U.S. venture capitalists are decreasing their investments in biopharmaceutical and medical device companies, reducing their concentration in prevalent disease areas and shifting investment away from the United States towards Europe and Asia, according to a report by the National Venture Capital Association'sMedIC Coalition.
The survey of more than 150 venture capital firms identified FDA regulatory challenges as the most significant factor driving away investment from startup companies that are bringing critical therapies to market. Other factors included reimbursement concerns and an adverse financial environment. The report, "Vital Signs: The Threat to Investment in U.S. Medical Innovation and the Imperative of FDA Reform," strongly indicates that America's medical innovation economy is in grave danger of losing its primary source of funding, causing serious harm to both U.S. patients and the national economy.
"For decades, the U.S. has been the leader in delivering medical innovations to our citizens due to the thousands of startup healthcare companies that have been brought to life with venture capital funding. Millions of high quality jobs have been created, and iconic companies such as Genentech, Amgen, Medtronic, Biogen-Idec and Lifescan have been built. But our leadership is now at risk," said Dr. Beth Seidenberg, partner at Kleiner Perkins Caufield & Byers and chairwoman of the MedIC Coalition. "This report confirms what has been suspected for some time, which is that venture capitalists are shifting investment capital away from lifesaving and life-sustaining products and into areas less regulated by the FDA as well as into other countries. This trend is one that the venture industry and, we believe, the FDA, wants desperately to reverse."
The survey found that U.S. venture capital firms have been decreasing their investment in biopharmaceutical and medical device companies over the past three years and expect to further curtail such investment in the future. Overall 39% of respondent firms have decreased their investments in life sciences companies over the last three years and the same percentage expect to further decrease these investments over the next three years, some by greater than 30%. This is roughly twice the number of firms that have increased and/or expect to increase investment.
While 40 and 42% of firms expect to decrease investment in biopharmaceutical and medical device companies respectively, 42 and 54% expect to increase their investment in non-FDA regulated healthcare services and healthcare information technology companies respectively.
In another alarming sign, survey respondents expect to see significant investment decreases in companies fighting serious and highly prevalent conditions including cardiovascular disease, diabetes, obesity, cancer, and neurological diseases.
Among the multiple factors impacting investment decisions, FDA regulatory challenges were most frequently cited as having high and significant impact in driving these investment trends followed by reimbursement challenges. Respondents believe these challenges are primarily related to an imbalance in risk/benefit assessment, and unpredictability at the FDA.
In response to FDA challenges, venture capitalists and the companies in which they invest are increasingly looking to Europe and Asia to bring their medical products to market. According to the survey, 36 and 44 percent of firms plan to increase investment in life science companies in Europe and Asia, respectively, while only 13 percent plan to increase in North America. Correspondingly, 31 percent of firms indicated plans to decrease investment in life science companies in North America while seven percent and zero percent of respondents plan to decrease investment in Europe and Asia, respectively.
Additionally, a majority of the respondents indicated a continued trend for U.S.-based startup medical companies to seek regulatory approval and commercialization of their products outside the United States first and to establish and grow operations abroad. This major shift will reduce the availability of lifesaving and life-sustaining treatments for Americans and will result in a decrease in U.S. job creation, threatening the global leadership of the U.S. in medical innovation.
If left unaddressed, patient health care, job creation and the U.S. economy will suffer substantial further damage. Based on the survey responses, America can anticipate approximately half a billion dollars less of investment into healthcare start-up companies in the near term, placing American jobs at risk.
Despite the grim prognosis, there remains an opportunity to address these challenges. Nearly all respondents indicated that FDA reform would have a significant positive impact on venture investment in biopharmaceutical and medical device companies in the United States. Improvements that were favorably rated as showing promise include better predictability of decisions, increased efficiency and speed of decisions, rebalancing of risk/benefit requirements, expanded accelerated approval pathways and improved transparency in communications.
Recently, the FDA and the White House have begun a broad set of reform initiatives that are intended to address some of these problems, including new guidance on risk/benefit assessment, clinical trial design and new pathways for approval of innovative medical devices.