Obamacare imposes a 2.5% tax on REVENUES for medical equipment sold in the US, not earnings but revenues. For a young start up medical equipment company this is particularly onerous since it is almost always a struggle to have positive cash flow when companies are investing in R&D , marketing channels and production facilities without positive earnings. This is why ISRG and Chindex (sells exclusively into China) are up today and NVDQ is down and has been since Obamacare was assured on Nov 6. It appears at least one large shareholder (institution) is unloading its holdings. NVDQ has a strong balance sheet and is on the cusp of going positive earnings (though this may be postponed a few quarters because of the new tax). Once the institution has sold its position the stock should stabilize and with positve earnings within a year, the upward price momentum should built again.
Thanks to endo for the post. I agree that there does not seem to be any underlying reason for such a move. Also agree with andersongordon that this is probably driven by one large shareholder deciding unloading a significant chunk of shares. NVDQ is after all fairly illiquid on a day to day basis. Prior to it's listing on NASDAQ moves like this were a fairly routine occurrence.
Am I correct that the R&D tax credit for 2012 has not yet been renewed? Congress plays chicken with this every year but has renewed it in the end each year.
Is there not an offsetting R&D tax credit aspect in Obamacare? As in making the R&D tax credit permanent, or at least as permanent as the medical device tax?
I don't know anything about R&D tax credits, but the House of Representatives voted to end the 2.5% Medical Device Tax, but Harry Reid's Senate refused to even bring it to the floor, so it is dead until next session. Hopefully Congress will come to their senses and kill the tax. The tax is a killer for small Medical Device Companies that are not profitable yet and in a developmental stage. If it is not repealed it will be a real killer of innovation. If Novodaq is a Canadian Company would they be entiltled to R&D tax credits from the U.S.? Second question: Is Medical Device Tax paid on only sale to US Health Care Facilities or are there paid on Foreign sales also?
Fish, question on the specifics of the medical equipment revenue tax:
1) does it apply to consumables? I.E. the fluorescent kits?
2) does it apply to leased or rented equipment as opposed to sales of medical equipment?
If either of these is true, especially 1), the impact of this Reveune tax will be greatly mitigated. By my estimate almost all machines for NOVADAQ are rented or leased (around $1000 per quarter).
Any insight on this?