IDEXX Laboratories Inc. on Friday released planned changes to its distribution network that the CEO said would hopefully resolve an ongoing Federal Trade Commission investigation of the Westbrook biotech company.
The discussion by IDEXX Chairman, President and CEO Jonathan Ayers came as part of the company’s quarterly earnings conference call. IDEXX said it had profits of $40.7 million in the first quarter, up about $4 million from the same period a year ago.
The FTC investigation into the company’s sales and marketing practices began in early 2010, according to IDEXX documents filed with the Securities and Exchange Commission. The FTC subpoenaed records from the company, and the investigation has been ongoing.
An FTC spokesman said Friday that he couldn’t comment on the details, but could confirm that the agency was looking into IDEXX because the company had made public statements about the investigation.
Ayers, on the conference call, said IDEXX works with three large, national distributors which exclusively carry the company’s products under noncompete agreements, selling the products to veterinary clinics. IDEXX has been working with the distributors for decades, said Ayers. Their sales force is trained on IDEXX’s products, and they make better profit margins on the product as part of that exclusive distribution arrangement.
But it appears that the FTC is concerned with that exclusive arrangement with three large distributors, and its effect on competition in the veterinarian biotech sector.
Ayers said Friday the company plans to move one of those national distributors to a nonexclusive agreement when the contracts expire at the end of the year, if not sooner. This new arrangement would mean the distributor could carry products that compete with IDEXX’s technologies. Its margins, however, would be lower — it would make less profit off its sales of IDEXX products.
“We can’t predict the FTC or speak for them, but we’ve had discussions with the FTC; we believe we understand the nature of their concerns,” Ayers said. “As we understand it, by moving to this generalist relationship with one of our three largest distributors, where they aren’t subject to the competitive products policy, it addresses the FTC’s concerns.”
Ayers said IDEXX still believes “we have a very strong legal position” with regards to the FTC’s concerns. However, he added, the company has to weigh the costs of lengthy litigation.
“We believe this plan makes a lot of sense for our business, and helps us avoid litigation,” said Ayers.
Ayers said he wasn’t sure how the distributors would react to this plan by IDEXX. One would move to a nonexclusive arrangement, said Ayers; the only questions were which one, and when.
Ayers said he believed that when this plan is complete, the FTC would formalize the arrangement with a legal consent decree that IDEXX would sign onto.
IDEXX makes a variety of diagnostic tools for the global veterinary market. The company currently employs 4,800 people, including about 1,700 in Maine. Earlier this month, IDEXX broke ground on a $35 million expansion of the company’s Westbrook headquarters, which officials said would give the company space to add as many as 300 jobs in the coming years.
In the first quarter results posted Friday, IDEXX said it had revenues of $322.7 million, a 10 percent increase from the first quarter of 2011. Looking forward to the full year 2012, the company expects revenues between $1.31 billion to $1.32 billion, year-over-year growth of between 8 and 9 percent.
It trades on the NASDAQ under the symbol IDXX, and was listed at $88.27 per share in midday trading Friday, up slightly from the previous day’s closing price.