Medical Devices

Zimmer CFO walks back earlier comments on impact of device tax. Will others join him?

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The 2.3 percent device tax is roundly disliked by medical device companies, although they haven’t been able to muster enough influence to get it repealed.

The general complaint goes somewhat likes this: The medical device tax will kill jobs and stifle innovation.

But now it appears that at least one company may have overstated the impact of the tax. Mass Device is reporting that Zimmer executive vice president of finance and chief financial officer James Crines is walking back earlier comments he made on the financial ramifications of the 2.3 percent excise tax.


“… we now understand that, that tax is not going to be — that expense is not going to be quite as significant as we — as the $40 million to $50 million that I referenced in 2013,” Crines said in a conference call with analysts Thursday. “So that perhaps is going to provide us with some opportunity to invest in 2013 a bit more aggressively, whether it’s in the sales channel or product development.”

It is expected to be half of that instead.

Other companies have variously estimated how much they have to pay in the device tax. So it will be interesting to see if others also recalculate the impact of the tax.

Medtronic expects to pay $125 million to $175 million annually after taxes and CFO Gary Ellis has previously described the tax as a “cost of doing business in the U.S.” But the company has refrained from making any pointed public criticism of the tax.

That contrasts with the position of Boston Scientific, which has taken on a vocal role in supporting the tax’s repeal. That is not surprising, given that of the larger medical device companies, Boston Scientific stands to gain more if the device tax died.

St. Jude Medical expects to pay $60 million in taxes, CEO Dan Starks has noted how the tax in addition to hurting jobs and innovation will cause consolidation in the industry. Notably, in late August, St. Jude announced that it was laying off 300 people and organizing four business units into two, which would save it $50 million to $60 million. Analysts assumed this was a move to offset pressures of the device tax.


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