Steven-X is correct regarding an overreaction by people like Mr. Ferguson, and I believe it is quite reckless.

I shall explain. At 4:00 a.m., I had an epiphany regarding the medical device industry, why it's in such bad shape. It's all based on an analogy of the physiology of the human body and the "physiology" of business. Now, I never took a business class in my life, let alone gone and got an M.B.A., but I have a doctorate in physiology and know the subject very well, and can just see the very close parallels between the body's pathophysiological response to hemorrhage and the CEOs' response to "insult" (FDA, medical device tax, cost pressures, you name it, but it really doesn't matter).

When the body undergoes a mild hemorrhage, the blood pressure drops. Obviously, but the pressure needs to be maintained to keep conscious, to keep the heart pumping, and to maintain the body's organ systems functionality. To protect itself, a whole bunch of autonomic defense mechanisms come into play, and the blood pressure gets maintained. With larger and larger hemorrhages, the same defense mechanisms respond, but more intensively, and new ones come into play, all to maintain that all important blood pressure. But, unfortunately, the pressure oftentimes cannot be maintained, and, over time, many of those defense mechanisms, through positive feedback mechanisms, become toxic to the body, such that a state of irreversible shock is induced, and no matter what is done, death will always occur. So, what is the best way to treat hemorrhage? Obviously, put blood back in. Blood carries nutrition and oxygen, and supplying it leads to fast recovery if done in time, raises the blood pressure, and shuts off all of those non-toxic and toxic defense mechanisms. Simple. Every physiologist knows this.

In business, all of those "insults" mentioned above are "hemorrhages", and the autonomic defenses are what the CEOs are doing to their companies to mitigate the insults. Initially, what the CEOs should do for "mild hemorrhages", they have done with success, and they have maintained the "blood pressure" of the company (profits, share price, by whatever term or method, it really doesn't matter). However, different from the real body, where blood pressure can be accurately determined through a number of baroreceptors throughout the body, the "blood pressure" of the company is only roughly perceived through human eyes, so inordinate responses can be taken unnecessarily. What CEOs did for mild hemorrhages, they figured they should do more of, and add a few other nasty things, to try to handle what they perceived as severe hemorrhages. That is what I see taking place by CEOs (cost cutting, job cuts, outsourcing R&D, shifting manufacturing overseas, selling off divisions), and unfortunately, like the body, I believe those defenses have already been and will continue to become more and more toxic, until an irreversible spiral towards company "death" results.

Like the human body, what should the company do to shut down the toxicity? Obviously…invest in R&D and innovate to create new sources of money, as money is the life blood of any company. Now, every pure business person will come back and say, and they already have to many of my MD+DI posts regarding R&D, this is crazy, and spout any number of business terms to cover why spending shouldn't occur when reducing costs is what needs to be done. But these mild defense mechanisms only go so far, and, inflation and other costs like employees healthcare will continue to tip the balance downward. Innovation is the only way for high tech companies to maintain their health. All of those more severe, truly overreactive responses like Mr. Ferguson must be avoided, because they will lead to a potentially unrecoverable state: depleted R&D, manufacturing, and sales workforces with the majority of technical abilities gone away; leaving a company a shell of its former, glorious state.

I'd also like to pose another analogy regarding strategy. I used to play chess quite a bit way back in high school and college, and there were certain players who used to play a type of game called a gambit. Now, a gambit in chess terms is to offer up material, a pawn or two, in the hopes of long-term strategic gain that, hopefully, will result in a win. Now, gambits are very tricky, and in order to offer one, the player had better know what he or she is doing, or a rapid disaster could result. Hence, those players truly studied historical games and even books on those gambits to assure their success. What I believe is going on with the CEOs/Chairmen like Mr. Ferguson, with their cost cutting, job cuts, outsourcing R&D, shifting manufacturing overseas, selling off divisions, etc. is that they are playing one hell of a gambit. Unfortunately, with CEOs coming and going so rapidly, and with an industry so young as this one, there is absolutely no historical basis to assure any possible success with this strategy.

Paul Stein

No one likes taxes, but 2.3% causing massive alyoffs? Is there some provision of the law that prevents the tax from being passed on to the consumer? All other taxes are passed on as normal business expenses. Since all Med-Tech businesses are affected, no one get a competative hit. I would assume all imported medical devices are also subject to this tax (if not, that would be a bone of contention).

Really, the tax would be more than offset by eliminating just one CEO or VP from each Med-Tech company. Most do not contribute any value to the company, but instead drain valuable resources that could be directed to R&D or capital investment.