Investment Deterrent

A report by the National Venture Capital Association (NVCA) cites regulatory challenges, specifically from the Food & Drug Administration, as the most significant factor driving venture capital away from start-up biopharmaceutical and medical device companies in the U.S.

According to “Vital Signs: The Threat to Investment in U.S. Medical Innovation and the Imperative of FDA Reform,” U.S. venture capital firms are decreasing their first-time investments in companies in the sector, cutting back on commitments to research in prevalent disease areas, and shifting their focus to Europe and Asia.

Of the approximately 150 investment firms interviewed for the report, 39% have reduced their first-time investments in U.S.-based life sciences companies over the past three years, and the same percentage plans to decrease investment over the next three years.

The drop-off comes as overall investment in the life sciences is rising. According to NVCA, total dollar investment in the sector in the U.S. jumped 37% in the second quarter of 2011, but that increase represents follow-on investments in current projects, which are generally higher than initial investments.

“As a driver of our global economy, the FDA should constantly examine its regulatory framework with a 21st-century lens,” Sen. Michael F. Bennet (D-Colo.) said at a press conference about the report on Capitol Hill earlier this month.

FDA recently outlined steps it can take to spur biotech and pharmaceutical innovation. The report details outreach services to support small firms in product development and expedite review processes (C&EN, Oct. 10, page 31).