In the aftermath of celebrating the two-year break from the device tax, we now have to turn to the practical side. We’ve won a battle and it is essential that industry not lose the war. But if the medtech industry can’t make the case that it will use device tax money to grow, it will be harder to justify permanent appeal.
To gain insight into how industry can prove what it can do without the burden of the excise tax, I spoke with Mark Spiecker, CEO of start-up Sharklet Technologies and board chair of the Colorado Bioscience Association. Here’s his recipe for holding on to recent gains:
1. Tout funding into small and start up business.
The medtech industry has to make good use of the next two years and ensure that promising start-ups and small businesses get the support they need. Venture investment in medical technology declined by 42 percent between 2007 and 2013, according to Health Affairs. Investment pathways have changed, explains Speiker, not just because of the device tax, but also as a result of the recession. And Spiecker says that although he hopes that VC money will return, “I think it mostly come from larger medical device companies that invest in small firms’ technologies for licensing or acquisition purposes.”
2. Hire more people.
Some experts don’t actually foresee a huge uptick in employment. They say the roll back comes too late and say consolidations, tax inversion, downsizing and overseas shifts are already in place. These are long-term processes and a 2-year moratorium on spending isn’t enough to change these currents. Speicker is more optimistic.
He says that he is certain industry will see job growth, but it might not look the same. “There are ways to put talented people to work without necessarily putting them on the payroll,” he says. He notes that Sharklet has been hired by other companies to develop R&D, for example, and the company in turn has hired consultants to ensure smart development of medical products. Outsourcing and hiring consultants are efficient ways to get the technical expertise that businesses need without exhausting resources. But he is also optimistic about job growth, just not right away. “Once there is more certainty about the tax, however, I think we’ll see improved job postings.”
3: Let stakeholders know they have to be patient.
Businesses have changed their processes in the long-term in preparation for the device tax. VCs and other funding paths will likely still be slow to respond, because medical devices are not a 2-year investment. Speicker points out that the average time to bring a device to market is 12 years. “When taxes like this are levied, it effects the prospects of small firms before they’ve even thought about getting to market.” It is an unfair tax, says Spieker, and small businesses are the ones most hurt by it.
4. Show where dollars are going.
Most importantly, businesses must figure out how to supply metrics that demonstrate the tax relief deployment. Speicker advises large companies to be prepared to show business growth, R&D spending, and operations investments. “We have to encourage companies be more transparent about their pipeline and activity.” But, he says, it is not just about spending: “Show the results,” he advises. Some of those activities could be attending start up showcases for new investments, filing new patent applications, and filing new FDA applications. Speicker also notes that some of these activities won’t be underway immediately, but “there might be some projects that have been put aside, which, if given funding, could move quickly.”
Above all, Speicker says, “we have to document investments in a way that allows the public and legislators to understand what growth looks like.” Then, he says, we can justify permanent repeal.