St. Jude Medical (NYSE:STJ) CEO Dan Starks said his company estimates it will pay about $60 million as a result of the medical device tax in 2013, and described it as a tax that will have an unintended negative impact on the medical device industry. The report was made by Med City News earlier this summer.
In a call with Med City News discussing results of the company’s earnings in the second quarter ended June 30, Starks said that he wouldn’t be surprised to see an uptick in consolidation of the medical device industry in 2013 and one factor contributing to that is the 2.3 percent excise tax designed to go into effect that year.
“That’s a cash expense paid every 15 days starting in January,” Starks noted. “We think that the medical device excise tax with that new cash outflow every 15 days will have unintended consequences. We think that it will reduce the level of investment that medical device companies have available.
“We do think the reduced level of investment is going to impact jobs and result in reduced jobs. We do think that the reduced level of investment and the increased outflow of cash to this excise tax will impact company valuations. There’s often the well-intentioned but uninformed comment that the excise tax is intended to offset a windfall from healthcare reform. Although that may be the good intention, it is clearly not the way the tax is designed. We don’t see a windfall from healthcare reform. Our outlook for market growth is lower as a result.”
However, Starks did acknowledge that some companies will fare worse than St. Jude Medical in the new regime. That’s because St. Jude’s U.S. revenue accounts for a lower percentage of overall revenue compared to companies like Boston Scientific and Abiomed, who will be hurt more, according to one analyst’s report.
“There are some companies that have 70 percent of their revenue mix based on U.S. sales,” he said. “For us this quarter was only 47 percent of our revenue mix based on U.S. sales.”