Could a new bill in the U.S. Senate jumpstart healthcare startups? Sen. Robert Menendez (D-N.J.) and Sen. Pat Toomey (R-Penn.) introduced the Startup Jobs and Innovation Act today. If turned into law, the legislation would modify the tax code to allow innovative startups to partner with investors through “R&D Partnership Structures.” This could mean a break for the expensive life sciences industry, especially the medical device industry, which has said the negative impact of the medical device excise tax inhibits growth and innovation within small businesses the most.
According to a press release:
The development process for a single breakthrough technology can cost more than $1 billion and take upwards of 10 years. Without a supportive policy environment, some potentially life-changing seed and start-up technologies may never be realized because private capital is not rewarded or incented. . . .
Only start-up and small companies dedicated to R&D would be eligible to utilize R&D Partnership Structures, so investors will be incentivized to invest at an earlier stage, when the capital is most needed.
According to an independent Ernst & Young study, such a tax break would “increase investment by an estimated $10.3 billion per year, resulting in 156,000 additional jobs at affected companies.”
According to Sen. Menendez’s website, the bill would:
- Allow companies to deduct the first $500,000 in equipment purchases.
- “Permanently cut taxes for people who make long-term investments in American small businesses.”
- “Remove a tax barrier that makes it harder to create a business by doubling the amount of start-up costs entrepreneurs can deduct in the first year. Currently, companies can only deduct the first $5,000 in start-up costs, and amounts above that have to be deducted over the course of 15 years.”
- “Allow high-tech small businesses the ability to use the same tax provisions large firms have available for innovation. Under the bill, investors in research-intensive small companies would be able to deduct losses and receive credits — which are currently available to the business but don’t actually benefit them.”
- Allow more companies to use “cash accounting” method.
“Smaller companies are the lifeblood of the medical technology industry, with approximately three-quarters of U.S. medtech firms having fewer than 20 employees,” Ashley Wallin, executive director and vice president of Advamed’s Emerging Growth Company Council, said in a released statement. “These engines of innovation rely on private investment to survive in their critical early stages of growth. Unfortunately, in recent years, access to these funds has declined significantly.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
The Coalition of Small Business Innovators, a group of 18 organizations, including Advamed, Medical Device Manufacturers Association and Biotechnology Industry Organization, lobbied for the bill. Watch the video below to see many medical device and biotech industry CEOs talking about why the tax code isn’t working for small businesses with a high R&D overhead.
Follow MedCity News on Facebook and Twitter for more updates.
