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By Erik Kobayashi-Solomon | 04-12-2010 04:42 PM

How Health-Care Reform Will Affect Device Makers

Device firms are going to plan accordingly and try to control their costs ahead of a planned 2013 device tax, says Morningstar analyst Julie Stralow.

Erik Kobayashi-Solomon: Hi, I'm Erik Koboyashi-Solomon, co-editor of Morningstar's OptionInvestor. Just recently I did a video with Matt Coffina and Damien Conover discussing health care reform in the United States and how that would affect big pharma and also managed care. Today it's my great pleasure to welcome Julie Stralow to talk about how health-care reform will affect device companies. Julie, thanks for coming.

Julie Stralow: No problem, good to be here.

Kobayashi-Solomon: First, before we discuss health-care reform, I've just got to take a victory lap. Thanks to you we decided to buy Stryker calls. Call options on Stryker that were struck at $45 a share. Stryker is trading for $57 a share today. We are far in the money. Our investors have made a lot of money. Thank you very much. Great work.

Stralow: You're welcome, congratulations. It was your strategy, so...

Kobayashi-Solomon: Well, and it was your brains.

Stralow: All right. [laughter] Well, hope everybody invested.

Kobayashi-Solomon: Me too. So let's turn for a second to the health-care reform. We talked to Damian about big pharma. Damien thought that big pharma was kind of even-Steven. You know, there are some benefits, also some drawbacks. Matt was saying kind of the same thing for managed care. Maybe more on the downside.

What about devices? How do you see health care reform affecting the device market and Stryker in particular?

Stralow: Well, in general we have a relatively neutral stance on the reform package, with a negative glancing on it. That is because of the device tax that was introduced. And we think that that is going to induce some margin compression at some of these companies. Unless they can introduce some cost controls. So basically they're fighting to get the margins that they've had in the past in the future.

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