Industry to refocus and reinvest in US following potential medical device tax repeal, say CRO execs

By Melissa Fassbender

- Last updated on GMT

(Image: Getty/gopixa)
(Image: Getty/gopixa)

Related tags Medical devices CRO Contract research Tax

Repeal of the hotly debated medical device tax would free up research and development resources and bring clinical trials back to the US, say CRO industry executives.

The Protect Medical Innovation Act of 2018​ aims to repeal the 2.3% medical device tax, which was suspended for two years after President Donald Trump signed a stopgap spending deal earlier this year.

The US House of Representatives recently passed the bill in a 283-132 vote​.

Shifting focus

Playing a significant role in the potential repeal is the aging US population, which has greater health care needs and is driving a shift from reusable medical devices to single-use devices as a way to improve patient outcomes and mitigate infection risks, explained Jim Sergi, president, CSSi Lifesciences.

Sergi told us the repeal of the tax “will allow companies and inventors of new technologies to continue to focus on driving new innovation without the fear of the tax.”

“You can say a lot of things about life science companies, but they are really good at reinvesting their profits back into R&D,”​ said Sean Lynch, PMP, director, Syncrony Products, Syntactx Technologies. “You’re going to see a lot more deployment of those extra resources back into new research, new development programs.”

For contract research organizations (CROs), Sergi said the effects of a repeal would be slow as companies shift their focus back to the US and establish new research and development (R&D) budgets. “The tax has resulted in stifling technology development, resulting in greater overseas R&D and preventing US patients from accessing the latest technologies,”​ he said.

Lynch explained that South America has been “very popular”​ as a destination for early phase work, as has Asia. However, he similarly expects to see an increase in spending in the US market as companies bring more medical devices clinical trials to the US.

“That’s going to be better for US patients, and of course for the US companies themselves,” ​Lynch told us. This, including CROs which are poised to support the companies developing new medical devices, he noted. “As the saying goes, a rising tide raises all boats … I think this is only good for the entire industry.”

Stifled growth

Since the medical device tax was implemented, the industry has voiced concerns that reduced access to R&D capital would negatively affect innovation in the US medical technology industry.

A GE Healthcare spokesperson told us the company supports the repeal of the tax “because it diverts funds that could be used to support R&D and negatively impacts innovation and job creation.”

As Lynch noted, the industry has been calling for the repeal for quite some time. “It was never really understood why it was levied as a tax in the first place because it had immediate opposition,”​ he said, adding, “It was surprisingly punitive for a large segment of the US market.”

According to a recent report​, US device market revenues grow 22% slower than the global market with an average 3.8% growth rate. At this pace, the market is projected to reach $483.8bn by 2022.

In addition to the tax, Sergi said limited reimbursement coupled with “complex, expensive, lengthy, and often ambiguous”​ FDA regulatory requirements, further hurt the US medical device industry.

Still, the US is the largest medical device market with 47% of the global market and more than $180bn in revenue, according to the report.

"The use of technologically superior devices combined with a steady replacement rate to remain competitive in the industry will be significant factors for growth,"​ added Sergi.  

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