Keeping ahead in health innovation

Medtech is undoubtedly one of Ireland’s biggest success stories, with its cluster of companies recognised as one of the top five global hubs.

In common with other tech-based industries, innovation is critical for the sector to continue to thrive and so the reforms to the Employment Investment Incentive (EII) scheme, outlined in the recent Budget, have been welcomed. These extend the policy for three years, include a wider range of investment funds and scrap requirements that 30% of funds be used by a company before an investment qualifies for tax break.

This support will probably help keep major multinational medtech companies in Ireland, given recent Irish corporation tax changes that will see companies with an annual turnover exceeding €750m pay 15%, up from 12.5%, to comply with OECD-sponsored tax rate standards.

According to Peter Vale, a tax partner at Grant Thornton, this change will impact ‘particularly the medtech companies that are in a revenue-generating stage’. However, start-ups tend to be more interested in Ireland’s ‘very attractive research and development tax credit’ secured through Enterprise Ireland. Vale also believes that companies will stay in Ireland because of other benefits the country offers, from labour skills and EU membership to decent housing and transport.

Support options

Aenghus Burns, financial services advisory team partner at Grant Thornton, says that medtech companies should cast their subsidies and tax assistance net widely. This includes tapping Enterprise Ireland financial support, which covers planning, Brexit issues, digitisation and Covid-19 recovery assistance; IDA Ireland’s foreign direct investment support; and direct infrastructure grants though agencies such as Science Foundation Ireland.

Useful tax reliefs include Entrepreneur Relief, a capital gains tax rate of 10% on gains from the disposal of qualifying business assets (down from the usual 33%); the SME Key Employee Engagement Programme share option scheme; and the EII.

Such assistance, Burns says, could in particular help to boost Galway’s successful medtech cluster. ‘The evidence for grouping a sector in one location is powerful as infrastructure, talent and economies of scale are shared,’ he says.

National strategy

The Irish Medtech Association, linked to Technology Ireland, has been pressing the government to promote innovation within the sector, highlighting that four out of five medtech companies are startups or SMEs. Pointing out that the industry is a valued supplier to a market worth €120bn in Europe, director Dr Sinéad Keogh, who believes that a national strategy linking providers of medtech, pharmaceuticals and related digital services could be the way forward. ‘It would be a huge opportunity to bring these sectors together,’ she says, adding that the value of digital innovation was highlighted during the Covid-19 pandemic.

Digital services can deliver lower costs, advanced manufacturing and better supply chain management to customers. They can also boost related services, such as artificial intelligence-fuelled early diagnosis plus nanotechnology-facilitated and optimised drug delivery and dosing, while improved medtech wearables and robotics can advance manufacturing and surgery.

Sustainable supply chain

According to Dr Keogh, medtech buyers are increasingly assessing the ‘total landed cost’ of a product, taking into account transport and logistics. This, she says, could be an opportunity for Ireland, with its short supply chain, in the European market.

Brexit is an issue, however. Jarlath O’Keefe, head of indirect taxes at Grant Thornton, says that Irish medtech companies face difficult logistics decisions in order to access the EU market, with more than 50 direct ferry routes between Ireland and the bloc, compared with less than a dozen in 2019.

‘Direct sea routes to France are slightly slower and more expensive’ than crossing the UK land-bridge, but it ‘avoids the new post-Brexit checks and paperwork associated with the Dover-Calais route’, he explains, adding that when the UK introduces further post-Brexit export checks, procedures will become ‘even more cumbersome’.

The EU’s medical devices regulation, in force since May, and the invitro diagnostics regulation, in effect from May 2022, will also have an impact, according to the Irish Medtech Association. While the association backs the regulations in principle, Dr Keogh highlights teething troubles establishing the ‘notified bodies’ responsible for assessing, certifying and re-certifying devices for sale in the EU. This might mean an approvals ‘backlog’ over the next two to three years, she warns. The interpretation of the regulations across the EU is also currently inconsistent, she adds, complicating liaison with notified bodies.