Theragenics: Device tax puts the squeeze on small companies

Theragenics CEO M. Christine Jacobs

Theragenics ($TGX) is facing high costs and soft demand in all of its markets, and the added burden of the medical device tax is only going to make 2013 more challenging, the company said.

In the last quarter, the company posted flat sales in its surgical devices unit, and Theragenics' brachytherapy business plummeted 12% after the U.S. Preventive Services Task Force recommended against preventative screenings for healthy men, deeply slicing into demand for the internal radiotherapy devices.

And now the devicemaker will have to fork over 2.3% of its U.S. revenue to the federal government.

"The medical device tax is now a certainty and makes for a significant hurdle, especially for the small device companies," CEO M. Christine Jacobs said in a statement. "We believe this tax presents a disproportionate challenge for smaller device companies like Theragenics as compared to our larger customers and competitors."

But Theragenics has a plan to get back to its early-2012 success. The company is now outsourcing the manufacturing of legacy products and components to keep costs down, and it has signed some supply deals to pad revenues in the slumping brachytherapy sector. And Theragenics hasn't given up on innovation, launching three products in 2012 and planning to keep R&D churning this year.

"Our intent is to continue to focus on organic growth, improving profitability, move toward outsourcing, develop new products, look for strategic tuck-ins, and maintain a balance sheet and cash position that gives us this flexibility," Jacobs said. "We will experience sustainable long-term growth even in the face of punitive government actions, which will require that we maneuver to a 'new norm' post-Affordable Care Act."

- read the company's financials

Special Report: 5 Things You Need To Know About the Medical Device Tax