Medical Device Pioneer David Auth Seethes Over $40 Billion Industry Tax Idea, FDA Delays

Xconomy Seattle — 

One of Seattle’s medical device industry pioneers has a beautiful view of Lake Washington from his home office in Kirkland, but a few minutes after I arrived, he was steaming mad.

“Our government rewards dummies and punishes geniuses,” says David Auth, the inventor of a less-invasive way to clear out blockages in arteries, called Rotablator. “GM is a dumb company, and has been for 35 years, and yet they get a bailout. The medical device industry in this country is one of the absolutely most competitive industries we have. All the great medical devices have come from U.S. companies. And so we tax them $4 billion a year?”

I had kicked this hornet’s nest by asking Auth straight-up about his thoughts on the recently proposed $40 billion tax increase on medical device companies. The industry was horrified last week by a proposal from Montana Democrat Max Baucus, the influential chairman of the U.S. Senate Finance Committee, that calls for taxing medical device companies for $40 billion over the next decade.

Boston Scientific’s CEO, Ray Elliott, called it “nonsensical,” and joked that he planned to throw tea bags into Boston Harbor in protest. Bernstein Research analyst Derrick Sung estimates that the proposal could cut the industry’s earnings per share by 5 to 10 percent a year.

Auth,68, has an influential point of view, because he’s something of a godfather in the Seattle medical device industry, as an inventor and an angel investor. He’s a former University of Washington professor who founded Redmond, WA-based Heart Technology, took it public, and sold it to Boston Scientific for $500 million in 1995. Since then, he’s donated millions to the UW, and put more of his own money into other local device companies, like Kirkland, WA-based Pathway Medical Technologies and Redmond, WA-based CoAptus Medical. He was elected to the National Academy of Engineering earlier this year, and serves on the boards of nine different medical device companies along the West Coast.

The proposal by Sen. Baucus compounds what has been an agonizing year for medical device companies, both locally and nationally. The FDA has been gradually becoming more demanding that device companies do larger, more expensive clinical trials than in the past, Auth says. More and more often, he’s seeing examples of the FDA saying one thing to a company about requirements for FDA approval, waiting for the desired data to roll in, and then telling companies it’s not enough.

This means that it is taking longer, and costing more money, to get a medical device approved in the U.S., Auth says. It’s causing venture capitalists to … Next Page »

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