Zimmer: We’re not pushing the device tax down the line

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Medical device company Zimmer Holdings (NYSE:ZMH) is well-prepared to weather the burden of the new medical device tax, chairman & CEO David Dvorak told an audience at the J.P. Morgan healthcare conference in San Francisco today.

The company has spent many years streamlining its operations and looking for ways to cut costs in order to prepare for the tax, which took effect Jan. 1.

"We were very forward-looking about the effects of the tax," said Dvorak, who’s chairman of the anti-medtech tax lobby AdvaMed. "The operational excellence program going back several years was designed in anticipation that, unfortunately, this thing may go around and bite us."

Zimmer’s "operational excellence" initiative is among the company’s 3 pillars of success, which also includes growth strategies capital allocation.

The medical device maker has been targeting about $400 million in savings by 2016, among other initiatives, in pursuit of hitting 8-12% earnings-per-share growth, Dvorak said today.

Zimmer was also among the 1st to publicly blame the medical device tax for cuts to its workforce. Last year the company announced outsourcing initiatives and layoffs for its Warsaw, Ind.-based headquarters, cited as efforts to offset part of the burden posed by the levy.

Dvorak noted that repealing the 2.3% medical device tax is among his priorities, but said that the company won’t be kicking the tax down the line in the meantime.

"We’re going to keep fighting the tax, to seek repeal through the influence of AdvaMed and the broader industry," Dvorak said, "but we have so much positive going on right now with new product launches and we’ve worked so hard over the last several operating periods to create efficiencies through the operational excellence program … that we don’t see the need to introduce what could be a disruptor to the sales channel by pushing the tax on them."

Late last year the company scaled back some of its earlier comments on the tax, projecting less influence that previously reported.

"The tax is not going to be that expensive, it’s not going to be quite as significant as the $40 million to $50 million that I’ve referenced in 2013," CFO James Crines said at the time.

CEO Dvorak has said that repealing the tax is one of his main goals during his 2-year term as chairman of AdvaMed, a position he obtained in March 2012.

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