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The Crisis in Investment in U.S. Medical
Innovation and the Imperative of FDA Reform
Vital Signs
Key Survey Findings
October 2011
Confidential: Do Not Distribute Prior to October 6, 2011
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We must act now or lose our leadership position inmedical innovation, job creation
and access to life-saving treatments in the United States.
Decrease their investmentin biotechnology and medical devicestart-ups
Reduce their concentrationin critical therapeutic areas, and
Shift focus awayfrom the United States towards Europe andAsia
A 2011 study found that U.S. venture capitalists have been andwill continue to:
Summary
FDA regulatory challenges were identified as having the highestimpact on these investment decisions.
NVCA MedIC Vital Si ns Re ort October 2011
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Study Methodology
Online survey conducted JulySeptember 2011
Sent to 259 NVCA member firms investing in the healthcaresectors
156 firm responses = 60% response rate = 92% of NVCAinvested capital (2008-2010)
Survey respondents accounted for $10 billion of VCinvestment in healthcare companies in the past 3 years.
NVCA MedIC Vital Si ns Re ort October 2011
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The Cycle of Innovation
NIH
U.S. Universities
EntrepreneursVenture Capital
Startup Companies
$$$$
Pension
Funds
Foundations
$$
$$ Jobs
Innovation
American Patients& Citizens
Tech Transfer
Govt Funded R&D
Funds Investedand Returned
FD
A
ProductApprova
l
IPO orAcquisition
$$
$$
$$
$$
$$
$$
$$
$$
$$
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-50%
-25%
0%
25%
50%
Decreased Increased
39% of VC firms reported decreases in theirhealthcare investment in the past 3 years.
Past 3 Years - Change in Healthcare Investments
39%
17%
% of Respondents
NVCA MedIC Vital Signs Report, October 2011
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Nearly twice as many VC firms expect to decreasetheir healthcare investment in the next 3 years.
-50%
-25%
0%
25%
50%
Decrease Increase
Next 3 Years - Expected Change in Healthcare Investments
39%
21%
% of Respondents
NVCA MedIC Vital Signs Report, October 2011
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41%
14%
40%
22%
17%
27%
11%
19%
9%
31%
10%
34%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Within healthcare, venture investment has alreadyshifted away from Biopharma and Medical Devices.
Past 3 Years - Change in Investments in Healthcare Sectors
% of Respondents
Biopharma Diagnostics Life ScienceTools /
Equipment
HealthcareServices /Consumer
Health
HealthcareIT
MedicalDevices
Increased Decreased
High FDA Regulation Low FDA Regulation
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VC investment in Biopharma and Medical Devicesis expected to continue to suffer.
40%
15%
42%
24%
21%
30%
9%
26%
9%
42%
8%
54%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Next 3 Years - Expected Change in Investments in Healthcare Sectors
% of Respondents
Biopharma Diagnostics Life ScienceTools /
Equipment
HealthcareServices /Consumer
Health
HealthcareIT
MedicalDevices
Increase Decrease
High FDA Regulation Low FDA Regulation
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FDA regulatory challenges are having the greatestimpact on VC investment decisions.
*Unrelated to Regulatory Challenges
Factors Cited as Having the Highest Impact on VC Investment
% of Respondents
RegulatoryChallenges
(FDA)
FinancialMarkets /
Availability ofCapital to Invest
CapitalRequirements
ClinicalTrial
Issues*
Firm / LPChanges orRequests
Lack of TaxIncentives
ReimbursementConcerns
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VCs expect to decrease healthcare investment inthe U.S. in favor of Asia and Europe.
31%
13%
0%
44%
7%
36%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Next 3 Years - Expected Change in Healthcare Investment by Region
% of Respondents
Asia /
Pacific
EuropeNorth
America
Increase Decrease
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FDA regulatory challenges have the highest impacton VC firm decisions to shift investment overseas.
*Unrelated to Regulatory Challenges
Factors Cited as Having the Highest Impact on Decision to MoveInvestment Outside of U.S.
% of Respondents
RegulatoryChallenges
(FDA)
ClinicalTrial
Issues*
FinancialMarkets /
Availability ofCapital to Invest
CapitalRequirements
Firm / LPChanges orRequests
Lack of TaxIncentives
ReimbursementConcerns
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VC-backed companies are expected to increaseoperations outside the U.S.
80%
86%
85%
0% 20% 40% 60% 80% 100%
Next 3 Years - Likelihood of Portfolio Company Decisions to ShiftOutside of U.S.
% of Respondents
CommercializeProducts Outside the
U.S. First
Set Up AdditionalCompany Operations
Outside the U.S.
Seek RegulatoryApproval Outside
the U.S. First
Increased Likelihood
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Meaningful FDA reform is critical to reversingthese trends.
Expected Impact on Investments from Changes at FDA
% of Respondents
58% 25%
64% 22%
68% 17%
69% 17%
71% 14%
0% 20% 40% 60% 80% 100%
Increased Efficiency /Speed with Decisions
Rebalancing Risk /Benefit Requirements
Increased Predictabilityof Decisions
High Impact Moderate Impact
Expanded AcceleratedApproval Pathways
Improved Transparencyof Communication
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Significant investment decreases in highly prevalentdiseases with increases in orphan diseases expected.
46%
39%
53%
53%
60%
0% 10% 20% 30% 40% 50% 60%
Orphan Diseases **
Cancer
Obesity/Metabolic
Diabetes/Endocrinology
Cardiovascular Disease
Next 3 Years Percent of Respondents Expecting to Decrease/IncreaseInvestment Prevalence *
(millions)
>50
23
72
12
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Implications
Many promising medical therapies and technologies willnot be funded and therefore will not reach the patients that
need them.
Those that are funded may not be brought to market in theUnited States first, or at all.
An estimated funding loss of half a billion dollars over thenext three years will cost America jobs at a time when wedesperately need employment growth.
The U.S. leadership position in medical innovation will be
placed in further danger and economic growth with suffer. 15
If the current situation is left unaddressed, the implications toU.S. patients and the economy are significant: