U.S. biomedical device industry faces challenges
Global competition and the impending medical device tax, set to begin Jan. 1, 2013, are creating challenges for the U.S. biomedical device industry, according to a new study by tax advisory firm WTP Advisors.
According to the study, “The U.S. Medical Device Industry in 2012: Challenges at Home and Abroad,” which will appear in the August issue of the biomedical industry journal MD+DI, U.S. companies have dominated the roughly $350 billion global device industry over the last 50 years, but now face threats to their prosperity.
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Yair Holtzman, director and Global Life Sciences practice leader at WTP Advisors, says competition from countries such as China and India presents a major obstacle to U.S. companies.
“A group of about six to eight countries have emerged as key players in the medical device space and are well poised to overtake the U.S. as leaders in this industry within seven to ten years,” he said.
“We are witnessing a shift with research and development centers moving to China and India,” said Holtzman. “The customers in the local markets could have more impact on the next generation of products while U.S. patients might not even see some of these inventions, as some of these innovations might remain in the local markets.”
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“Over the next decade China and India could dictate standards, needs and benchmarks in the medical device industry,” he added.
Another threat to U.S. companies is the 2.3 percent excise tax on medical device sales, which is part of the Affordable Care Act recently upheld by the Supreme Court. The tax applies to medical device products intended for human use, but exempts eyeglasses, contact lenses and hearing aids, as well as devices that are purchased by the general public for retail or individual use.
“The medical device excise tax could put more strain on the U.S. innovation ecosystem for medical technology and affect the willingness of investors to back start-up companies seeking to commercialize new technologies,” said Holtzman.
Not all industry analysts believe the situation is so dire.
“The new excise tax is not helpful, and we do think it comes out of R&D that many device companies increased in 2011,” said Bruce Carlson, publisher of healthcare market research firm Kalorama Information. “The tax will reduce operating profit, which will hurt companies when they go to expand. That being said, I don’t think any significant American device company would close because of it.”
Although Calrson does not think the future is as bleak as the picture painted by the study, he says he can understand the concern U.S. medical device companies have regarding the tax.
“Long term, the taxes go to pay for more patients who, the theory goes, would then spend more on healthcare thus more devices,” said Carlson. “But you can excuse the device industry of a bit of glass-half-empty thinking here. The tax comes out next year and the potential new business is long term… I do think, though, this is all a trend about growth rate. We see the U.S. as the largest device market for some time.”
