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The 'Real Loser' in the Medical Device Tax

Jill Fromer | Photodisc | Getty Images

Legislators from both parties have been pushing the President to rethink a portion of his Affordable Care Act, which would slap a 2.3 percent tax on all medical devices.

The tax kicks in January 1, and critics call it a job killer. It's especially threatening to small device companies and startups that are not yet profitable, as the tax is based on gross revenues. In fact, some said it could mean the difference between barely being profitable and going under.

Clint Carnell looks at it from another angle: "The biggest loser is the patient." Carnell is chief executive of Myoscience, a Silicon Valley medical device startup, which has yet to make money. Its first product won't come to market until next year...and you won't be able to get it in the U.S.

Myoscience has been working for the last seven years on a Botox-like treatment that uses cold temperatures instead of a neurotoxin. The aesthetic version of the treatment, called iovera, involves a hand-held device. The first devices will be sold starting next year in Europe, where the tax and regulatory burdens can be lower. Same with Asia.

Americans will just have to wait.

Carnell said the real story here is American ingenuity is going to benefit the rest of the world first.

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The device tax is only one symptom of an environment which makes it harder for device makers to bring products to American consumers than to market them in Europe, Brazil, Asia and even Canada. "We're the best in developing medical devices in the world, hands down," he said, "but it's a competitive global marketplace...each time you do something like this tax, it hurts our competitive edge."

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Most of Carnell's investors are based in Europe, and they are pressuring him to uproot the company and move there. Currently he employs 50 people, nearly all of them in Redwood City, Calif.This area of Silicon Valley has dozens of other medical device startups, and he said they gather regularly to discuss the tax benefits of selling devices in other parts of the world before here. "These are conversations we wouldn't have five years ago," he said.

That's not to say that Myoscience's products won't ever come to the U.S., assuming the company succeeds in Europe. It's cold therapy treatment is in clinical trials with the FDA, and he hopes to be earning his first domestic revenues selling devices by late 2014. That also means he will be paying his first taxes on those devices, whether or not he's profitable.

So, might he move to Europe? That's a question he asks himself all the time. "We'd love to be a U.S.company," he sayid. "It would be great to stay the world leader."

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