The percentage of venture capital investment going into healthcare between 2009 and 2014 has decreased, from 35.7% to 19.9%. And, perhaps more disturbingly, the percentage of investment devoted to early-stage firms has gone down from 62% to 45%, according to the February Health Affairs.
The information is included in a piece by Jonathan Fleming of the Network for Excellence in Health Innovation, along with readings from early-stage venture capitalist Bruce Booth of Atlas Ventures and Ian Hathaway and Robert E. Litan in the Brookings Institution's economics journal.
The final quarter of 2014 saw seemingly boom times for venture capital investment into biotechnology, but a deeper look at the numbers reveals some worrisome facts, according to Booth's analysis.
The amount of money going into biotech startups increased, but the number of startups decreased. “The same companies simply raised more money,” he writes. Fewer startups began in the fourth quarter than in any quarter in 2009 or 2010, despite a stronger overall economy and a seemingly healthier IPO and M&A market.
That's a part of a long trend, argued Ian Hathaway and Robert E. Litan in a July 2014 paper for the Brookings Institution (PDF).
Life science startups formed per year peaked at over 3,000 during the late '90s, they point out, only to fall to 1,995 in 2011, the end of their study. That's a problem for the greater economy, they point out, as job and productivity growth tends to come from successful startups.
Booth, Hathaway and Litan are circumspect about the ultimate causes, but Fleming, using data from the National Venture Capital Association, thinks he has the answer: unfavorable government policy. Regulations are too onerous and reimbursement policy too unpredictable. To be more specific, the Food and Drug Administration's premarket review is too capricious and CMS' reimbursement policy too long, Fleming argues.
The reimbursement policy, he argues, is often driven by the demand for clinical trials to prove the actual economic value of reimbursing a given drug, diagnostic or device.