In conjunction with Mass MEDIC’s 16th Annual Conference, Jose Almeida, who is chairman and president and CEO of Covidien, today put forward a roadmap for what has to be done to retain the United States’ primacy in the medical device field. Apparently Almeida spends a lot of time thinking about this; he views the role of a CEO as planning what is going to happen ten years down the road (leaving the operation of “today” to others).
His brief shopping list for things that the United States must do:
Expand the coverage of healthcare, but not pay for it by instituting the 2.3% excise tax on gross revenues which will be collected from device companies starting in 2013 under the Affordable Care Act. Tax burdens reduce R&D expenditures, and it is not logical to tax companies that just happen to operate in the medical field in order to pay for universal healthcare. One of the effects of this tax burden is to drive companies such as Covidien to undertake hiring not only in the United States but also in China, India and Singapore.
Improve the speed with which the FDA approves products, which now often go to Europe first because of the efficiency of the approval process there. Slow approval also impacts the economics of VC investments, because it disincentivizes such investments and drives capital offshore.
Address Marketing: growth overseas of the middle class will drive the need for medical devices, and also require medical device companies to look in detail at their marketing strategies (noting in passing that Covidien is in the process of adding 1,000 sales representatives for its products just in Asia).
Simplify products for sale to lower tier hospitals overseas (interestingly, to achieve this within Covidien, these tasks had to be given to a different team, as the regular R&D team was much more interested in state of the art complexities).
While Almeida reiterated much of what you hear from all large life science companies (and many small companies also) both in the biotech and medical device fields, he makes a powerful case for the necessity of dealing with the Federal government at a granular level in order to maintain United States supremacy in these fields. With the Affordable Care Act giving rise to (per Almeida) seventeen new federal agencies and their attendant bureaucracies, with the life sciences driving an increase in the number of people at the FDA and the need to increase their pay scale so that turnover at that agency is reduced, and with the negative effects of the upcoming device excise tax, there is a cogent case for substantial realignment of thinking at the Federal level.
And in one area the argument seems absolutely irrefutable: if we are expanding healthcare coverage for the benefit of all, why is the cost to be paid for by an excise only upon an industry that happens to operate within the healthcare system (not to mention that such excise will reduce R&D expenditures and increase the cost of medical devices, two results that are inconsistent with health care policy)?