by Debra Sherman
Last Updated: 2007-09-06 14:00:37 -0400 (Reuters Health)
CHICAGO (Reuters) – Medical device maker Medtronic Inc, feeling the pinch of a slowdown in one of its key markets, will eliminate about 900 jobs, or about 2.4 percent of its work force, generating annual savings of $125 million, according to a government filing.
Of those positions, 349 had been cut as of July 27.
The job cuts will be realized through early retirement packages, voluntary and involuntary separations and substantially completed by the end of its fiscal year in April 2008, the filing said.
Minneapolis-based Medtronic, which had revenues of $12.3 billion and employs over 37,000 people worldwide, competes with St. Jude Medical Inc and Boston Scientific Corp in the market for heart pacemakers and implantable cardioverter defibrillators, known as ICDs.
The company also makes vascular products, insulin pumps, and artificial spinal discs, but its biggest market is for products that manage irregular heartbeats, such as pacemakers and ICDs.
The ICD market has slowed dramatically since 2005 following a wave of product recalls, mostly by Guidant Corp, which was later acquired by Boston Scientific.
A Medtronic spokeswoman said about 500 jobs will be eliminated from the company’s cardiac rhythm management business, which makes ICDs, and roughly 200 jobs will cut from its cardiovascular business, which makes stents and catheters. An additional 200 jobs will be eliminated from its Physio- Control subsidiary, which makes external defibrillators and will soon be spun off into an independent company.
Most of the affected employees have been notified, the spokeswoman said.
"We’ve known Medtronic was looking at scaling back for a while. The number is the news," said Michael Barr, an analyst with Victory Capital Management, which owns Medtronic shares. "As the market slows, it’s only appropriate."
The job reductions, said Barr, are deep enough for now.
"This is still a highly profitable business, but it makes sense to adjust to the reality of the the market, which is that it isn’t recovering as fast as people had hoped."
Barr said he thinks most investors have "thrown in the towel" on hope the U.S. ICD market will grow over 10 percent any time soon.
"That’s why ( Medtronic shares) are trading at 19- or 20- times earnings," Barr added. "Historically, Medtronic has traded at a 60 percent premium to the S&P 500. Now it’s a 30 percent premium."
Medtronic shares were up 47 cents at $54.12 around midday on the New York Stock Exchange.
Separately, Medtronic said in the filing it intends to pursue the spin-off of Physio-Control after it resolves issues with the U.S. Food and Drug Administration.
Earlier this year, the company suspended shipments of certain products because of quality problems. It currently is working with the FDA on taking corrective actions and those should be completed by the end of the year. Once the issues are resolved, it will proceed with the spinoff, the filing said.