Medtronic (NYSE:MDT) has previously estimated that its share of the 2.3 percent medical device tax payable to the federal government is between $125 million to $175 million annually.
At the time, chief financial officer Gary Ellis described the much-reviled tax as simply the cost of doing business.
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On Tuesday, Medtronic held its fiscal second-quarter earnings conference call during which Rick Wise, an analyst with Stifel Nicolaus, asked CEO Omar Ishrak whether he is hopeful that the tax would be repealed.
After all, just last week, 50 medtech executives were shepherded by industry lobby group AdvaMed to Capitol Hill to persuade lawmakers to repeal what the industry believes is a job-killing, innovation-hampering, unfair tax.
AdvaMed has refused to concede the fight even as the odds of a repeal appear to have shrunk with the reelection of President Barack Obama.
Ishrak’s answer — though he did provide the obligatory lip service to supporting AdvaMed and said that the company would like to see the tax repealed “if possible” — is something that other medtech companies should take to heart.
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“Right now, that’s what the law is and that’s what the projection is going to be, and we can assume that that’s going to come into play and therefore we have to build our business to deal with it,” Ishrak said. “[As I said before] we like to focus on things we can control and that’s why we have taken this approach.”
In other words, if you are a pragmatic executive, don’t waste your time on the repeal effort. Deal with the challenge at hand.
Of course, others might argue that Medtronic can afford to take a hands-off approach to the repeal effort because the company enjoys a cushion in terms of a large share of overseas revenue in its revenue mix. Companies like Abiomed, Boston Scientific and Integra don’t.
That analysis of the Medtronic approach to the device tax may be fair, but being too invested in lobbying for the repeal is not particularly smart for medtech companies.
As Kevin O’Laughlin, partner at KPMG’s Life Science Advisory Services said:
“If repeal is a possibility, then I would not argue against them politicking for that. But the device tax is a reality and it is going to be happening next year. Even despite their lobbying, they need to start preparing for how they are going to manage the implementation of that.”
