is continually progressing
and a company that does not lead or keep up with market demands will lose its competitive
advantage. The cost structure behind this business model will be a mixture between cost and
value-driven. Alere needs large economies of scale to maintain competitive pricing but with the
BUSINESS MODEL GENERATION 1
3
recent acquisition to Abbott, they have more market share, so they can also focus on value
pricing.
Since Abbott also has vast experience in the professional diagnostic industry taking
advantage of the processes, knowledge, and intellectual property that they possess can have
significant impacts at little to no cost. This key partnership can be mutually beneficial. The
premise of the proposed business model is that the products provide greater value to the
customer than its competitors and that Alere focuses on its core competencies, which are in
profession diagnostics. As Alere reverts to its core products in the professional diagnostics
industry, the customers will primarily be medical professionals and organizations. The market is
international and should remain this way since only half of Alere’s revenue comes from within
the United States.
Existing Mission, Objectives, and Strategies
Mission Statement
Alere Inc. mission is “to be the best at delivering reliable and actionable information
through rapid diagnostic tests. Through this mission, they aim to improve clinical outcomes,
reduce healthcare costs, and deliver earnings growth to investors” (Alere.com).
Objectives
Alere Inc. mission is “to deliver reliable and actionable information through innovative
rapid diagnostic tests, resulting in better clinical and economic healthcare outcomes globally”
(Alere.com).
Strategies
Alere’s primary strategy is growth through acquisition and diversification. Alere is quick
to sell off non-core or no longer essential assets and retain or gain new assets that align with
BUSINESS MODEL GENERATION 1
4
company objectives. The assets that are no longer required for business operations are sold off to
pay down debt or to obtain funds when needed. The decision of which assets are no longer
essential is based upon on the nature of the industry and the vision for the future. According to
NASDAQ (2015),
A recent divesture of Alere Analytics to Persivia and the sale of Alere Health to Optum is
a part of the strategy. Alere recently sold their health information exchange system,
which accounted for half of the company’s expenses. The divesting of these companies
allowed Alere to pay off over 600 million in debt. Alere has an impressive and ever-
expanding portfolio.
New Mission Statement
Alere will work to provide their customers with the best and innovative rapid technology
diagnostic testing available. Through this mission, we are committed to growth and profitability
for our investors and the overall economy. We will continue to carry out our corporate social
responsibilities in local communities and abroad to better serve our patients and those without
adequate healthcare. Alere is dedicated to being a workplace that employees are proud to be a
part of and are treated with respect and value. This mission is aligned with our objective, values,
and core business strategy.
(1) Customers
Alere’s customers are primarily patients, hospitals, medical, and laboratory facilities.
(2) Products or Services
The major product and service offered by Alere is the Point of Care (POC) diagnostic
testing devices for various conditions for at home use. Another major service and products Alere
BUSINESS MODEL GENERATION 1
5
provides is health care management tools. Alere focuses on diagnostic products within
cardiology, women’s health, drug abuse, oncology, and infectious diseases.
(3) Markets
Alere competes at a global level including parts of North America, Asia Pacific, Europe,
Middle East, Latin America, and Africa.
(4) Technology
Alere specializes in innovative diagnostic products and is current compared to industry
standards. Alere’s products and systems are based on a broad range of propriety technologies
covered by international patents. Technology is the basis for their expanding rage of innovative
products, especially for vitro diagnostics and POC (Alere technology).
(5) Concern for Survival, Growth, and Profitability
Alere is committed to survival, growth and profitability. Alere is continuously working
to expand their portfolio and divest assets that are no longer needed. They use cutting edge
technology in the manufacturing of their products. Alere’s business strategy and innovative
thinking has allowed them to be competitive in the market since 2001.
(6) Philosophy
Alere strongly believes in corporate social responsibility by supporting the communities
in which they operate and investing in broader healthcare issues. They address these concerns
through various initiatives: access to healthcare, malaria eradication, HIV testing/treatment, and
community engagement (Alere.com).
BUSINESS MODEL GENERATION 1
6
(7) Self-Concept
Alere’s major competitive advantage is their innovative approach. The healthcare
industry, technology and innovative thinking is crucial to acquiring the competitive advantage.
This field is ever changing and striving toward improvement, convenience, and accuracy.
(8) Concern for Public Image
Alere is greatly concerned with their public image and is one of the reasons they are
heavily involved in social, community, and environmental concerns. They are actively
responsive to the 3.2 billion people at risk of malaria. They are actively improving the testing
and treatment for HIV for the almost 40 million people living with the disease. They have
provided a mobile healthcare unit that provides counseling services and healthcare to youth in
underserved communities. These are just a few of the areas that Alere is involved in to maintain
their public image (Alere.com)
(9) Concern for Employees
At Alere, their employees are valuable resources. They understand that their diverse and
talented workforce is the key to their success. They offer great benefits and healthcare packages,
including retirement plans, time off, various work/life programs, employee discounts, and
volunteer opportunities.
Analysis of the Firm’s Existing Business Model
According to Osterwalter and Pigneur (2010) “a business model describes the rationale of
how an organization creates, delivers, and captures value” (p. 14). There are nine key
components that makeup a business strategy: activities, partnerships, resources, cost structure,
customer segments, customer relationships, channels, value propositions, and revenue streams
(Osterwalter & Pigneur, 2010). The most important thing that Alere can do to make the company
BUSINESS MODEL GENERATION 1
7
work is produce innovative and accurate diagnostic testing. To do so, several activities are
necessary such as research and development, efficient supply chain, manufacturing, importing of
raw materials, and operational efficiency in each area.
Since Alere is a company that is highly focused on acquisitions and divesting assets, key
partnerships are a strong point. They form partnerships in order to gain competitive advantage,
take advantage of opportunities for new business and buyer/supplier relationships. These
partnerships help Alere remain competitive within the industry. For example, Alere has
partnered with ChoiceScreening who provides drug and alcohol testing and automated process in
the form of an integrated web application and a suite of detection tools (Alere eScreen, 2018).
Alere’s key resources are their physical point of care systems and their intellectual
properties, patents, partnerships, and knowledgeable employees. Alere’s cost structure strives to
take on a low- cost leadership strategy. They want to ensure their products and services are
affordable, yet high quality. The main costs incurred are due to acquisitions. Alere has a large
amount of debt due to numerous acquisitions. In most cases, these acquisitions ae necessary to
remain competitive and give them the ability to reach a broader customer base. However, the
cost structure is highly affected by the costs incurred via acquisitions.
Alere has numerous customer segments. They reach and serve patients, hospitals,
physicians, laboratories, and those in need of in-home testing. They have a broad basis for
customer segments but meet a core need for each segment. Alere reaches these customer
segments and builds a customer relationship based on automated services. These services are
quick and accurate testing results so that customers are retained, and sales are boosted. Alere
communicates with their customers to build these important customer segments and relationships
BUSINESS MODEL GENERATION 1
8
by providing post-purchase support and raising awareness of the company’s products and
services.
Customers turn to Alere’s products because they are cost-effective, accurate, and
automated. It satisfies the need of quick and accurate results when a patient needs them. Quest
Diagnostics and LabCorp of America are the top two competitors of Alere. These are tough
competitors for the diagnostic healthcare industry as each of them are larger with more
employees and generates higher levels of revenue (Competitors, 2018). Alere creates a revenue
stream by both one-time customer payments and ongoing payments depending on the product or
service being utilized.
Alere’s existing business model is strong but has areas that can be improved by reaching
an even broader customer base, expanding their products, and improved operational efficiency.
Turning the focus to their stockholders and their current customer segment and away from debt
loading acquisitions could help them gain the competitive advantage over the bigger diagnostic
testing companies.
Strengths, Weakness, Opportunities, Threats (SWOT) Analysis
The following matrixes are located in the corresponding appendices:
SWOT Analysis – Appendix A
Internal factor evaluations (IFE) Matrix – Appendix B
External factor evaluation (EFE) Matrix – Appendix C
SWOT Bivariate Strategy Matrix – Appendix D
Boston Consulting Group (BCG) Matrix
The BCG matrix is a tool explained by Rothaermel (2017) as “a guide corporate portfolio
planning” (p. 280) and exhibits firm’s strategic business units (SBU) in two aspects: relative share
BUSINESS MODEL GENERATION 1
9
of the market and growth rate. The BCG plots the SBU’s in either the dog, cash cow, star, or
question mark quadrant. Dogs exhibit low, unstable earnings with negative or neutral cash flow.
Cash cows display high and stable earnings with similar cash flows, stars show growing, or high
and stable earnings, similar to cash cows with a neutral cash flow. Finally, question marks have
low, unstable, or growing earnings with a negative cash flow. Each category has a different
strategy and Alere demonstrates question marks and partial dog for both testing and the other
category. The BCG Matrix is located in Appendix E.
Competitive Forces and Competitive Profile Matrix (CPM)
The Competitive Forces Matrix diagram, Appendix F, shows the various forces that need
to be studied while creating strategies for Alere. The five forces consist of threats of new
participants, supplier power, buyer power, threat of substitutes, and rivalry.
Threats of New Participants
New participants regarding the innovation and creation of unique methods of medical test
processing will create sales pressure for the incumbent producers. Through lower pricing
strategy, reducing costs, and providing new value propositions to the customers, Alere must
overcome these challenges and create effectual strategies to ensure an effective edge.
How can Alere, Inc. address threats of new participants
Through innovation of products and services. New and improved offerings not only
bring new consumers to the portfolio, but also furnishes current consumers a reason to purchase
Alere products. By divesting of non-core businesses and focusing on core competencies, Alere
can develop economies of scale. Using this strategy Alere can decrease the fixed costs per unit
of product while maintain profit targets. In addition, exploiting the intellectual backing from
Abbott will help Alere gain a competitive advantage over other participants.
BUSINESS MODEL GENERATION 1
10
Supplier power
Large suppliers in the medical diagnostic segment may utilize negotiations to obtain
exorbitant prices from the manufacturers in the diagnostic manufacture industry. Raw material
pricing is a high impact factor in the manufacture of diagnostic device and can decrease the cost-
effectiveness of the buyer.
How Alere, Inc. can address supplier power
The creation of a well-organized supply chain with dedicated suppliers will enhance the
value chain. The development of collaboration with suppliers is critical to maintain material
supply and ensure the best possible pricing. In addition, partnerships with suppliers can lead to
exposure to innovative technologies.
Buyer power
A buyer’s goal is to procure the specified item at the lowest possible cost. This concept
applies pressure on Alere to offer reasonable pricing while making an acceptable profit. If the
buyer base is small and powerful, the buyer will realize higher bargaining power.
How Alere, Inc. can address buyer power
The larger the buyer base, the more power Alere will maintain. An expanded base of
buyers will allow Alere to realize economies of scale, give Alere more bargaining power, and
allow the company to optimize the order fulfillment process. Alere can utilize innovative new
products to maintain the current customer base and reduce requests from customers that may
request discounts for traditional products.
BUSINESS MODEL GENERATION 1
11
Threats of substitute products or services
The offer of substitute products or services that satisfy customer needs may result in a
transfer of industry sales to the substitute. The threat of substitute products / services can be
large if unique, but similar value propositions are offered.
How Alere, Inc. can address the threat of substitute products / services
Alere can use business intelligence and customer surveys to help understand the primary
need of the consumer. The use of proprietary software or consumable accessories can decrease
switching by customers due to the increased cost associated with the switch.
Rivalry among the current participants
If the level of rivalry is high between the current participants, it will decrease profit due
to the need to lower prices to gain market share. The medical diagnostic and testing industry is
extremely competitive and extended price-cutting could damage profitability both short-term and
long-term.
How Alere, Inc. can address strong rivalry among the current participants in the
medical diagnostics and testing industry
Alere can create economies of scale to lower pricing, maintaining a high level of product
or service differentiation, and pool resources with other market participants. These actions of
developing a strategy to develop partnerships will expand market scope versus merely initiating
intense competition for a larger percentage of the existing market.
Competitive Profile Matrix and Analysis and Competitor’s Ratios and Analysis
The Competitive Profile Matrix (CPM), see Appendix G, demonstrates that Bio-Rad Labs
and Quest Diagnostic hold an advantage over Alere in total overall scores. This is due to the
strength of the competitions operational capability and their ability to focus on core
BUSINESS MODEL GENERATION 1
12
competencies. These two competitors also hold a distinct advantage in the areas of financial
profit and customer service.
The CPM matrix reveals some strong points for Alere and these can be exploited to push
the firm ahead. Global distribution is a major benefit as strong relationships have been
developed. Another positive for Alere is the definite benefit in the strength of manufacturing
abilities. Manufacturing sites are located in developed markets such as the US, Canada, China,
Japan, South Korea, Germany, Scotland, and Norway (Alere Company Profile, 2017, p. 4).
Because of their strong global distribution capabilities, Alere regular delights the market with
economical pricing and delivery. These advantages boost Alere’s name in in the global
marketplace.
Financial Statements
In the appendix section, you will find the Income Statement, Balance Sheet, and
Statement of Cash Flows for Alere, Inc. for the years ended December 31st of 2014, 2015 and
2016. Due to the acquisition that took place between Abbot Laboratories and Alere, Inc., the
financial statements for the year ended December 31, 2017 were not readily available. The
financial statements that are contained within this case study are based on a restatement of
previously issued financial statements from Alere, Inc. after it was realized that U.S. GAAP
standards were not properly applied to the timing of when revenue should be recognized
(Alere.com).
Income Statement
Also called the Profit and Loss Statement, the Income Statement is a financial report that
shows the financial performance of a company over a certain period. Alere, Inc.’s income
statement shows a small decline in their revenues over the 3 years that were analyzed. 2015
BUSINESS MODEL GENERATION 1
13
verses 2014’s revenue decreased by 4.7%, while 2016’s revenue only decreased by 3.2%. The
income statement is located in Appendix H
Balance Sheet
The healthiness of a company’s balance sheet tells investors and managers, as well as
others, how well the company can meet its financial obligations and maintain its investments
(stocknewsjournal.com). Analyzing Alere Inc.’s balance sheet, there were not enough cash
readily available to cover its liabilities in the 3 years that were analyzed. The balance sheet is
located in Appendix I
Statement of Cash Flows
The Statement of Cash Flows (SCF) is one of the three required financial statements each
company has to submit for financial reporting. The purpose of the Statement of Cash Flows is to
show the incoming and outgoing cash of a company (Petro & Gean, 2014). This report is
divided into three sections: cash flows from operating activities, cash flows from investing
activities, and cash flows from financing activities.
Alere, Inc.’s Statement of Cash Flows for the years 2014-2016 shows a decline year over
year from cash flows related to operating activities. Since net income is the basis of the
Statement of Cash Flows, it is important to note that even after the restatement of their financial
statements, Alere, Inc. showed a net loss in 2 of the 3 years analyzed. If the income from the
discontinuation of some of their operations is taken into consideration, all 3 years showed a net
loss (Petro & Gean, 2014). In 2015, the decline was around 10.5% verses 2014, while 2016
showed a 13.5% decline in cash flows from operating activities over the prior year. Based on
this information, Alere, Inc. has a steady decline in the amount of cash that was generated from
their normal business activities.
BUSINESS MODEL GENERATION 1
14
In the cash flows from investing activities section of the SCF, it shows if the company
made any purchases or sales to its property, plant, and/or equipment and any investments that
were made (Petro & Gean, 2014). Over the three years analyzed, Alere, Inc. did purchase a fair
amount of property, plant, and equipment, with the most purchases occurring in 2014. In 2015,
the company received proceeds from the disposition of some of its operation, which makes the
net cash flows from investing activities from that year higher than the prior year and the
subsequent years. Overall, Alere, Inc. had little cash flow by the end of 2016 from investing
activities.
The final section of the SCF, cash flows from financing activities, shows the cash flow
between the company and its creditors, as well as the inflows of cash from the issuance of debt
(Petro & Gean, 2014). Alere, Inc. used a great deal of cash for financing activities, especially in
2015, when a long-term debt was paid, while the amount of cash used in 2014 verses 2016 were
very close, with only a 7.1% decline. The statement of cash flows is located in Appendix J
Financial Ratios
Financial ratios are used by managers and/or current or potential shareholders to evaluate
the financial status of a company. Financial ratios are also used to compare the strengths and
weaknesses of different firms within the same industry. There are different types of ratios that
can show the financial health of a business such as growth ratios, which can determine the rate at
which a company may or may not be growing. Profitability ratios measure the amount of returns
that are received from sales and/or investments and asset utilization ratios, which measure the
efficiency of a company’s day-to-day operations (gurufocus.com).
The current ratio shows how efficient a company is in paying off its financial obligations,
and a ratio between 1 and 3 is considered acceptable in most industries. The current ratio of
BUSINESS MODEL GENERATION 1
15
Alere, Inc. for 2016 was 2.16, which is up 0.15 from 2015 but down 0.30 verses 2014. This tells
us that in 2014, Alere, Inc. was more efficient in paying its obligations than in 2015 and 2016.
The gross margin, the percentage of gross profit from the revenue of the company, shows
the profit that the company is making from its sales to covers its costs. In 2016, Alere, Inc.’s
gross margin was 45.86% versus 45.13% in 2015. According to Warren Buffet, companies that
have consistent higher margins have a better long-term economic advantage
(www.gurufocus.com). The gross margin over the 3 years presented in the financial statements
of Alere, Inc. shows that in 2014, Alere, Inc. had a higher competitive advantage with a gross
margin of 47.09% than it did in subsequent years. The financial ratios are located in Appendix K
Alternative Strategies
Under the leadership of the founder and former CEO Ron Zwanziger, Alere vastly
expanded its horizons. It acquired, sometimes very aggressively, numerous companies mostly
within the diagnostics industry. Alere then began acquiring businesses that were in the health
management industry. The core competencies of Alere, along with where the majority of their
revenue has come from, is professional diagnostics. The professional diagnostics section is one
of three main business segments that comprise Alere and brings in almost 91% of the revenue for
the entire company. Alere’s performance in terms of stock price and earnings have lagged the
competition for several years and a new business strategy is necessary to help the organization
regain momentum.
Integration
With the rapid acquisition of numerous businesses, sometimes multiple companies a year,
Alere has grown immensely and expanded from its core function of providing professional
diagnostics. With so many acquisitions occurring, it is likely that Alere has created many
BUSINESS MODEL GENERATION 1
16
inefficiencies. These inefficiencies can come in the form of redundant positions or departments
in the organization or inefficient processes. Alere can focus on integrating these new companies
into the organizations to decrease inefficiencies and increase performance. A complete business
analysis of Alere and the acquired businesses needs to be completed. With this, positions or
departments can be altered, and processes can be modified so that they are optimized using
aspects of both the acquired company and Alere. If Alere can successfully integrate the newly
acquired companies, it can increase its customer base and help diversify from Alere’s main
revenue segment of professional diagnostics. Alere can also learn and record each business
integrated to increase performance each time, “It can also learn to manage the post‐acquisition
integration process by tacitly accumulating acquisition experience and explicitly codifying it in
manuals, systems, and other acquisition‐specific tools” (Zollo & Singh, 2004, p. 1233). A
disadvantage of this strategy is if the organization cannot effectively control all parts of the
business. If this happens, a decline in performance is inevitable and will have negative impacts
on all business segments.
Divest
Based on Alere’s performance, acquiring numerous companies, both within and outside
of its core competencies, has not been a successful business strategy. A new strategy that Alere
can implement is focusing on its core competencies. Professional diagnostics has been the staple
of Alere since its inceptions and while some acquisitions built upon this business segment, many
have explored new regions unfamiliar with the company, where top managers have little
experience. To focus on its core competencies, Alere can divest some of the businesses that it
has acquired. This strategy will be advantageous for Alere because it can begin to grow
organically as opposed to trying to grow through acquisitions, which has proven to be an
BUSINESS MODEL GENERATION 1
17
ineffective strategy. This is a long-term strategy so a there may be a few adverse effects at the
start, but they will deteriorate as the strategy matures.
Pro-Forma Financial Statements
If Alere, Inc. implements the new strategy, the financial statement of the company will
improve over the next 3 years. To keep the momentum, Alere, Inc. will need to address the
issues that it has seen previously and continue to consider acquisitions and divesting their assets
to help its financial state. The balance sheet shows increases in cash and cash equivalents that
will be able to cover the liabilities for the company.
The new strategy will also show an increase in the Statement of Cash Flows for Alere,
Inc. The cash flows from operating activities will increase over the three-year period as well as
in the investing activities leaving the company in a good cash state. By divesting and then
investing in more innovative areas, Alere, Inc. has potential to increase its revenue and ultimately
its net income overall.
Pro-Forma Income Statement
The pro-forma income statement is located in Appendix L
Pro-Forma Balance Sheet
The pro-forma balance sheet is located in Appendix M
Pro-Forma Statement of Cash Flows
The pro-forma statement of cash flows is located in Appendix N
Net Present Value (NPV) and Earnings per Share (EPS)/Earnings before Income
Taxes (EBIT)
The net present value of the proposed strategy for Alere, Inc. is $4,774,637.66. This is
calculated by using cash flows in year 1 of $2,450,000, year 2 of $2,575,000 and Year 3 of
BUSINESS MODEL GENERATION 1
18
$2,625,000 with a discount rate of 3.41% and an initial investment of $2,376,335, which is their
new revenue using the new strategy. Their Earnings per Share (EPS) as well as the Earnings
before Income Taxes (EBIT) would increase due to the increase in the revenue each year.
Recommended Strategy and Objectives
The best strategy that Alere should implement is divesting the companies acquired that do
not contribute directly to its core competencies. The acquisition of numerous businesses has left
Alere with excessive debt and management without experience in these new fields. Divesting
can help to resolve some of these problems, “Existing research provides evidence that
divestitures alleviate problems of misallocation of corporate resources, improve managerial
ability to coordinate a leaner organization and increase profitability” (Kolev, 2016, p. 180). One
of the healthcare sectors that Alere invested heavily in was healthcare management. After
acquisition of a large health management firm, the stock price of Alere dropped to almost half its
price and has not recovered significantly since. The first objective of Alere is to cease
acquisitions and invest in organic growth. The costs will vary depending on the amount that is
deemed necessary to promote growth within the organization but proceeds from divestitures can
fund the majority of it. The focus is on the professional diagnostics business segment with
special emphasis on the point-of-care product line. These products have been the staple of the
organization and the success of the organization depends heavily on them. This portion of the
strategy is focused on the short-term and should be completed within two years.
Once the company has rid acquisitions from its business strategy, Alere can began
divestitures. Consumer diagnostics and healthcare information are the two business segments of
Alere that should be the main concentration for divestitures. Selling some of the companies that
were previously acquired can help Alere allocate assets differently and focus on core functions.
BUSINESS MODEL GENERATION 1
19
Alere can free upwards of $200 million of capital to use for internal investments. This task will
be more complicated now that Alere has been acquired by Abbott Laboratories. However,
combining with Abbott has helped Alere to put more effort into point-of-care diagnostic
products. Selling companies that were acquired by Alere will be an ongoing process and this
strategy will be focused on the short to mid-term and perhaps even longer depending on the
market.
Finally, once Alere has sold off the companies that do not contribute to the core
competencies of the business, a rationalization of business operations needs to be conducted.
Since being acquired by Abbott and reducing the size of Alere, processes need to be
fundamentally altered to increase efficiencies and performance. These processes can utilize
assets from both organizations and can help integrate Alere management in Abbott, therefore
giving them more influence and decision-making power. Alere could potentially see savings
between $50-$100 million by rationalizing operations. This is a long-term goal and several
companies need to be divested before it can be materialized.
Proposed Business Model
A good business model explains how an organization brings value to the customer. First,
the customer has to be defined. As Alere reverts to its core products in the professional
diagnostics industry, the customers will primarily be medical professionals and organization.
The market is international and should remain this way since only half of Alere’s revenue comes
from within the United States. The value proposition that Alere will provide to these customers
will be point-of-care tests that are tests for things such as cancer, drug abuse, diseases, and
women’s health. This is a reduction of the current products, which includes tests that are sold in
BUSINESS MODEL GENERATION 1
20
retail and grocery stores; these products are a joint venture between Alere and Proctor and
Gamble.
The channels that are to be used to deliver the product are the sales force internal to Alere
and an increased emphasis on web sales. The website needs to be updated to reflect a new
channel to purchase products or at a minimum provide potential customer with details about
specific products and an opportunity to interact digitally with the sales force. The connection
with the customer after the sale will be minimized since the health management sector of the
business has been removed. However, to maintain a satisfied customer base Alere needs to
monitor how well the products are working, customer satisfaction, and continuously explore
innovative ways they can provide products to the customer.
The revenue stream that Alere uses is asset sales. To improve on this, a subscription to
the products would be beneficial. Since the products are used and replaced on a continuous
basis, a subscription for a certain number of each product can be provided in a package deal each
month. This would likely increase the amount of product bought and a subscription fee (or
minimum quantity required) can be applied. The key resources that can help with creating these
revenue streams is through production facilities that are located throughout the world along with
financial and intellectual backing from Abbott. Since Abbott also has vast experience in the
professional diagnostic industry, taking advantage of the processes, knowledge, and intellectual
property that they possess can have significant impacts at little to no cost. This is a key
partnership that can be mutually beneficial. Another key partnership is with a health
management organization. This is crucial because it increases the value of the product by
providing an optional service. The service will be handled by a strategic partner, which is not a
competitor and is able to add value for the customer.
BUSINESS MODEL GENERATION 1
21
The key activities for Alere are their production and research and development programs.
Production is currently done in multiple areas in the world, but it can be improved by relocating
to areas where labor is cheaper or in areas where the majority of the products are sold. Research
and development is imperative to come up with innovative products that are customer friendly
and anticipate demand. The medical field is constantly evolving and a company that does not
keep up will lose its competitive advantage. The cost structure behind this business model will
be a mixture between cost and value-driven. Alere needs large economies of scale to maintain
competitive pricing but with the recent acquisition to Abbott, they have more market share, so
they can focus on value also. Products can be customized in some instances for valuable clients
and an emphasis on providing the most recent technology in professional diagnostics can be
achieved. The premise of this business model is that the product provides a greater value to the
customer than its competitors and that Alere focuses on its core competencies, which are in
profession diagnostics.
BUSINESS MODEL GENERATION 1
22
References
Alere. (2018). About Alere. Retrieved from https://www.alere.com/en/home/about.html
Alere Company Profile. (2017). Company Profile: Alere Inc. Marketline. Retrieved on April 17,
2018 from http://advantage.marketline.com.ezproxy.liberty.edu/Product?
ptype=Companies&pid=1F881635-242A-480A-B96B-0854971AA323
Alere eScreen. (2018). Retrieved on April 15, 2018 from
https://www.choicescreening.com/company/partnerships/alere_escreen.
Alere Technologies. (2018). GmbH. Retrieved on April 14, 2018 from https://alere-
technologies.com/en/science-technologies.html
Alere 10-K. (2016). Retrieved from
http://www.mergentintellect.com.ezproxy.liberty.edu/index.php/search/companyDetails/9
3803398/reports
Bartz, D. (2017). BRIEF-Abbott acquisition of Alere set to close on October 3, 2017, September
29, 2017. Retrieved from https://www.reuters.com/article/brief-abbott-acquisition-of-
alere-set-to/brief-abbott-acquisition-of-alere-set-to-close-on-october-3-2017-
idUSASB0BLEK
Competitors. (2018). The Owler. Retrieved on April 15, 2018 from
https://www.owler.com/company/alere.
GuruFocus. (n.d.). Retrieved April 16, 2018, from http://www.gurufocus.com/
Kolev, K. (2016). To divest or not to divest: A meta‐analysis of the antecedents of corporate
divestitures. British Journal of Management, 27(1), 179-196. doi:10.1111/1467-
8551.12145
BUSINESS MODEL GENERATION 1
23
Laboratory Corporation of America. (2018). Fort Mill: Mergent. Retrieved from Business Market
Research Collection. Retrieved from http://ezproxy.liberty.edu/login?
url=https://searchproquest-com.ezproxy.liberty.edu/docview/1860761772?
accountid=12085
NASDAQ. (2015). Alere furthers divestment strategy, sells off analytics division. Retrieved on
April 14, 2018 from https://www.nasdaq.com/article/alere-furthers-divestment-strategy-
sells-off-analytics-division-analyst.
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. John Wiley & Sons, Inc.
Hoboken, New Jersey.
Petro, F., & Gean, F. (2014). A logical approach to the statement of cash flows. American
Journal of Business Education, 7(4), 315. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/1613024781?accountid=12085
Quest Diagnostics Incorporated. (2018). Fort Mill: Mergent. Retrieved from Business Market
Research Collection Retrieved from http://ezproxy.liberty.edu/login?url=https://search-
proquestcom.ezproxy.liberty.edu/docview/1860785993?accountid=12085
Rothaermel, F. T. (2017). Strategic management concepts (3rd ed.). New York, NY: McGraw-
Hill.
StockNewsJournal. (n.d.). Retrieved April 16, 2018, from http://www.stocknewsjournal.com/
Zollo, M., & Singh, H. (2004). Deliberate learning in corporate acquisitions: Post-acquisition
strategies and integration capability in U.S. bank mergers. Strategic Management
Journal, 25(13), 1233-1256. doi:10.1002/smj.42
Running head: BUSINESS MODEL GENERATION 1
24
APPENDIX A
Strengths
Weaknesses
BUSINESS MODEL GENERATION 1
25
SWOT Analysis
Merger
with
Abbott
Marketing
approvals
Launch
new
products
Partnerships
Ability to offer
broadest
POC
menu
Growing
presence
in
intemational
markets
‘Tests
that
enables
physicians
and
addiction
specialist
to
screen
Ability
to
facilitate
early
detection
Ensure
patient
compliance
Better
quality
products
String
ent
regulations
forhealthcare
services
Healthcare
reform
legislations
Decrease
Revenue
Financial
Condition
(debt)
Multiple
competitors
Reliance
on
Medicare
and
Medicaid
Compliance of
various
laws
and
regulations
Federal
reporting
requirements
Potentially
sunbstantial
penalitites
Brand
Image
Total
EFE
Score
BUSINESS MODEL GENERATION 1
27
APPENDIX C
External factor evaluation (EFE) Matrix
SO
Strategies
ST
Strategies
WT
Strategies
BUSINESS MODEL GENERATION 1
28
APPENDIX D
SWOT Bivariate Strategy Matrix
BUSINESS MODEL GENERATION 1
29
APPENDIX E
BCG Matrix
ALR information obtained from Alere 10-K (2016).
Quest Diagnostics information obtained from Hoovers (2018).
Laboratory Corporation of America information obtained from Hoovers (2018).
dvertising
Penetration
tomer
Service
bal
Distribution
tional
Capability
cial
Profit
ufacturing
Strength
Share
duct
Quality
re
Competency
Competitiveness
WIN
BR
WPkIWNYN
Wh
WRN
WIR
RILWINI|R
WIR
WIR
WN
NPR
WIR
IWIR
WW
wih
Rw
BUSINESS MODEL GENERATION 1
31
APPENDIX G
Competitive Profile Matrix
BUSINESS MODEL GENERATION 1
32
APPENDIX H
Financial Statements – Income Statements
ALERE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
2016
2015
(As Restated)
2014
(As Restated)
Net product sales
1,883,57
1,946,33
$ 6
$ 0
$2,023,963
Services revenue
480,761
492,308
531,988
Net product sales and services revenue 2,364,33
2,438,63
7
8
2,555,951
License and royalty revenue
11,998
16,977
21,050
Net revenue 2,376,33
2,455,61
5
5
2,577,001
Cost of net product sales
1,039,14
978,347
6
1,063,000
Cost of services revenue
304,871
304,388
294,949
Cost of net product sales and services revenue 1,283,21
1,343,53
8
4
1,357,949
Cost of license and royalty revenue
3,250
3,781
5,592
Cost of net revenue
1,286,46
1,347,31
8
5
1,363,541
BUSINESS MODEL GENERATION 1
33
Gross profit
1,089,86
1,108,30
7
0
1,213,460
Operating expenses:
Research and development
112,122
119,453
144,828
Sales and marketing
403,055
434,439
513,049
General and administrative
563,776
374,156
453,163
Impairment and (gain) loss on dispositions, net
(3,810)
50,540
7,742
Operating income
14,724
129,712
94,678
Interest expense, including amortization of original issue
discounts and deferred financing costs
(171,651)
(216,997)
(209,191)
Other income (expense), net
4,529
2,743
(3,407)
Loss from continuing operations before provision (benefit)
for income taxes
(152,398) (84,542) (117,920)
Loss from continuing operations before equity earnings of
unconsolidated entities, net of tax
(187,774) (30,978) (188,950)
Equity earnings of unconsolidated entities, net of tax
50,505
15,530
17,509
Provision (benefit) for income taxes
35,376
(53,564)
71,030
BUSINESS MODEL GENERATION 1
34
Loss from continuing operations
(137,269) (15,448) (171,441)
Net income (loss)
(137,269) 204,065 (33,123)
Net income (loss) attributable to Alere Inc. and Subsidiaries
(137,619)
203,684
(33,153)
Preferred stock dividends
(21,350)
(21,293)
(21,293)
Net income (loss) available to common stockholders
$ (158,969) $ 182,391 $ (54,446)
Loss from continuing operations
$ (1.83)
$ (0.43)
$ (2.33)
Income from discontinued operations
—
2.57
1.67
Net income (loss) per common share
$ (1.83)
$ 2.14
$ (0.66)
Weighted-average shares — basic and diluted
86,796
85,420
82,938
Less: Net income attributable to non-controlling interests
350
381
30
Income from discontinued operations, net of tax
—
219,513
138,318
Basic and diluted net income (loss) per common share:
BUSINESS MODEL GENERATION 1
35
(Values
in
U.S.
Thousands)
12-2016
12-2015,
12-2014
ASSETS
Current
Assets
Cash
&
Cash
Equivalents
618,765
507,894 416,032
Marketable
Securities
76
164
259
Receivables
413,535
436,924
461,096
Inventories
308,920 350,949 377,349
Income
taxes
-
deferred
0 0
127,920
Other
current
assets
0
4,165
315,515
TOTAL
$1,459,903
$1,414,610
$1,830,584
Non-Current
Assets
PPE
Net
441,190 446,039 454,223
Investments
And
Advances,
72,225
65,333 91,693
Intangibles
3,592,107 3,862,306
4,246,761
Other
Non-Current
Assets
82,854
129.872
76,617
TOTAL
$4,188,376
$4,503,550
$4,869,294
TOTAL
ASSETS
$5,648,279
$5,918,160
$6,699,879
BUSINESS MODEL GENERATION 1
36
Alere, Inc. Balance Sheet
APPENDIX I
Financial Statements – Balance Sheet
(Values
in
U.S.
Thousands)
12-2016
12-2015,
12-2014
ASSETS
Current
Assets
Cash
&
Cash
Equivalents 618,765
507,894
416,032
Marketable
Securities,
76
164
259
ivables
413535,
436,924
451,096
Inventories
308,920
350,949
377,349
Income
taxes
-
deferred
0 0
127,920
Other
current
assets
0
4,165
315515,
TOTAL
$1,459,903
$1,414,610
$1,830,584
Non-Current
Assets
441,190
446,039
454,223
Investments
And
Advances
72225
65,333
91,693
Intangibles
3,592,107
3,862,306
4,246,761
Other
Non-Current
Assets
82854
129.872
76,617
TOTAL
$4,188,376
$4,503,550
$4,869,294
TOTAL
ASSETS
$5,648,279
$5,918,160
$6,699,879
BUSINESS MODEL GENERATION 1
37
BUSINESS MODEL GENERATION 1
38
APPENDIX J
Financial Statements – Schedule of Cash Flows
ALERE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The Year Ended December 31,
2016 2015
(As Restated) 2014
(As Restated)
Net income (loss) (137,26
$ 9)
$ 204,065
$
(33,123)
Income from discontinued operations, net of tax
—
219,513
138,318
Income (loss) from continuing operations (137,26
9) (15,448) (171,441)
Non-cash interest expense, including amortization of original issue discounts and
deferred financing costs
13,369
12,831
16,233
Depreciation and amortization
285,608
309,264
336,029
Non-cash stock-based compensation expense
41,796
26,391
12,452
Tax benefit related to discontinued operations retained by Alere Inc.
—
—
9,845
Impairment of inventory
2,667
15,597
3,124
Impairment of long-lived assets
1,792
3,708
7,019
Loss on sale of fixed assets
3,551
3,925
6,545
Equity earnings of unconsolidated entities, net of tax
(50,505)
(15,530)
(17,509)
Deferred income taxes
(36,010)
(99,389)
12,254
Adjustments to reconcile net income (loss) from continuing operations to net cash
provided by operating activities:
Cash Flows from Operating Activities:
BUSINESS MODEL GENERATION 1
39
Loss on extinguishment of debt
—
19,886
—
Impairment and net (gain) loss on business disposition
(3,810)
50,540
7,742
Other non-cash items
(463)
28,782
4,965
Non-cash change in fair value of contingent consideration
(13,309)
(59,871)
7,677
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net
26,698
(6,680)
(4,264)
Inventories, net
(13,655)
(63,935)
(67,532)
Prepaid expenses and other current assets
(19,921)
(5,295)
(51,998)
Accounts payable
4,362
(10,783)
47,851
Accrued expenses and other current liabilities
51,490
22,643
37,886
Other non-current assets and liabilities
23,329
(3,357)
13,254
Cash paid for contingent consideration
(430)
(6,315)
(22,077)
Net cash provided by continuing operations
179,290
206,964
188,055
Net cash provided by discontinued operations
—
318
43,468
Net cash provided by operating activities
179,290
207,282
231,523
Cash Flows from Investing Activities:
BUSINESS MODEL GENERATION 1
40
Increase in restricted cash
(4,721)
(13,715)
(5,446)
Purchases of property, plant and equipment
(67,694)
(90,778)
(100,562)
Proceeds from sale of property, plant and equipment
1,428
2,099
1,486
Cash received from business dispositions, net of cash divested
21,470
675,823
45,076
Cash paid for business acquisitions, net of cash acquired
(5,958)
(60,135)
(75)
Cash received from investments
—
—
198
Cash paid for equity investment
(184)
—
—
Proceeds from sale of equity investment
40,751
—
8,546
Cash received from sales of marketable securities
87
92
580
Cash received from equity method investments
16,989
26,136
980
Decrease (increase) in other assets
460
(1,794)
986
Net cash provided by (used in) continuing operations
2,628 537,728 (48,231)
Net cash provided by (used in) investing activities
2,628 537,519 (57,203)
Cash paid for financing costs
(29,187) (16,188) (1,528)
Net cash used in discontinued operations
—
(209)
(8,972)
Cash Flows from Financing Activities:
BUSINESS MODEL GENERATION 1
41
Cash paid for contingent consideration
(680)
(14,223)
(32,902)
Cash paid for dividends
(21,292)
(21,293)
(21,293)
Proceeds from issuance of common stock, net of issuance costs
18,934
79,185
51,555
Proceeds from issuance of short-term debt
—
1,511
806
Proceeds from issuance of long-term debt
459
2,162,162
58
Payments on short-term debt
(1,722)
(25,584)
—
Payments on long-term debt
(198,31
(2,656,38
6)
6)
(65,122)
Net proceeds (payments) under revolving credit facilities
126,017
(127,536)
(42,522)
Excess tax benefits on exercised stock options
—
—
972
Principal payments on capital lease obligations
(4,032)
(5,618)
(6,085)
Purchase of non-controlling interest
—
—
(623)
Other
—
(8,937)
—
Net cash used in discontinued operations
(109,81
9)
(632,907)
(116,684)
0
(76)
(1,471)
Net cash used in continuing operations
Net cash used in financing activities
(109,81
9)
(632,983)
(118,155)
BUSINESS MODEL GENERATION 1
42
Foreign exchange effect on cash and cash equivalents
(7,084) (11,379) (16,312)
Cash and cash equivalents, beginning of period – continuing
operations 502,20
378,46
0
1
355,431
Cash and cash equivalents, beginning of period – discontinued
operations
—
23,300
6,477
Cash and cash equivalents, end of period 567,21
502,20
5
0
401,761
Less: Cash and cash equivalents of discontinued operations,
end of period
—
—
23,300
Cash and cash equivalents of continuing operations, end of
period 567,21
502,20
$ 5
$ 0
$ 378,461
Net increase in cash and cash equivalents
100,43
65,015 9
39,853
Batra
ae
Net
Working
Capt
tio
1388
cent
Reto
22
uick
Ratio
(id
Tes
15
Lit
Rati
(Cash)
476
Receivables
Turnover
55
‘erage
Colston
Period
6
Wiring
CepttEquity
29
Woking
Capita
pS
ear
Cashion
pS
207
Fre
Cesh-ow
pS
429
RATIOS
‘Atman's
Store
Ratio
425
Fanil
Leverage
Rai
(AsselsEuiy)
24
Date
Ratio
26
Toll
Det
(Gearing
Ratio)
244
Lr
Dete.qity
235
LDenicaptal
invested
756
(Debits
Listes
954
eres
Cover
a0
Interest/Capital
invested
345
BUSINESS MODEL GENERATION 1
43
APPENDIX K
Financial Ratios
BUSINESS MODEL GENERATION 1
44
BUSINESS MODEL GENERATION 1
45
50h
Trend Curr fatie, Reid
Test,
Working
Cap/Equity
as
60
2.5
58
2.0
50
1.5
48
1.0
40
0.5
38
0.0
23
«and
ONS
NIT
—
Working
cap/equity
[cur
Ratio
ML
Acid
Test
SY
Trend
CashFlon
PS,
Free
Cashtlon
PS,
EPS
23204227
5
ashe
Tow
PS
Free
Cashion
PS
SVR
Trend Debt Ratio, LT
Debt/Cap
Invested,
Interest
Cover
100
80
60
40
20
23
ans
Interest
Cover
Debt
Ratio
LT
bebtytap
trvest
‘SMR
Trend
Bookvalue
PS, cap
Invested
PS
23
ans ONS
GNI
Bookva
ue
PS
Cap
Invested
PS
BUSINESS MODEL GENERATION 1
46
BUSINESS MODEL GENERATION 1
47
APPENDIX L
Pro-Forma Financial Statements – Income Statements
Projected Income Statement
12/31/2018
12/31/2019
12/31/2020
Revenues
$2,376,335
$2,376,335
$2,376,335
Cost of Goods Sold
0
0
0
Gross Profit
2,376,335
2,376,335
2,376,335
Operating Expenses
0
0
0
EBIT
2,376,335
2,376,335
2,376,335
Interest Expense
167,122
167,122
167,122
EBT
2,209,213
2,209,213
2,209,213
Tax
0
0
0
Non-Recurring Events
0
0
0
Net Income
2,209,213
2,209,213
2,209,213
BUSINESS MODEL GENERATION 1
48
APPENDIX M
Pro-Forma Financial Statements – Balance Sheet
Projected Balance Sheet
12/31/2018
12/31/2019
12/31/2020
Assets
Cash and Equivalents
$2,776,352
$4,985,565
$7,194,778
Accounts Receivable
413,535
413,535
413,535
Inventory
308,920
308,920
308,920
Other Current Assets
170,309
170,309
170,309
Total Current Assets
3,669,116
5,878,329
8,087,542
Property Plant & Equipment
441,190
441,190
441,190
Goodwill
2,759,366
2,759,366
2,759,366
Intangibles
832,741
832,741
832,741
Other Long-Term Assets
155,079
155,079
155,079
Total Assets
7,857,492
10,066,705
12,275,918
Liabilities
Accounts Payable
195,879
195,879
195,879
Other Current Liabilities
480,277
480,277
480,277
Total Current Liabilities
676,156
676,156
676,156
Long-Term Debt
2,858,205
2,858,205
2,858,205
Other Long-Term Liabilities
282,311
282,311
282,311
Total Liabilities
3,816,672
3,816,672
3,816,672
Equity
Common Stock
606,501
606,501
606,501
Retained Earnings
2,209,213
4,418,426
6,627,639
Treasury Stock
(184,971)
(184,971)
(184,971)
Paid in Capital & Other
1,410,077
1,410,077
1,410,077
Total Equity
4,040,820
6,250,033
8,459,246
Total Liabilities and Equity
7,857,492
10,066,705
12,275,918
Running head: BUSINESS MODEL GENERATION 1 49
APPENDIX N
Pro-Forma Financial Statements – Schedule of Cash Flows
Alere, Inc.
Pro-Forma Schedule of Cash Flows
Starting date
Jan-18
Beginnin
g
Jan-
18
Feb-
18
Mar-
18
Apr-
18
May-
18
Jun-
18
Jul-18
Aug-
18
Sep-
18
Oct-
18
Nov-
18
Dec-
18
Total
Cash on hand
(beginning of month)
313,775
313,775
296,915
280,055
263,195
246,334
229,474
212,614
195,754
178,894
162,034
145,174
128,313
CASH RECEIPTS
Total cash available
313,775
330,248
313,388
296,528
279,668
262,808
245,947
229,087
212,227
195,367
178,507
161,647
144,787
CASH PAID OUT
TOTAL CASH PAID OUT
33,333
33,333
33,333
33,333
33,333
33,333
33,333
33,333
33,333
33,333
33,333
33,333
400,000
Cash on hand (end of
month)
313,775
296,915
280,055
263,195
246,334
229,474
212,614
195,754
178,894
162,034
145,174
128,313
111,453
2,450,209
