7 min reading time

… said a Minneapolis-based medical device CEO on condition of anonymity.

He was reacting to “Medtronic merger tax advantages bring in $9.3 billion” at http://www.medgroup.biz/MDT93

And specifically the first line, “Medtronic says tax advantages stemming from the merger with Ireland-based Covidien have made billions of dollars available for stock buybacks and other uses.”

“They could not be more tone deaf,” continued my anonymous friend.

“We finally get the medical device tax suspended because we, as an industry, decry its effect on our businesses – and what’s the first thing they do? A stock buyback to increase shareholder value!

How about increasing shareholder value by innovating? Investing in research and development? Buying struggling smaller companies who won’t make it on their own?

Seriously, what a bunch of a-holes!”

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To be fair, the article also said, “With the merger, Medtronic promised to invest $10 billion in the U.S. over 10 years and add 1,000 jobs in Minnesota, where Medtronic already has about 8,000 employees.”

But as I tell my marketing clients, “Perception is reality.” If the main takeaway is “Medtronic is doing buybacks after the tax inversion,” what does that say about greed, tax evasion, and the business of healthcare?

What do you think?

Do you begrudge Medtronic for deploying its tax savings on a share buyback? Or is that just good business?

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10x KEYNOTES ANNOUNCED
We have a two-for-the-price-of-one keynote by David Cassak and Stephen Levin, managing partners of “The MedTech Strategist” and health care industry veterans who have written extensively on the medical device industry for more than 30 years. You may know them as former Editors-In-Chief for “The Gray Sheet,” and as creators of “In Vivo,” “Start Up,” and “Medtech Insight.”

David and Stephen agreed to share the best of what’s out in the medical device marketplace. This will be a great foundation for our medical device conference.

If you’re in Southern California, make a point to at least attend the 10x Medical Device Conference reception!

http://medgroup.biz/10x

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Discussions This Week

Graphene this, graphene that

Customer or Money: Which Comes First in Med Tech?

Thoughts on the Zika virus

Medical Devices and Apps

FDA labeling requirements for disposal?

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Make it a great week.

Joe Hage
Medical Devices Group Leader

P.S. We’ve already sold more than half the 10x tickets for May. If you’re interested, get on the guest list! http://medgroup.biz/10x

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David Pennington
Senior Project Manager at Commissioning Agents, Inc | CAI Consulting
Actually, Julie O., my decisions were always to do work I found meaningful. I watched engineers move into managerial or marketing career paths, and their motivations were obviously monetary. I chose to continue in a purely technical role, because that’s what floats my boat. I just chose to do so in companies where technical roles were better compensated.

I am currently reading “Victor Papanek – Path of a Design Prophet”. Victor’s own first book was “Design for the Real World” (1970). I highly recommend both books. Victor’s gives his message straight out. The biography not only gives a view of the man, but also includes the reflections on his message by colleagues and students, including my own minor contribution.

Julie Omohundro
Principal Consultant at Class Three, LLC
David P., we all make our choices. There are also plenty of people with families to support who have chosen not to make career decisions intended to maximize their personal positive cash flow. Some have chosen to do work they find meaningful, rather than the best compensated. Others have chosen to do work that will allow them to maximize their time spent with their families, rather than the best compensated. Whether or not to take on a mortgage, whether or not to have a family, and whether or not to support them, alone or in partnership with a spouse are also choices.

David Pennington
Senior Project Manager at Commissioning Agents, Inc | CAI Consulting
I gather from some of the remarks here that a number of folks haven’t made career decisions that were intended to maximize their personal positive cash flow. I actually did “run” my career that way until I was in my mid-thirties and had gained a mortgage and family to support. The dual realities of vision and necessity brought about a maturation of my approach, so I then pursued positions at ambitious companies where my own ambition and skills would improve my financial bottom line.

Pat Ridgely
Consultant in medical devices and education
Ginger, you’re oversimplifying. The execs had their special excise taxes paid, but not their capital-gains taxes. Despite my general disgust for the trends in c-suite compensation in the US, as a shareholder I don’t want personal tax implications for the execs driving their decisions.

Tony Quintero Jr.
Executive Medical Device Surgical Sales
The premise of your discussion is short sided. Medtronic choose to repay investors…is that not responsible. Covidien and Medtronic have a long history of innovating while incorporating companies that fit with the vision of the future. If start ups have a value rather than someone’s 8th grade science experiment, medicine has a way of purging those companies of little value. Medtronic did the right thing. You can hate the player but not the game!

Ginger Cantor
Founder/Principal Consultant at Centaur Consulting LLC
I disagree there is no greed on the part of Medtronic. If that is true, why did the Board make the company pay their taxes. They already receive outsize multi-million dollar salaries for what- sitting around and making power point slides? Oh tough job.

Mitch Bossart
Professional Writer and Communications Consultant
It’s all about the money all the time, which is scary and possibly morally questionable in some circumstances, when it comes to healthcare … but that is capitalism. The money grab is especially true for public companies.

Julie Omohundro
Principal Consultant at Class Three, LLC
I don’t begrudge any company meeting its obligation to maximize ROI for its shareholders. If they could have delivered a better ROI by innovating or investing in R&D or buying startups, then that’s what they should have done instead. Otherwise, Medtronic acted appropriately.

Peter Lendall
Web Sales Coordinator NEATCO Sports
The move overseas will eventually cause greater risks for financials. Consumers will begin to look elsewhere and QA and R&D begins to weaken. Albeit a slow process but the reality is we have the best here in the U.S. Many wil see this as a money grab … The consumer in particular. This puts the frontline sales force into a defensive mode which eventually may cause relationships to dwindle.
A smart move for the home team but when one asks , ” are biotech firms in it for the customer or the money”, well here lies the answer.

T. Kim Parnell
Principal & Founder at Parnell Engineering & Consulting (PEC)
When you look at it strictly on a dollars basis, US companies are currently very strongly benefited to keep those foreign profits overseas. It is certainly no simple issue, but I would like to see Congress try to find a way to incentivize companies to bring back some of those foreign profits to invest in US R&D. Could a tax credit be provided for US R&D use of those foreign profits that would offset the tax that currently makes companies keep those dollars overseas?

David Pennington
Senior Project Manager at Commissioning Agents, Inc | CAI Consulting
Congress makes rules, corporations and people follow those rules, then everybody complains. There’s no greed on the part of Medtronic. There is demonstrable greed on the part of government, however. Take care, lest self-serving politicians INVERT the meanings of useful words.

Ginger Cantor
Founder/Principal Consultant at Centaur Consulting LLC
While share buybacks do reward shareholders and management, it is in part paying back shareholders who had to foot the tax bill for Medtronic paying the merger deal for CEO’s and other exec management. So Medtronic management gets rewarded two or three times.

That said, Medtronic has made SO SO many acquisitions recently, how will they integrate them and who is minding compliance? Based on the increasingly frequent serious warnings letters they receive for repeated numerous deficiencies, apparently nobody in Executive Management gives more than lip service to this.

Michael Lehmicke
R&D Group Manager at Synthes
I propose no more new rules. We have enough already. If our government lowers the corporate tax rate then this problem will be solved – period. Vote accordingly.

One more thing – if share buy backs are so bad then tell your friend to put his $$ where his mouth is and short Medtronic.

Christopher M. Murphy
Senior Executive with Expertise in Healthcare, Business, and Technology.
What Paul Goeld said nails it!

Michael Lubov
Independent Plastics Professional
Most, if not all startup companies have benefitted from government assistance programs. As they grew they hired lobbyists and donated to political campaigns in order to get their way – modified regulations for their product line, tax benefits for building a new plant, etc. etc. I suggest we impose new “Abandonment Rules & Penalties” to compensate this country for the help they got from both the Federal & State governments, and by extension, the people of America.

Michael Winter
Senior Director, Quality and Regulatory Affairs
It is not only Medtronic; look at the pharmaceutical industry. In the Pfizer-Allergan merger, the combined entity will go from a 35% tax rate here in the United States, to a tax rate that is approximately 17%. The U.S. corporate tax rate at 35% is the highest of all tax rates among the developed countries. Approximately 51 U.S. companies have reincorporated in low-tax countries since 1982, including 20 since 2012 (Bloomberg, 2015). Additionally, some developed countries only tax the company’s domestic profits, but not the U.S. Unless modifications are made to the U.S. tax code, there really is no disincentive for this to continue. It it is more about the fiduciary responsibilities to shareholders that are driving the off-shoring of the reincorporations of many domestic U.S. companies. In my opinion, Medtronic is acting appropriately within the legal framework of our tax laws before the “barn door” closes.

Michael Lubov
Independent Plastics Professional
Joe:

Thank you for the opportunity to comment (or perhaps rant) about corporate inversions. These companies were started, and became successful, in the U.S. However, now that they are profitable greed has run rampant.

It’s one thing to claim that the reason for the move is mainly focused on improving shareholder value, but executive salaries and bonuses are also based on stock price and net profit. Moving to a low tax country automatically improves both without management having to do anything; not create new products nor improve manufacturing efficiency. It’s magic money, at least for the first few years.

Andrew Keirns
RWS Sr. Director Business Development
“a-holes” and similar comments miss the boat entirely and are in the category of symptom suppression — why is the Federal Government setting up a device tax in the first place; and why would federal tax law be so convoluted that shareholders would revolt if Medtronic DIDN’T go with a Covidien merger just for tax upside?

Ken Checicki
Dare Something Worthy: Improve Healthcare with Innovative Technology for Better Outcomes
I agree with John Procter. I believe it is good business. This morning Donald Trump was interviewed on the Today Show and commented that on taxes, “I fight like hell not to pay”.

David Pennington, PE
Senior Project Manager at Commissioning Agents, Inc | CAI Consulting
No need to address “the money aspect”. Every time Congress addresses “the money aspect”, it’s a sham. Remember McCain-Feingold? All along the way the Congress and the media were telling us how “taking the money out of politics will get the corruption out, too”. Then, just as it was being voted on, the media began telling us how the interested parties (pun intended) would use the new provisions of the law to not only circumvent its publicly stated intentions, but to actually INCREASE the money “in politics”.

Breaking news: CORRUPTION is only tangentially related to MONEY.

Check out the definition of a corrupt product on the FDA website. Application: a government official, elected, hired, or appointed, is corrupt, insofar as he or she does not fulfill the duties of his or her position with honesty, integrity, and competence.

The only way to “end corruption” in government is to vote the bums out.