Analyst: $20B Tax to Stir M

Some smaller medical device makers are worried about the effects of a $20 billion, 10-year tax on the industry to help pay for recently enacted healthcare reform.

Matt Dolan, a senior research analyst with Roth Capital Partners LLC in Newport Beach, recently wrote a report on the bill’s potential implications for small device makers. It was based on interviews he did with executives at device makers with an average market value of $300 million.

“After many questions around whether or not this legislation would pass (remember the senatorial election in Massachusetts?), we feel comfortable now providing some general conclusions and pontificating on the bill’s potential implications,” Dolan wrote.

Respondents said they expect healthcare reform likely will increase the number of insured patients, but “the negative impact of an additional medical device tax probably outweighs this benefit” for smaller device makers, Dolan said.

The tax, which is a little more than 2% of device makers’ revenue, “represents more than 20% of operating income using our coverage universe.”

As a response to the tax, Dolan anticipates some device makers are going to cut costs internally, such as on research and development, as well as pass the cost on to hospital customers through price hikes.

Dolan also expects to see more acquisitions of smaller device makers.

“Countering this effect as growth slows, we suspect that M