Startups struggle with impending device tax

By now, the device-tax woes of major companies are well-told, but med tech startups, eking out small profits or taking losses, might suffer the worst from the 2.3% charge.

As The Wall Street Journal reports, the excise tax doesn't exempt companies that don't turn profits, and that could hamper their efforts to raise money, expand or just stay in business. NeuroPace CEO Frank Fischer told the newspaper that the device tax could make it hard for his company to lure investors, cutting into profits and marring NeuroPace's image.

NeuroPace's anti-epilepsy implant is still in the midst of the PMA process, so the company won't have to pay the U.S.-sales-only tax until it gets the device on the American market next year. Smaller devicemakers with products already approved are staring down the tax come Jan. 1, however, and many are considering raising prices, cutting R&D spending or reducing staff, WSJ reports.

Further complicating the issue is the uncertainty of the charge. Mitt Romney has vowed to repeal the Affordable Care Act, which mandates the tax, if he's elected next week, but he would need the Senate to fall into Republican hands to do so. To date, efforts to ax the act and tax have died in the Democrat-controlled higher chamber. The result: Venture capital navel-gazing that has slowed cash flows for medical device companies as investors wait to see how the election plays out.

Polaris Venture Partners' Terry McGuire told us the same last week, saying he believes VC dollars will loosen up post-election, once investors can be sure of what they're getting into.

- read the WSJ story

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