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ChrisChin
I guess the VCs needed more insurance to stay in the industry, and decided to ...
Neo1
Why has the regulations increased recently, is it because of real health ...
Regulations rise as VCs exit health care
Rick Merritt
9/17/2010 8:49 PM EDT
PALO ALTO, Calif. – Medical electronics companies face increasing hurdles getting funding and regulatory approval to bring new technologies to market, according to executives at a medical device event here.
"We're in a bit of a perfect storm right now with some of the worst things I've seen in 30 years," said Eamonn Hobbs, chief executive of DelCath Systems and chairman of the Medical Device Manufacturers Association (MDMA), host of the event.
As many as three-quarters of venture capitalists are exiting the health care field as the total pool of venture capital decreases and regulatory hurdles increase, said Kevin Wasserstein, managing director of Versant Ventures (Menlo Park, Calif.) which focuses on health care.
"Even entrepreneurs have started to retreat from pursing big ideas [in health care], and we risk as an industry evolving to incrementalism and safer projects," said Wasserstein.
Some of the about 100 medical devices executives gathered here complained about what they said was an increasingly conservative and slow-moving U.S. Food and Drug Administration. The chief executive of one medical device company said his product is approved for sale in Europe, but is still waiting on an FDA OK to begin clinical trials.
"The conversation in the hallways is about how we are off-shoring our medical innovation," said one attendee in a Q&A session with FDA principal deputy commissioner Joshua Sharfstein.
"We have people traveling to Europe for care, and some companies we work with aren’t even planning a U.S. market entry," said another attendee.
The German government is providing matching funds for health care projects, Ireland recently launched a $5 billion investment program and China had more health care companies go public than the U.S. last year, said Hobbs. "But the biggest market is still the U.S.," he said.
A third attendee said the implant sector is "in a tizzy" over new classifications under consideration for devices. "This puts us in a difficult position to raise funds or bring new products to market," he said.
"It's no secret the medical device program I inherited raised some concerns from industry, and some companies were caught in a real Kafka-esque experience," said Scharfstein, an Obama administration appointee to the FDA, speaking in a keynote talk.
Sharfstein rejected criticism the FDA is risk averse, but he did admit the agency's decisions can be inconsistent.
"We've done tests of reviewers where half said yes and half said no to the same application," he said. "That uncovers some real weakness--you don’t see many regulatory programs that look at themselves this honestly," he added.
The FDA aims to expand its technical resources and provide more proactive guidance. It is also in the middle of an effort to revise the so-called 510K process used by the vast majority of medical devices.
Scharfstein sketched out broad ideas in each area but provided few specifics in a talk here. "He said all the right things but it could take more than a year before we see any substantial changes," said Hobbs of the MDMA.
The FDA wants to create a scientific council of outside experts its reviewers can tap. It also is working with the National Institutes of Hesalth to develop grants to fund work improving so-called regulatory science.
"The FDA wants a network to rely on so its decisions wouldn't be a single person's opinion," Scharfstein said.
The agency also wants to provide more guidance documents to let industry pro-actively understand its thinking. However, it lacks funding to pull reviewers away from ther work to write such guidelines.
"That’s a big challenge for us," said Scharfstein.
Meanwhile the FDA has put out for public review reports with a wide range of recommendations for revising the 510K approval process used by more than 3,000 devices a year, according to some estimates.
"I understand people are very anxious about the changes we are considering," Scharfstein said. "The device program does have flaws but we are not throwing everything out," he said.
Hobbs and others called on medical device executives to lobby for changes in regulatory practices and health care policies.
"You have to go yourself as a CEO and press the flesh in Washington," Hobbs said. "If you don’t show up, things will happen you won’t feel happy about," he said.
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Dave.Dykstra
9/18/2010 1:32 AM EDT
Can you blame VCs from exiting the field in this environment? After all, return on investment at some reasonable point in the future is what is expected. If that point can't be predicted with some degree of certainty, then the funds go someplace where that prediction can be made.
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goafrit
9/18/2010 8:03 PM EDT
It is capitalism. No one blames them. However, that void will be met if some great ideas are there. It does not matter that many VCs want to exit, but in reality America will still support its best ideas. If not China will. Healthcare is no different than what is done in Europe and it is time America lives in the present.
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kdboyce
9/18/2010 3:31 PM EDT
The provisions of the recently passed health care bill - "Obamacare" - included a 2.3 percent excise tax on sales of most medical devices, starting in 2013. The medical device excise tax would apply to products ranging from surgical instruments to bedpans and is expected to raise $20 billion over 10 years to help pay for healthcare reform. This is down from the original proposal to raise $40B with the tax starting in 2010. You can bet that new medical device innovations will NOT be exempted.
Medical device makers aren't sure how the tax will be metered out or what their individual companies' burdens will be.
Coupled with the FDA problems highlighted in the article, small wonder that VC's are looking elsewhere. After all, most VC firms today are fund managers, rather than individual investors, and they have a fiduciary duty to their fund investors to get the best return they can.
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elPresidente
9/20/2010 3:27 PM EDT
How Republican of you to make this a partisan issue and slam a program that actually INCREASES the number of people who'd actually BUY these medical devices because they'd have insurance - well in excess of that piddly 2.5% excise tax you have a tantrum over. This problem has NOTHING to do with excise tax, it has to do with stealing American retirement funds and sending them to China, as well as the jobs and innovation (if the Chinese can indeed innovate, versus simply steal). All under the guise of regulation that keeps that pacemeker in your chest from stalling out the next time junior turns on his iPad. China has no such regs, since people are expendable in that society...you know, like Democrats are to you here.
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elctrnx_lyf
9/20/2010 2:45 AM EDT
There is only space for big companies. The time and the amount of money involved to get the product out for customers is really big. I think it is the time that government should have a special committee to rethink the strategy for the future. The whole system needs to be made to work faster and more efficient.
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Rick Merritt
9/20/2010 10:58 AM EDT
@Kiran: Agreed the process needs to get streamlined, but there are many, many small and medium sized medical electroncis companies out there. Many are choosing to focus only on Europe an Asia--at least in their early stages.
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elPresidente
9/20/2010 3:13 PM EDT
VCs are exiting anything that is not designed and made in China. The regs excuses are merely a ruse to justify VCs revectoring away from the USA, and Europe, to China - aka "unregulated" market. Try and call on a VC these days and when you'd like to schedule a meeting you'll get "(s)he is in China". The sellout of America continues, where our own retirement funds are now subsidizing domestic job and innovation kills and outsourcing via the VCs' management of returns to those retirement funds. Someone needs to yank their collective chains....
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alan.varghese
9/20/2010 3:14 PM EDT
I can understand the attitude of the health-care VCs. They are used to market and technology risk; but in the medical devices industry, you have regulatory & legal roadblocks which are very different challenges. You are at the mercy of a governmental body whose timeframes/priorities are very different than private industry. It is almost like - in other industries - being asked to get USPTO (Patent office) approval before going to market. That would curb a lot of industry interest. Considering their resource limitations, what the FDA ought to do is publicize a list of health areas ordered by priority where there is a lot of patient demand, and outline clear steps for devices to get to market. VCs can then get a clearer picture of their particular portfolios, and the risks/reward involved.
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elPresidente
9/20/2010 3:21 PM EDT
...and this is all a surprise all of a sudden? How naive.
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Cerberus
9/20/2010 8:34 PM EDT
Obamacare will squeeze health care providers like never before, raise insurance costs and cause millions to have to drop their private health care insurance in favor of a government plan which will provide less advanced technology to cure new diseases, since it's more expensive. To provide medical care to 33 million more people, it obvious something must be cut from those already paying for care. Just another part of his redistribution of (your and my) wealth.
And anybody wonders why VCs are walking (if not running) away from investing in advanced technologies that would need to be sold into the health care industry? Would you invest your money into one of the President's projects?
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Neo1
9/21/2010 5:50 AM EDT
Why has the regulations increased recently, is it because of real health concerns or some bureaucratic hogwash? I can understand the VCs behavior but does the FDA act in the best interest of the people or wants more control in how things are done?
The process of approval is so long drawn out that many companies need to have something in the market already to sustain the delay, no wonder this put's off many entrepreneurs.
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ChrisChin
5/15/2012 3:12 AM EDT
I guess the VCs needed more insurance to stay in the industry, and decided to bail out because they don’t see staying on as being a viable investment for them. Hopefully, the new regulations will help to prevent the industry from collapsing without the funds that it needs.
Chris - http://americanvisitorinsurance.com
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