Sen. Orrin Hatch and life-science executives said the U.S. Food and Drug Administration’s hesitancy to approve medical devices and a federal tax on devices is limiting private investment.
The FDA has tightened regulations after officials were called to testify before Congress over approving faulty medical devices, Richard Linder, chief executive officer of Coherex Medical, said at the MD4 Utah Summit at Thanksgiving Point in Lehi on Tuesday.
“Many angel investors and VCs are reluctant to invest in technologies that have unclear or long regulatory pathways,” Linder said. “Increased regulatory burden coupled with perceived risk of regulatory pathways is forcing investment capital to the sidelines.”
This is forcing many companies to outsource to Europe and Asia, he said.
MD4, a group of Utah life-science professionals, helped develop, propose and pass investment incentive legislation since its last meeting in 2010. Though the bill, Utah HB496, was approved and companies are starting to see returns, federal regulations and taxes are still posing a threat to one of Utah’s largest industries.
“Companies are having a difficult time finding access to seed funds, angel investors and other investors that would help bridge what we call ‘the valley of death’ where companies go to die,” Linder said. That “valley” describes the time between a product prototype and generating a profit.
Hatch spoke out against the FDA, calling the time it takes to get approval from the government group “unacceptable.” Approval time has increased 37 percent between 2006 and 2010, he said.
He also said a 2.3 percent tax on medical devices included in President Barack Obama’s recent health care law is limiting investment. Linder called the tax a “toll” on businesses.
“We’ve got to reach a point where the risk aversion doesn’t stop us from finding treatments or cures that are really logical,” Hatch said in an interview with the Deseret News. “Unfortunately my colleagues on the other side don’t want to solve it because they are heavily supported by personal injury lawyers.”
Creating a solution may be difficult when dealing with political head butting in Congress.
The taxes are looming, and because the FDA isn’t taking risks on medical devices, investors won’t either.
Scott Anderson, CEO of Zions Bank and a member of the MD4 Utah Board of Directors, helped enact the incentive-based legislation aimed at bringing investors into Utah’s biotech sector.
Utah, which has the sixth largest life-sciences market in the country, is known as a place where life-science businesses can start, but it can’t keep the companies here, Anderson said.
“What message this legislation sends is that Utah is in the business of not only doing the research and growing the companies but keep the companies,” Anderson said. “The industry employs 30,000 people and it’s a $15 billion business here in Utah. If we want to increase that to $30 billion, this is what we have to do.”
The legislation, which was passed in July 2011, includes three incentives that apply to both investors and businesses.
The new law entices investors with an investment credit. If an investor funds a company with less than $2.5 million in capital, the state gives a 35 percent investment tax credit divided over three years.
The program also takes away the capital gains tax if the investor stays on for at least two years.
Small businesses receive revenue tax credits depending on work force size measured over three years.
Companies like Catheter Connections, which received $300,000 in tax revenue credit, have already reaped the benefits.
Randy Shumway, president of Cicero Group, a Salt Lake-based research firm, likes the incentive but thinks Utah needs more.
The current legislation only allows for a one-time tax credit, which Shumway said might not be incentive enough to keep investors coming back. Shumway proposed working towards a 3-year or perpetual commitment from the state in order to keep investments flowing.
“There are real incentives, and we hope that there will continue to be real incentives, to propel investments, to augment innovation and create more jobs here in Utah,” he said.