On Thursday, St. Jude Medical (NYSE:STJ) announced that it was laying off 300 people and organizing its four businesses under two operating units.
The move, the Minnesota medical device maker stated, was expected to save $50 million to $60 million in pre-tax operational expenses annually.
Two analysts saw the layoffs as a measure to offset the imminent pressure of the 2.3 percent medical device tax.
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“While public companies should always be looking at ways to save money, it is notable that the $50 million to $60 million in expected 2013 savings is in the same ballpark as our 2013 estimate of $62 million for the new Medical Device Excise Tax that starts Jan. 1, 2013,” said Thom Gunderson, an analyst with Piper Jaffray, in an email. “Other medical device companies have or soon will be implementing cutbacks to help balance this new tax.”
Over at Morgan Stanley, analyst David Lewis had similar thoughts.
“St. Jude acting to preserve cash flow and protect shareholders is nothing new, but this move appears more aimed at offsetting device tax pressures into 2013,” Lewis wrote in a research note Thursday. “We estimate the medical device tax will cost $60mn ($0.15) in 2013 and today’s savings essentially offset tax pressure into 2013 — a clear positive.”
An email to a St. Jude Medical spokeswoman drew no immediate response.
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A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Critics of the medical device tax have complained that the tax will kill jobs and innovation, and lead to jobs being outsourced overseas. At St. Jude Medical, the job losses appear not to affect either research or the sales operation. That’s because the workers being eliminated are in support functions, or what Lewis calls “back office” jobs that “do not impact customer touch points.” The jobs are in IT, legal, marketing, human resources and business development.
It remains to be seen how smaller companies react once the law goes into effect in the new year.
[Photo Credit: freedigitalphotos user renjith krishnan]
