Device tax delay a relief for bio firms

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tax on medical devices included in the Affordable Care Act has long been one of the law’s least-popular elements among Colorado’s bioscience firms.

But now, that growing industry will get a respite from the wildly unpopular tax, at least for a couple years.

The budget deal lawmakers passed in mid-December included a two-year pause in the 2.3-percent tax levied on sales of medical devices. Now, companies that sell medical devices won’t pay that tax on products sold between Jan. 1, 2016, and Dec. 31, 2017, according to the Colorado Bioscience Association.

“This kind of innovation should be encouraged, and today’s vote is an important step to support medical breakthroughs in our state and across the country,” April Giles, the association’s CEO, said in a statement last month praising the pause in the tax.

The tax was levied not just on major device companies, but also on fledgling startups that have yet to turn a profit, Giles said.

“Definitely the start-up companies faced an extra hurdle as they are competing in the marketplace against the bigger companies,” she said.

That piece of the tax — that it is levied on businesses still in their infancy and yet to turn a profit — is especially important in Aurora, Giles said.

The city is home to the Fitzsimons Innovation Campus just north of the Anschutz Medical Campus, which houses several bioscience companies, many of which are still in the early phase of development.

The area was designed to “incubate” small businesses that have a viable product but don’t yet have the capital to take that product to market. By their nature, many of the companies have yet to turn a significant profit, and few are the sorts of established bioscience companies that have already had success bringing their product to market.

“It’s hard in an area where you are fostering startups and growth companies and trying to get those companies out to the market with commercial products,” Giles said.

At Sharklet Technologies, one of those Fitzsimons-based companies that has yet to take their medical devices to market, CEO Mark Spiecker said the tax made investors leery of supporting start-up companies because they knew a chunk of their investment would go toward the tax as opposed to the company’s future profitability.

“Investors point to different kinds of regulatory uncertainties as reasons why they wouldn’t want to invest,” he said.

That’s especially tough for new companies who already face an industry that often costs about $10 million to $15 million in research and development costs just to get a product to market.

Spiecker, whose company is developing a shark-skin like material for medical equipment that is difficult for bacteria to attach to,  said he hopes the pause in the tax will mean some investors who shied away from the industry will be willing to consider it again.

“I think it will bring some people back into the game,” he said.

Giles said beyond trouble luring investors, it’s tough to say what the tangible effects of the tax have been on local companies.

Bioscience companies tend to be quiet about “competitive intelligence” like hiring and spending figures, she said.

But, Giles said, she has heard of companies that slowed down spending on research and development because of the tax and subsequent lack of investment, and companies that slowed their employment growth due to it.

Along with the pause in the device tax, the budget deal also made permanent a tax credit for research and development. Giles said the pause in the tax and knowing the research and development credit will be permanent will lead to a spike in research and development in the coming months.

“Companies will certainly begin to invest slowly in their R and D infrastructure,” she said.

Still, the device tax hasn’t gone away completely and is scheduled to return on products sold in 2018. Giles said she expects the lobbying effort that lead to the tax’s pause will continue until it is fully repealed.

“Companies are always going to be skeptical until there is full repeal,” she said.