The United States has been the global leader in medical devices, one of the few major industries that both boasts a net trade surplus and is a job-creator. The sector employs 400,000 Americans directly and is indirectly responsible for almost 2 million more that supply and support the highly-skilled workforce. Most important, its products are essential elements of modern medical care, including everything from CT scanners and pacemakers to blood pressure cuffs and robots used by surgeons.
But all of that is in jeopardy. The medical device industry is being ravaged by unwise public policy, including a devastating 2.3% excise tax took effect on Jan 1 as part of ObamaCare. This tax, which has already required the payment of more than $1 billion by device manufacturers, is especially pernicious because it is assessed on gross sales, not profits. To put this in perspective, imagine that you’re a manufacturer of medical devices and had a profit of $100,000 on sales of $1 million after all your costs and expenses—everything from materials and labor to research. The excise tax would be $23,000, wiping out almost a quarter of your profits.
The nation’s medical device industry is vulnerable. It is not comprised of behemoths: 80% of its companies have 50 or fewer employees, the very businesses we are relying on to turn the U.S. economy around. The new excise tax comes on top of increased stringency and delays at both the FDA and the U.S. Patent Office, and at the same time that many device firms are shutting down or moving abroad to take advantage of the more favorable tax and regulatory climate in Europe. The tax is forcing companies to lay off employees, cut back on research and development, and reduce capital investment.
One sector that is seeing a rapid investment drop is healthcare and devices. That has hurt the North Carolina VC industry harder than it hurt Boston. It’s also subject to some longer term trends. Obamacare has a medical device tax buried in it-and it has caused money to pull back from taking risk in healthcare while everything gets sorted out. The FDA is a horrible bureaucratic organization to deal with, and they have made it hard to innovate