Analysts saw a connection to what St. Jude will have to pay in a new medical device tax. Officials said the goals are broader.
St. Jude Medical Inc. said Thursday that it has laid off 300 employees, including 80 of its workers in Minnesota, as part of a broader companywide reorganization expected to slash $50 million to $60 million in costs in 2013.
The layoffs are "effective immediately," said company spokeswoman Amy Jo Meyer. Meyer said the jobs being cut come from "a broad range of geographies and types of position." She declined to offer further details.
The amount of anticipated savings is close to what company executives expect St. Jude will have to pay in 2013 as part of a new federal medical device tax, but Meyer said, "The medical device tax was one of many factors that contributed to the rationale for the realignment of our business, which resulted in the reduction of operating expenses."
Daniel Starks, chief executive of St. Jude, said: "The reorganization we have announced today is part of a comprehensive plan to accelerate our growth. We are focused on reducing costs, leveraging economies of scale, maintaining the highest level of quality, and funding our entire portfolio of new growth drivers."
In addition to the layoffs, Little Canada-based St. Jude said it is realigning its four product divisions into two new operating units: the implantable electronic systems division and the cardiovascular and ablation technologies division. The company said it also will centralize several support functions including information technology, human resources, legal, business development and many marketing functions.
Meyer said the company is providing support to the approximately 300 employees whose jobs are being eliminated, but she declined to specify the type of assistance the workers are getting.
St. Jude acknowledged on Thursday that its 2012 sales are expected to decline about 1 percent from last year. Sluggish sales for implantable heart rhythm devices is not unique to St. Jude. But the company has faced additional challenges after last year's recall of Riata leads, wires that connect a defibrillator to the heart, over safety concerns. St. Jude's cardiac rhythm sales fell 6 percent in the second quarter from a year earlier.
Thomas Gunderson, a senior analyst with Piper Jaffray & Co., said there appears to be a strong connection between the layoffs and reorganization and fallout from the new medical device tax. Starting in January, medical device makers will have to pay a 2.3 percent excise tax on products they sell. The tax is expected to raise $2 billion a year to help pay for President Obama's Patient Protection and Affordable Care Act. The tax is expected to cost St. Jude about $61 million in 2013.
"They have to cut expenses to make up for the medical device tax," Gunderson said. "Although some of this already was in the works."
In a note sent to investors, Danielle Antalffy of Leerink Swann Research agreed.
"We assume that [St. Jude] is taking preemptive action to help offset the med-tech device tax beginning Jan. 1, 2013, which we estimate at $63 [million] in 2013," she wrote.
According to St. Jude, the new implantable electronic systems division will be led by Eric Fain and will be composed of the former cardiac rhythm management division and the former neuromodulation division. Frank Callaghan will head the cardiovascular and ablation technologies division, composed of the former atrial fibrillation division and the former cardiovascular division. Fain and Callaghan will report to group President Michael Rousseau.
As part of the reorganization, St. Jude named three additional executive officers: Donald Zurbay, Rachel Ellingson and Kathleen Chester. Zurbay becomes a vice president for finance and chief financial officer. Former CFO John Heinmiller is taking on an expanded role as executive vice president, overseeing the centralization of the IT, HR, legal and business development functions.
Ellingson was named vice president for corporate relations and Angela Craig will assume new responsibilities as vice president of global human resources. Chester was named to a new role of vice president of global regulatory issues.
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