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Sector Wrap: Medical device makers rally

Fri, 06/29/2012 - 4:28pm
The Associated Press

Medical device makers may still dodge a tax from the health care overhaul scheduled to start hitting them starting next year, according to Citi analyst Matthew J. Dodds.

The overhaul, which survived Supreme Court scrutiny on Thursday, aims to expand coverage to millions of uninsured people. It will do this mainly through an expansion of the state-federal Medicaid program and by providing subsidies that help middle-class people buy coverage on the individual market.

To help pay for the law, the government will start adding a 2.3 percent tax on medical device sales beginning next January. This will be imposed on devices used mainly by doctors and hospitals like pacemakers and CT scan machines. The tax is expected to collect more than $29 billion from the industry over 10 years, and medical device makers strongly oppose it.

The Medical Device Manufacturers Association has said that Congress and the president must repeal the tax. Device makers argue that it would make it harder for companies to develop innovative new devices.

Dodds said in a research note Friday he still sees a chance for this tax to be repealed before it starts.

Of the large-cap stocks he covers, Dodds estimated Baxter International Inc. is the least exposed to the excise tax, while Boston Scientific Corp. is the most exposed.

In Friday trading, Baxter shares gained $1.58, or 3.1 percent, to $53.16 amid a broader market rally. The stock is up 7.4 percent in the year to date.

Boston Scientific shares added 13 cents, or 2.3 percent, to close at $5.68. Shares have gained 6.4 percent so far this year.

Elsewhere in the sector, NuVasive Inc. shares added more than 5.5 percent to end at $25.36, ResMed Inc. rallied 3.4 percent to $31.27 and Thoratec Corp. rose 4.3 percent to $33.58.

Other medical device stocks seeing gains of at least 2 percent included Intuitive Surgical Inc., St. Jude Medical Inc., Zimmer Holdings Inc. and Stryker Corp. The PHLX Medical Device Sector Index ended up 3 percent.

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