The Biomedical Device Industry in America: Challenges at Home and Abroad

NEW YORK, July 17, 2012 /PRNewswire/ -- The American biomedical device industry—known for producing life-saving innovations and creating millions of jobs across the country—is facing unprecedented challenges that could prove catastrophic not only to the industry itself and to the livelihoods of its employees, but to the health of the patients who benefit everyday from its technologies. In a new analysis from global tax advisory firm WTP Advisors, Yair Holtzman, director and Global Life Sciences practice leader, details these challenges, but also prescribes solutions that could save an industry that is both central to modern health care, and a driver of current and future economic growth in the United States.

The study appears today in the current online edition of the biomedical industry journal MD+DI, and will appear in the August 2012 print issue.

Over the last 50 years, U.S.-based companies have dominated the roughly $350 billion global device industry, employing directly and indirectly more than two million people and playing a major part in driving U.S. economic growth. The industry even managed to grow and prosper during the recent economic downturn, one of the worst in history.

"For decades now, the United States has fostered an ideal environment for medical innovation, allowing it to become a world leader in the field, and resulting in significant advances in healthcare technology," said Holtzman. "But mounting threats to the industry from within the U.S., coupled with a flourishing medical technology industry abroad, are putting these advances at serious risk. If we don't do something now, we will see the U.S. market wither, along with our health and our economy."

Holtzman details the challenges the industry faces today and will face tomorrow if not tackled:

• A new 2.3 percent federal tax on medical devices: The tax, which was included in the Affordable Care Act that was signed into law in 2010, is currently being debated in Congress. If approved, the tax that will be levied on the total revenues of a company, regardless of whether a company generates a profit. This means that by next year, many companies will owe more in taxes than they generate from their operations. The result will be devastating to innovation, patient care and job creation.
• Global competition: Medical device markets in China and India are expected to expand annually about 15 to 23 percent respectively over the next five years. At the same time, a rising tide of talented researchers is rapidly developing in these countries, plus in Israel, Japan and Brazil. As this growth continues, the U.S. will face increasing competition for innovative talent, resources and output.
• An increasingly difficult U.S. regulatory approval process: New market devices are able to win approvals in Europe in about half the time it takes to obtain U.S. Food and Drug Administration (FDA) approval. As a result, new market entrants are going to Europe for approvals first. While the FDA eventually will grant approval, citizens of other countries will gain earlier access to innovative, life-saving technology, and health-care providers in those countries will benefit from more experience in using the new devices.
• U.S. investments in developing countries: Because of these factors, we will see an acceleration of global venture capital investments needed for innovation moving to more attractive markets in developing nations like China, India and Brazil, where U.S dollars are fueling budding entrepreneurial cultures. Moreover, innovation in medical technology is driven by start-ups, which are later acquired by larger companies. Multinational medical technology companies will increasingly look to these emerging markets for acquisitions to fill their product pipelines. U.S. start-ups will be left behind.

"The U.S. is still the acknowledged world leader in medical technology, but that leadership is being challenged," Holtzman says. "Without new public policies to provide a level playing field between the U.S. and its foreign competitors, U.S. leadership will be lost and with it an important engine of economic growth and manufacturing job creation."

Holtzman details several ways in which the biomedical device industry can stay on top. Among them:

• Repealing the medical devices tax. The result of not doing so could be devastating – to innovation, to patient care, and to job creation.
• Reforming the FDA approval process: In order to compete with the approval process outside the U.S., the FDA must be made more predictable, consistent and timely, while continuing to assure that products are safe and effective.
• Working out a tax policy that acts as a stimulator of discovery: Such a policy would make the Research and Experimentation tax credit permanent and more generous, and would implement tax credits to keep R&D-based manufacturing in the U.S.

"The U.S. has been reaping the benefits of its world leadership in the medical technology industry for 50 years—from job growth to economic prosperity, to better healthcare," says Holtzman. "As populations age around the world, and as hundreds of millions of people in emerging countries enter the middle class, the demand for quality healthcare will increase, and with it the demand for innovative medical technology. Now more than ever, America needs to encourage innovation—and innovators—in this field."

WTP Advisors is a leader in tax advisory services for a global marketplace. Our highly skilled professionals equipped with years of industry experience, coupled with our cutting-edge technologies, make substantive and long-term differences to an organization's profitability. WTP Advisors is headquartered in White Plains, NY, with offices across the Americas, Asia and Europe.

SOURCE WTP Advisors