Why the medical device tax may not be as bad as you think

Robyn Melhuish explores the medical device market and shares why she thinks the medical device tax may not be having as much of an impact as people think.

While the medical device tax has certainly sparked controversy in the healthcare industry, claims that the sky is falling may have been exaggerated. Although it’s true the industry has already paid more than $1 billion to the Federal government since the device tax was implemented at the beginning of 2013, the fact that several med tech companies are beating projected earnings – and even opening new manufacturing plants – suggests that the industry continues to grow.

The medical device tax, despite its drawbacks, may not be as bad as you think. Let’s look at some positive things that are happening in the industry:

Increased projected earnings

Though the industry has paid some hefty taxes, many major companies aren’t feeling the burn.

Stryker’s reported second quarter revenue of $2.21 billion, beating projections by $0.02 billion. Johnson & Johnson’s overall revenue and earnings came in higher than expected, as well: Sales of $17.9 billion for the second quarter of 2013 reflects an increase of 8.5 percent as compared to the second quarter of 2012. However, it’s important to note that revenue from device and diagnostics segment fell short by $126 million, which was largely due to a slowdown in Johnson & Johnson’s diabetes business.

Additionally, Medtronic reported worldwide fourth quarter revenue of $4.459 billion, an increase of five percent on a constant currency basis. The company also expects full-year revenue growth in fiscal year 2014 in the range of three to four percent on a constant currency basis.

“The medical device tax, despite its drawbacks, may not be as bad as you think.”

Continued growth

Despite some lower numbers in previous months, job growth in healthcare has been consistently better than in most industries. The unemployment rate of 5.6 percent in healthcare remains significantly lower than the national average of 7.6 percent. Medical sales job counts have also increased since the beginning of 2013.

In terms of organizational growth, Kips Bay Medical continues its multicenter study of external saphenous vein graft (SVG) support using the company’s eSVS Mesh in coronary artery bypass grafting (CABG) surgery. Even better is that this also brings the activation of two additional U.S. sites: The Texas Heart Institute in Houston and the Emory University Hospital Heart and Vascular Center in Atlanta. As of August 8th, 29 patients have been enrolled in the eMESH I clinical feasibility trial, which is up from 16 patients at the end of the first quarter of 2013.

Another organization experiencing growth is Baxter. The company continues construction on a manufacturing facility near Covington, GA. This facility is to support growth of its plasma-based treatments. Baxter expects capital investments at the site to exceed $1 billion by the time the facility is completely operational in 2018. In addition, Baxter believes the project will result in the creation of more than 1,500 full-time positions in the state and more than 2,000 jobs in total across multiple U.S. locations.

Healthcare innovation

While AdvaMed insists the medical device tax will kill jobs and hurt innovation, companies continue to develop new products. Earlier this year, Stryker announced the launch of the ES2 Spinal System, providing surgeons with the efficiency during minimally invasive procedures. Abbott Labs also launched the ARCHITECT AFP test, which may help doctors detect serious birth defects and the progression of testicular cancer.

“…it’s important to note that revenue from device and diagnostics segment fell short by $126 million.”

It’s not just the big companies continuing to innovate, though. SANUWAVE Health, Inc. makes a device called dermaPACE for the treatment of diabetic foot ulcers, which is a roughly estimated $2 billion market in the U.S. Though SANUWAVE Health, Inc is a small company, it’s up 267 percent in the past six months.

BioLife Solutions Inc. is also a small fish in a big pond. The company develops biopreservation media for cells, tissues, and organs. Industry experts expect the demand for biopreservation media will grow at an annual rate of almost 20 percent for the next several years – and BioLife is on track to do so. The company set a new revenue record for the ninth straight time the first quarter of 2013. Even more impressive? Their stock is up about 370 percent in the last 12 months.

As you can see, the medical device tax may not be so bad for the expansion of organizations, products, and services. Despite the recent negativity, the space is still growing. Increased projected earnings, continued growth, and ongoing healthcare innovation is proof of that.


About the author:

Robyn Melhuish is the Communications Manager at MedReps.com, a job board which gives members access to the most sought after medical sales jobs and pharmaceutical sales jobs on the Web. Connect with Robyn and MedReps.com on Facebook, Twitter, and LinkedIn.

What do you think? What are some other reasons why the Medical Device Tax may not be so bad for healthcare?