infraredx | 
10 16th, 2009| 
Boston Business Journal - by Eric Convey
Leaders of early-stage medical device companies are worried the Obama administration’s health system overhaul could devastate the industry and have formed a new lobbying organization whose goals include killing a proposed $40 billion, 10-year-tax targeting their products.
The issue could be extremely important for Massachusetts, with its big medical device sector. The 25 largest medical device companies in the state as compiled by the Boston Business Journal have annual sales of about $28 billion and employ more than 12,000 in Massachusetts.
The executives working with the new group are especially troubled that by taxing revenue rather than income — the plan as it stands would allocate the annual assessment based on market share — the measure would undermine the startup business model to the extent critical investors might be scared off.
“For small startups, it hits them at an extremely fragile stage — when they’re just beginning earnings,” said Dr. James E. Muller, a cardiologist and former Harvard Medical School professor who founded InfraReDx in Burlington and is an early member of Entrepreneurs for the Advancement of Medical Innovation, or EAMI. “It’s like putting the plant outside before it’s ready. The process of innovation has some very difficult years where you have to nurture the innovative process.”
Robert McNeil, managing director of Sanderling Ventures in San Mateo, Calif., and an investor in InfraReDx, said he helped launch EAMI because he fears a number of elements of the health overhaul effort will stifle innovation.
Another target will be Medicare funding rules that tend to ignore the cost of developing and testing new products, he said.
If the government undermines early-stage companies, McNeil said, venture capitalists will “just take our money and develop products in which you can earn a living.”
Supporters of the new tax say it only captures part of a windfall that companies will enjoy as the ranks of the insured grow.
Local executives at device companies already have sought help from U.S. Sen. John Kerry.
In an e-mail response to a question from the Boston Business Journal, Kerry said: “The medical device companies pave the way on new technology that saves lives and money, so anything that could stifle research and development concerns us in the short and long term.
“We should explore whether there are better ways to raise revenue than assessing across the board excise taxes on specific sectors of the health industry.”
Muller, a veteran activist who shared a 1985 Nobel Peace Prize for work against nuclear war and helped launch the once-high-profile lay Catholic group Voice of the Faithful, is no critic of activist government. He supports single-payer health care.
But the direction of the current debate has frustrated him.
Referring to his own 11-year-old company, he said: “It’s taken forever to build this device, and it’s cost an enormous amount of money. It’s taken work by 70 or more individuals — about 50 engineers, many MIT engineers, to build it. It’s a revolutionary technology that can find the plaques that cause heart attacks. And we certainly are not being helped by what’s going on in Washington.”
The new advocacy group was set up earlier this month and for now is being run by the law firm McKenna Long & Aldridge LLP.
