Vital Signs

The Crisis in Investment in U.S. Medical Innovation and the Imperative of FDA Reform

Confidential: Do Not Distribute Prior to October 6, 2011

Survey Findings
October 2011

NVCA MedIC Vital Signs Report, October 2011

Table of Contents
Summary and Methodology
Survey Results Demographics of Survey Respondents

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Summary
A 2011 study found that U.S. venture capitalists have been and will continue to: Decrease their investment in biotechnology and medical device start-ups Reduce their concentration in critical therapeutic areas, and Shift focus away from the United States towards Europe and Asia FDA regulatory challenges were identified as having the highest impact on these investment decisions. We must act now or lose our leadership position in medical innovation, job creation and access to life-saving treatments in the United States.
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Study Methodology
Online survey conducted JulySeptember 2011

Sent to 259 NVCA member firms investing in the healthcare sectors

156 firm responses = 60% response rate = 92% of NVCA invested capital (2008-2010)

Survey respondents accounted for $10 billion of VC investment in healthcare companies in the past 3 years.

4 NVCA MedIC Vital Signs Report, October 2011

Survey Results
Overall Investment Trends

5 NVCA MedIC Vital Signs Report, October 2011

39% of VC firms reported decreases in their healthcare investment in the past 3 years.
Past 3 Years - Change in Healthcare Investments
% of Respondents

17%

50% 25% 0% -25% -50% Decreased

39%

Increased

6 NVCA MedIC Vital Signs Report, October 2011

Nearly twice as many VC firms expect to decrease their healthcare investment in the next 3 years.
Next 3 Years - Expected Change in Healthcare Investments
% of Respondents

21%

50% 25% 0% -25% -50% Decrease

39%
Increase

7 NVCA MedIC Vital Signs Report, October 2011

Within healthcare, venture investment has already shifted away from Biopharma and Medical Devices.
Past 3 Years - Change in Investments in Healthcare Sectors
% of Respondents
80% 60% 40% 20% 0% -20% -40% -60% 41%
Biopharma

Increased

Decreased

14%

22%

27%

31% 19%

34%

17% 40%
Medical Devices Diagnostics

11%

9%

10%

Life Science Tools / Equipment

Healthcare Services / Consumer Health

Healthcare IT

High FDA Regulation

NVCA MedIC Vital Signs Report, October 2011

Low FDA Regulation

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FDA regulatory challenges are having the greatest impact on VC investment decisions.
Factors Cited as Having the Highest Impact on VC Investment
% of Respondents

Regulatory Reimbursement Financial Capital Challenges Concerns Markets / Requirements (FDA) Availability of Capital to Invest

Clinical Trial Issues*

Firm / LP Changes or Requests

Lack of Tax Incentives

*Unrelated to Regulatory Challenges NVCA MedIC Vital Signs Report, October 2011

VC investment in Biopharma and Medical Devices is expected to continue to suffer.

Next 3 Years - Expected Change in Investments in Healthcare Sectors
% of Respondents
80% 60% 40% 20% 0% -20% -40% -60%
Biopharma Medical Devices Diagnostics Life Science Tools / Equipment Healthcare Services / Consumer Health Healthcare IT

Increase

Decrease

54% 42% 15% 24% 30% 26%

9% 21% 40% 42%

9%

8%

High FDA Regulation

NVCA MedIC Vital Signs Report, October 2011

Low FDA Regulation

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Survey Results
Therapeutic Area Trends

11 NVCA MedIC Vital Signs Report, October 2011

Significant decrease in VC investments expected in highly prevalent diseases.

Next 3 Years - Investments in Therapeutic Areas Expected to Change
% of Respondents [Expected Decrease]
Cardiovascular Disease Diabetes / Endocrinology Obesity / Metabolic Disease

Prevalence
(millions)

60% 54% 53% 39% 38% 36% 36% 26% 33% 35%

>50 23 72 12 7 12 30 6 35 >60

Cancer Neurology

Bone Disorders Psychiatry / Psychology Obstetrics / Gynecology Respiratory / Pulmonology Gastrointestinal Disorders

0%

20%

40%

60%

80%

100%
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Source: CDC; NIH; American Heart Association; American Diabetes Association; Surgeon General; American Academy of Neurology; American Lung Association; US Health & Human Services; National Cancer Institute

NVCA MedIC Vital Signs Report, October 2011

Orphan Diseases is one of few therapeutic areas in which VC firms are expected to increase investment.
Next 3 Years - Investments in Therapeutic Areas Expected to Change
% of Respondents [Expected Decrease/Increase]
Sleep Disorders

Prevalence
(millions)

28% 10%

40 >100

Dental

Immunology

21% 21%

Decrease

23 50 >100

Rheumatology

Dermatology

23% 31% 46%

Infectious Disease

>28**

Orphan Diseases

Increase
60% 80% 100%

<0.2*

0%

20%

40%

* In U.S., orphan or rare diseases is defined as a disease or condition that affects less than 200,000 people. ** Office / Hospital visits. Source: CDC; NIH; American Academy of Dermatology; American College of Rheumatology; WHO; National Sleep Foundation.

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NVCA MedIC Vital Signs Report, October 2011

Survey Results
Global Investment Trends

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Today, 42% of VC firms surveyed invest in healthcare companies outside the U.S.
Current Investment in Life Sciences Companies Outside U.S.
% of Respondents

42%
58%

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VCs expect to decrease healthcare investment in the U.S. in favor of Asia and Europe.
Next 3 Years - Expected Change in Healthcare Investment by Region
% of Respondents
Increase Decrease

60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50%

44%

36%

13%

0%

7%

31%

North America

Asia / Pacific
NVCA MedIC Vital Signs Report, October 2011

Europe
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FDA regulatory challenges have the highest impact on VC firm decisions to shift investment overseas.
Factors Cited as Having the Highest Impact on Decision to Move Investment Outside of U.S.
% of Respondents

Regulatory Reimbursement Challenges Concerns (FDA)

Clinical Trial Issues*

Financial Capital Markets / Requirements Availability of Capital to Invest

Firm / LP Changes or Requests

Lack of Tax Incentives

*Unrelated to Regulatory Challenges NVCA MedIC Vital Signs Report, October 2011

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VC-backed companies are expected to increase operations outside the U.S.

Next 3 Years - Likelihood of Portfolio Company Decisions to Shift Outside of U.S.
Increased Likelihood

% of Respondents
Seek Regulatory Approval Outside the U.S. First

85%

Commercialize Products Outside the U.S. First

86%

Set Up Additional Company Operations Outside the U.S.

80%

0%

20%

40%

60%

80%

100%

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Survey Results
The Need for Reform

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Meaningful FDA reform is critical to reversing these trends.

Expected Impact on Investments from Changes at FDA
% of Respondents
Increased Predictability of Decisions Increased Efficiency / Speed with Decisions Rebalancing Risk / Benefit Requirements Expanded Accelerated Approval Pathways Improved Transparency of Communication High Impact Moderate Impact

71%

14% 17% 17% 22%

69% 68% 64%

58%
0% 20% 40% 60%

25%
80% 100%

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Implications
If the current situation is left unaddressed, the implications to U.S. patients and the economy are significant: Many promising medical therapies and technologies will not be funded and therefore will not reach the patients that need them. Those that are funded may not be brought to market in the United States first, or at all. An estimated funding loss of half a billion dollars over the next three years will cost America jobs at a time when we desperately need employment growth. The U.S. leadership position in medical innovation will be placed in further danger and economic growth with suffer.
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Call To Action
MedIC priorities include the following:
Rebalancing benefit-risk assessments in the drug and device approval processes to appropriately reflect the value of new therapies to patients in need; Expanding the accelerated approval pathway into a progressive approval system for drugs, diagnostics and medical devices;

Ensuring conflict-of-interest policies are not hindering patient access to new treatments; and
Ensuring FDA is well resourced and endowed with state-of-the-art scientific tools, clinical input, processes and procedures

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Survey Respondent Demographics

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Survey respondents represent cross-section of VC firms by capital under management

Total Committed Capital Under Management
% of Respondents

13% 13%

19%

17% 19% 19%

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VC firms surveyed nearly even by sector focus: life sciences only vs. diversified firms
Sector Focus
% of Respondents

42% 58%

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Majority of firms are private VC partnerships

Type of Firm
% of Respondents

6%

8%

86%

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Majority of VC firms surveyed allocate >50% of their capital under management to healthcare
Percent of Capital Under Management Allocated to Healthcare Sectors
% of Respondents

21% 38%

26% 4% 11%

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Most VC firms surveyed have between 10-29 active portfolio companies in healthcare
Number of Active Portfolio Companies in Healthcare
% of Respondents

5% 7% 19%

10% 29%

29%

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VC firms surveyed allocate most of their capital to Biopharma and Medical Devices
Average Allocation of Capital Within Healthcare
% of Respondents

32%

10%

11% 11%

29%

4% 3%

29 NVCA MedIC Vital Signs Report, October 2011