Writing in this month’s Fortune, Dan Primack is the latest to raise the alarm about indications that venture capital funding of life sciences startups is on the decline. The decline in funding is cause for concern because venture capital-funded startups are, in the words of Tracy Lefteroff of PricewaterhouseCoopers, “where all the drugs are coming from[.]” “[L]arge pharma[,]” Lefteroff explains, has “been extremely ineffective at developing pipeline drugs internally.”
While there are still “plenty of venture dollars … going into the [life sciences] sector,” Primack reports, they are going to mature companies. Startups, on the other hand, “are having a much tougher go of it, with 17% fewer raising venture capital during the first three quarters of 2011 than during the same period in 2010.” According to Primack, “a number of veteran VC firms are formally ending their pursuit of pharma startups.”
What explains the increasing reluctance to invest in the life sciences sector? The venture capitalists blame “regulatory challenges,” primarily “the hostile FDA.” Primack quotes Kate Mitchell, co-founder and Managing Director of Scale Venture Partners, a venture capital firm which recently announced that it will make no new healthcare investments, as follows: “It just takes a lot longer now to get approval than it used to, or to even know what the [Food & Drug Administration] is thinking. One of our companies, Prestwick Pharmaceuticals, supposedly was put on a ‘fast track,’ but it still took another three years before receiving FDA approval. It’s incredibly frustrating and means we need to invest more to keep the companies running.”
The Medical Innovation and Competitiveness (MedIC) Coalition, a group of “life science investors, innovators and entrepreneurs,” has been lobbying hard for the FDA to approve more drugs and devices more quickly, that is, without the careful review of efficacy and safety that it currently undertakes. Specifically, they have prioritized “[r]ebalancing benefit-risk assessments in the drug and device approval processes to appropriately reflect the value of new therapies to patients in need” and “[e]xpanding the accelerated approval pathway into a progressive approval system for drugs, diagnostics and medical devices.” MedIC also believes that the FDA’s conflict of interest policy threatens to “hinder patient access to new treatments.” It argues for increased “utilization of non-government outside experts to facilitate and strengthen the FDA review and approval process,” presumably experts who would be barred from serving by the FDA’s current conflicts policy.
Not all of MedIC’s priorities are so extreme. They have also called for more timely, consistent, and transparent decision-making at FDA, while acknowledging that to achieve these ends the agency must be “well resourced and endowed with state-of-the-art scientific tools, clinical input, processes and procedures.” With this, even the most ardent consumer advocate can agree, and the FDA has recently acted to improve its decision-making in ways that do not risk sacrificing health and safety. This is a promising development. The results of a recent survey of venture capitalists suggests that increasing the predictability and speed of the FDA’s decision-making would have a higher impact on their willingness to invest in the life sciences sector than would “rebalancing” the agency’s weighing of safety and efficacy.