Today’s MUST READ is Joe Bodell’s Erik Paulsen and his Friends reviewing a mailing from American Life Sciences Innovation Council (ALSIC) …. which is a reminder of Representative Paulsen concerns about the “onerous” 2.3% Medical Device EXCISE Tax … as is illustrated by yesterday’s tweet from Representative Paulsen
— Rep. Erik Paulsen (@RepErikPaulsen) August 12, 2013
In the short Tweet-world of 140 characters, Representative Paulsen has conveyed that Jobs ARE Lost and the MDET must be repealed … yet, if the reader did not click the link they would not know that the article does not state that any jobs have been lost.
The company is CareFusion … a San Diego based company with operations all around the world and over 14,000 employees. CareFusion Corporation provides health care products and services that focus on breaking the cycle of harmful medication errors and reducing hospital acquired infections. CareFusion’s products include IV pumps, automated dispensing and patient identification systems, electronic infection surveillance service, and ventilation and respiratory products.
On April 25, 2013, CareFusion announced that it had reached an agreement in principle to resolve three previously disclosed government investigations and will pay $41 million to avoid prosecution and resolve investigations related to ChloraPrep patient skin preparation and the company’s relationships with healthcare professionals.
Also, CareFusion has reached a settlement with the U.S. Internal Revenue Service for tax matters related to transfer pricing arrangements between foreign and domestic subsidiaries and the transfer of intellectual property for fiscal years 2003 through 2005. As part of the settlement, the company will pay $69 million net of tax, for which the company was fully reserved.
CareFusion share prices have moved between a 52-week high of $39.38 and a 52-week low of $26.00 and are now trading $37.55 per share.
CareFusion just announced its results for the fiscal year and projections for next year … never mentioning the MDET. Highlights include :
For the fiscal year ending June 30, 2014, CareFusion expects revenue to grow 1 to 4 percent on a constant currency basis compared to fiscal 2013 revenue of $3.55 billion. Adjusted diluted earnings per share from continuing operations are expected to be in the range of $2.30 to $2.40.
Fiscal 2013 GAAP diluted EPS from continuing operations increased 9 percent to $1.74, or $2.12 on an adjusted basis.
The company also announced that its board of directors has approved a two-year, $750 million share repurchase program, after completing the previous $500 million authorization in June. During fiscal 2013 under the previous authorization, the company repurchased approximately 11.4 million shares for $400 million.
That is Care Fusion … not exactly a corporation that appears to be quickly shutting down … but Representative Paulsen tweets a link which discusses the MDET :
The industry has argued that the tax, which went into effect this past January, would force companies to reduce R&D, execute layoffs, outsource manufacturing to lower-cost locations, and pass the tax on to end users. A February 2012 survey conducted by Massachusetts-based industry group MassMEDIC indicated that 44% of companies planned to pass the tax onto hospitals, clinics, purchasing organizations, and doctors. Thirty-nine percent said they would absorb the cost themselves, with half of those saying they would make up the lost revenue by cutting R&D expenditures.
So what did CareFusion do?
“We continue to offset the increased expense from the medical device tax and acquisitions with disciplined expense management, particularly in our corporate functions,” James F. Hinrichs, the company’s chief financial officer, said in an August 8 earnings call.
He didn’t elaborate as to exactly what that means, but posts on Glassdoor.com, a site that allows employees to anonymously post reviews of their employers might provide some clues. In a post from July 2012—about six months before the tax took effect—one poster, who identified himself or herself as a current employee, alleged that Carefusion discontinued its 401(k) contribution for employees because of the tax. A number of posts from 2013 bemoan “constant layoffs” (see here, here, here, and here). A post from a current employee dated May 2013 complained, “Company keeps going through periods of restructuring and layoffs. Employee bonus is meager and there is no stock options or stock purchase program.”
One thing CareFusion doesn’t appear to be cutting back on as a result of the device tax is R&D. The company increased its R&D spending by $4 million in its fiscal fourth quarter, Hinrichs said in the call. For the 2013 fiscal year, CareFusion’s R&D spending rose 17%, and it doesn’t plan to cut back next year.
Hmmm … no mention of actual job losses … actually increasing R&D … and the job references are to an employee postings expressing concern about management and the potential of layoffs. And it is just a few employees … and they employ over 14,000.
Funny thing is that Glassdoor.com site actually lists Job Openings for CareFusion in Plymouth Minnesota … actually 17 jobs … why isn’t Representative Paulsen focusing on the Job Opportunities in Minnesota’s Third District instead of pushing fear ?
Let’s echo Joe Bodell’s words — “If Congressman Paulsen really wants to help his good friends in the medical device and biotech industries (and the thousands of employees who work for them), he should stand up and say he’ll work with the Obama administration”.
Representative Paulsen continues to chant the same “Refund the Onerous Medical Device EXCISE Tax of Jobs Will Be Lost” yet the number of jobs being lost may have more to do with lawsuits, defective products, competition and more innovative products than the MDET … Representative Paulsen may want to protect his friends (and their glossy mailers on his behalf) but at least he should check the facts before exerting fear.