Medtech employment buoyant in 2012 despite tax fears

If death and taxes are the world’s only certainties, the way the medtech sector reacted in 2012 to the then-looming US medical device sales levy might have led an observer to conclude that it believed them to be much the same thing. Analysts warned of pre-emptive restructurings and downsizings throughout 2012, insisting that the job-killing nature of the tax would make itself felt before it even became law.

But as far as the largest medtech companies go, at least, the doomsayers were wrong. The top 15 device makers by market cap actually increased their headcounts by an average of 4% during 2012, according to EvaluateMedTech, with only two companies reporting a workforce shrinkage (see table).

Restructuring

These two companies are Smith & Nephew, which shed 800 jobs, and St. Jude Medical, which specifically cited the medtech tax, a 2.3% duty on US sales, as a reason for its restructuring.

The 6% decrease in St Jude’s headcount was aimed at saving St Jude $50-60m, exactly the amount it said it would lose to the tax in 2013 (St. Jude banks on innovation to see it through tough times for medtech, October 1, 2012).

For some companies, though, restructuring is not synonymous with job cuts. Boston Scientific, whose $28bn 2006 acquisition of Guidant left it bloated and unfocused, sliced jobs between 2007 and 2011 but did not change its staffing levels in 2012. Instead it worked to alter its architecture profoundly, regrouping its businesses and investing in new cardiovascular technologies (EP Vantage Interview – Boston Scientific remakes itself to face the future, October 22, 2012).

This strategy seems promising, but it will be a while before its effects are felt through revenue increases that would permit expansion. Boston’s headcount is unlikely to change significantly in 2013.

The same cannot be said for Intuitive Surgical. Showing the biggest increase in its staff of all the companies in the table in 2012 – 23% – Intuitive’s 2013 has been alarming, with its technology questioned in trials and payers beginning to wonder whether its surgical robots are worth their hefty price tag. If the group cannot halt its sliding sales it could soon find itself bidding its 438 newly hired workers goodbye (Intuitive’s poor sales cast a pall over the robotic surgery sector, July 10, 2013)

Employee numbers of the top 15 medtech companies by market cap
2012 market cap ($m) YE 2007 YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 Change (11-12)  Change (07-12)
Johnson & Johnson 194,772 119,200 118,700 115,000 114,000 117,900 128,000 9% 7%
Essilor International 20,966 31,534 34,320 34,759 38,112 48,700 50,688 4% 61%
Medtronic 41,443 36,484 37,665 43,000 45,000 45,000 46,000 2% 26%
Covidien 27,321 43,800 41,700 41,800 41,500 41,300 43,000 4% -2%
Becton Dickinson 15,396 28,018 28,277 29,116 28,803 29,369 29,555 1% 5%
Boston Scientific 7,768 27,500 24,800 26,000 25,000 24,000 24,000 0% -13%
Stryker 20,832 16,026 17,594 18,582 20,036 21,241 22,010 4% 37%
St. Jude Medical 10,685 12,000 14,000 14,000 15,000 16,000 15,000 -6% 25%
Getinge 7,945 10,358 11,604 12,135 12,208 13,111 14,909 14% 44%
C. R. Bard 7,985 10,200 11,000 11,000 11,700 12,100 12,200 1% 20%
DENTSPLY International 12,495 8,900 9,400 9,300 9,700 11,800 11,900 1% 34%
Smith & Nephew* 9,939 9,190 9,757 9,764 10,172 10,743 10,477 -2% 14%
Zimmer 11,439 7,600 8,500 8,200 8,800 8,700 9,300 7% 22%
Edwards Lifesciences 10,306 5,600 6,200 6,400 7,000 7,800 8,200 5% 46%
Intuitive Surgical 19,713 764 1,049 1,263 1,660 1,924 2,362 23% 209%
Total 367,174 374,566 380,319 388,691 409,688 427,601 4% 14%
*Numbers for Smith & Nephew are averages for the year

Though Johnson & Johnson is the biggest company by both market cap and headcount, only 41% of its sales come from medtech. However, its 9% uptick in personnel in 2012 is mostly due to medtech operations, namely the $20bn acquisition of the orthopaedics company Synthes that closed in June 2012.

Now that Abbott has separated pharma from medtech – it does not appear in the table as in 2012 pharmaceuticals made up most of its sales – Johnson & Johnson stands alone as a conglomerate.

In contrast, the second biggest medtech company by market cap and the largest pure-play firm, Medtronic, has barely changed its footprint. Two other cardiovascular-focused companies, Edwards and Covidien, have both seen mid-single-digit staffing rises, ticking over nicely in a sector that does not face waning demand.

The medtech tax will bite over the course of 2013, but staffing trends show that it has not scared device manufacturers away from expanding. The medical device sector might not have expanded as fast as big biotech, and the full picture will not become apparent until a year from now, but claims that medtech companies would have to slash jobs to cope with a 2.3% reduction in sales appear to have been wide of the mark.

All data sourced to EvaluateMedTech.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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