Suspend belief: the market impact of halting the device tax
At the end of last year US medical device companies received an early Christmas bonus with the news that the medical device tax had been suspended for two years. MPN Group Editor Lu Rahman looks at the knock-on effect
The 2.3% excise tax was met with glee from lobbying groups including AdvaMed, the trade US trade association, which had been pushing for the freeze for some time believing it had a negative effect on the sector.
As the news of the suspension was announced, Nelson Mendes, president and CEO of Ziehm Imaging commented: “We are grateful that congress was able to come together to preserve US jobs and medical innovation by delaying the device tax for two years.”
So it’s good news for the US medical device sector. But has the suspension started to make any difference at all to the industry?
Initial reports would suggest yes. According to a report in The Post Star, Precision Extrusion, manufacturer of plastic tubing for the medical device sector, will be increasing its workforce by two or three thanks to the lifting of the tax.
On a bigger scale the tax suspension has been reported to be behind the collaboration between Boston Scientific and the Mayo Clinic which will see the sharing of intellectual property as well as the fast tracking of medical device development to address unmet medical needs.
Speaking of the union between the two companies, Michael Mahoney, president and CEO Boston Scientific, said: "Our continued investment in this collaboration is an example of our commitment to further investing in jobs and innovation as a result of the recent suspension of the Medical Device Tax."
Devices under development include a catheter for aortic-valve stenosis and the testing of the Precision Spectra Spinal Cord Simulator System which helps to block spinal cord signals that trigger shortness of breath and muscle fatigue during exercise. The device is aimed at heart failure patients and could take the place of drugs allowing these patients to exercise without their blood pressure hitting dangerous levels.
A few months in and the benefits of the tax suspension seem to be having a positive effect. The tax had had a negative effect on companies such as Cook Medical which announced a suspension of its own three years ago when the tax first came into force – the business was planning the creation of five manufacturing plants at the time but this on hold.
It was a similar story at Minnesota-based Smiths Medical which is now looking at a new way forward for the business. Press reports say the company was bringing in in over $1 billion a year for its medical products and was paying $10 million a year via the medical device tax. Speaking to NPR Health News, chief financial officer, George Montague said: “When this tax went into place it forced us to make cuts and sustain those cuts… and so now we're getting that funding back…We're making significant investment in our product portfolio —in improving our product portfolio.”
With the suspension still in its infancy it seems many medical device companies are taking advantage of the opportunity to boost sales and bring products to market. An interesting time lies ahead as we see just how far innovation and device development will be taken along with manufacturing expansion and increased employment.