Medical device and pharmaceutical companies face significant regulatory and legal obstacles in developing new and life-saving treatments, especially considering what it takes to bring a new drug to market: at least $1 billion and 7-10 years of research and development. Faced with an uncertain and complicated approval process within the Food and Drug Administration (FDA), the risks for creating new drugs are vast and serious.
To help address the growing uncertainty companies face as they try to improve the quality and effectiveness of healthcare through new medicines and devices, Representative Kevin Brady, (R-TX) introduced legislation in the House of Representatives known as the American Research and Competitiveness Act (H.R. 942). The bill recently attracted “bipartisan support from a number of Democrats and Representative Erik Paulsen, (R-MN), a co-sponsor, whose suburban Twin Cities district is home to several med-tech companies.”
According to an article from the StarTribune, the bill “would make a research-and-development tax credit a permanent part of the federal tax code.” The tax credit would be extended to all “types of companies investing in research and development, not just med-tech concerns.” Such a credit holds significant promise for big med-tech companies because they “spend anywhere from 8 to 13% of their annual revenue on R&D—a crucial component in the development of new products.
In support of this legislation, Mr. Paulsen noted that, “research and development is imperative to our country’s competitiveness in the global marketplace.” He further asserted that America needs “a tax code that spurs innovation and promotes sustainable job growth in industries like medical technology, which provides thousands of high-paying jobs in Minnesota.”
“The United States was the first nation to offer a tax incentive for research and development in 1981, but now it ranks 24th out of 38 nations examined in a recent study by the International Organization for Economic Cooperation and Development. The R&D tax credit in the United States has always been extended on a short-term basis — 14 times in the past 30 years.”
In fact, a report by the Government Accountability Office (GAO) said concerns have been raised over the years about the cost-effectiveness of the current credit and its administrative and compliance costs.”
According to the article, “the proposed bill would also strengthen the amount companies can recoup for investing in R&D from the current 14% up to 20%.” According to the med-tech industry organization AdvaMed, increasing the credit to 20% would boost economic output by $90 billion.
Stephen Ubl, the Minnesota native who heads Washington, D.C.-based AdvaMed, said the United States’ current leadership position in R&D “is by no means assured.” Mr. Ubl asserted that the “American tax policy must sufficiently support research and development for industries like medical technology to level the playing field with foreign governments eager to attract American jobs and develop home-grown competitors to American firms.”
Likewise, Mark Leahey, CEO of the Medical Device Manufacturers Association, said “innovators need to plan for future investments and strategies, and this can only be done when there are predictable tax and regulatory policies in place.”
Ultimately, the proposed legislation holds considerable promise for medical device and pharmaceutical companies. The difficulty and uncertainty companies face today in bringing new drugs and devices to the market must be addressed immediately before companies continue to shift their factories, employees, and tax base to other countries. By giving companies better incentives to conduct research and development in America, these companies will have the necessary means to make safer, newer, and more effective treatments, which will improve the patient safety and care of millions of Americans.
America needs to keeps its leadership position in the world in research and development and in health care and medicine. By continuing to create unpredictable regulatory regimes and unsupportive tax policies, we will only drive the best and brightest talent and resources to other countries, and lose our dominance. The American Research Competitiveness Act is a step in the right direction to getting America back on track to being the world’s leader in medicine and health care.