Venture capital cuts US medical-therapies support

Thu Oct 6, 2011 11:05pm IST

* VC U.S. investment in devices, biotech falling

* Europe, Asia win more VC investment in medical areas

By Sarah McBride

Oct 6 (Reuters) - Venture-capital dollars have helped make the United States a top developer of medical technology, but a new report shows venture investors are cutting back, potentially resulting in the United States losing some of its luster in medical innovation.

A survey of 150 firms from the National Venture Capital Association, released on Thursday, shows that VCs have been cutting back on their investments in biopharmaceutical and medical-device companies over the past three years and expect to further cut those investments in the future.

They blame regulatory hurdles at the Food and Drug Administration as the underlying cause, even as the FDA is recognizing its need to foster innovation, particularly in medical devices.

On Wednesday, the FDA issued a 40-page report, "Driving Biomedical Innovation," calling for steps such as streamlining regulations and creating a rapid drug-development pathway for important therapies.

The changes may come too late for many in the industry who say that much investment is moving to Europe and Asia. Many devices and drugs receive approval in other jurisdictions long before they receive FDA approval in the United States, such as transvascular-implanted aortic valves for heart disease and Esbriet from InterMune ITMN.O, a drug to treat pulmonary fibrosis.

Many venture capitalists are effectively pulling away from early-stage medical investing in the United States, ceding the field to innovators in other countries, said Terry McGuire, a partner at Polaris Venture Partners and a veteran life science investor.

"Fewer healthcare breakthrough ideas will be funded," he said.

Investing in medical devices last year fell to $2.38 billion, down from $2.62 billion in 2009 and $3.52 billion in 2008, even as overall venture-capital investing managed to rise 19 percent from 2009 to 2010, statistics from the National Venture Capital Association and PricewaterhouseCoopers show.

Biotech investing in 2010, at $3.78 billion, was up just slightly from 2009's $3.72 billion, but well down from 2008's robust $4.57 billion.

Over the next three years, 40 percent of venture-capital firms said they planned to decrease investments in biopharmaceuticals, and 42 percent said they planned to decrease medical-device investments, the NVCA said.

More than one-third of firms said they planned to increase investment in life-sciences companies in Europe, and 44 percent said they would increase investment in Asia.

Venture capitalists are focusing on U.S. medical investments that do not require so much cutting-edge technology, such as health-care services and information technology.

They say they appreciate the FDA's safety role, but believe there are ways the agency could maintain high standards while making its process more efficient. McGuire of Polaris suggested that the FDA engage earlier in the approval process with companies, and lay out a clearer path for them to follow.

In a call with reporters on Wednesday, FDA Commissioner Margaret Hamburg appeared to acknowledge the difficulties. "Timelines are long, costs are high, and the rates of failure are "distressingly high," she said. (Reporting by Sarah McBride in San Francisco and Alina Selyukh in Washington D.C., Editing by Tim Dobbyn)

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