Yesterday I attended a meeting of a group of venture capitalists and NVCA representatives who came together to discuss the formation of a new industry group focused on preserving the spirit and business of medical innovation that has for so long been the unchallenged purview of the United States. The group is tentatively to be called MedIC , which stands for the Medical Innovation and Competitiveness Coalition. Notably, the group’s Chairman is Dr. Beth Seidenberg, a life sciences partner at Kleiner Perkins, and the lead organizer is Kelly Slone, Director of Federal Life Science Policy of the National Venture Capital Association. Great to see such a show of gal-power driving the effort to address such a critical issue for our industry.
The U.S. healthcare ecosystem, to use a trendy VC word, has long been notable for its global leadership in the development of new drugs, new medical devices, and other healthcare products and services. Despite its limitations and challenges, our medical industry has for decades been the go-to incubator of a seemingly boundless array of new medical inventions that spread throughout the world. Bash America all you want, but when you need surgery, you’re heading straight to New York or Cleveland or Rochester (MN) to get the brand new whatchamacalit that will save your life. Saudi princes may go to Monaco to gamble or Tokyo to shop, but they fly here to get the latest and greatest that the world’s healthcare system has to offer. With all due respect to the great nations of the rest of the world, we have been sitting at the top of the totem pole on this particular front for a while.
And yet, our culture of innovation leadership is definitely in peril. There has been a cascade of economic occurrences, public policy decisions and regulatory actions over the last year or two that collectively put the U.S. at serious risk of losing our innovative medical edge. These have come in the form of tax policies (such as the highly punitive taxes on medical device and pharmaceutical products in the new healthcare reform legislation and efforts to increase capital gains taxes in ways that will discourage investment in young companies); increasing complexity and decreasing transparency at the FDA and other regulatory agencies, which raises the cost and risk of bringing new products to market; and declining access by entrepreneurs to venture capital due to everything from Limited Partners’ curtailing investment in venture funds to the currently dysfunctional IPO market. Venture capital funding for young companies in the life sciences and healthcare market declined approximately 29% between 2008 and 2009, according to research done recently commissioned by the Council for Medical Innovation, which also claims we have already begun to fall behind other nations in investment in new medical innovation. Yikes.
The biggest challenge to U.S. medical innovation may well be the law of unintended consequences—the unexpected but very real collective negative impact of a myriad of independent actions and policies that, together, create an environment hostile to the small companies that rise up out of garages and Starbucks to create cures for cancer, restore eyesight to the blind and enable infants born with defective hearts to live to put their parents into old age homes. It is worth noting that venture-backed (read: small, entrepreneurial) healthcare companies represent more than 50% of the new jobs that are created in the healthcare field, according to NVCA in their report entitled Patient Capital.
We like to think of America as the land of the brave, home of the new, new thing, but our culture of healthcare innovation is at risk of becoming our father’s Oldsmobile if those of us who swim directly in the entrepreneurial stream don’t rise up and take action. At this very moment, China is busily acting on a goal to become the world’s leading medical device market at a time when our government appears to be Charlie Brown at the plate. In my last post I talked about how U.S. healthcare quality has fallen to number 7 among a list of developed countries. If we aren’t careful, the U.S, will become the Baltimore Orioles of medical innovation.
This makes so little sense in light of the goal we have set for ourselves to provide high quality healthcare to all Americans and stop the epidemics of chronic illness that are driving our nation to the brink of bankruptcy. Only innovation in healthcare delivery will fix these problems. While acknowledging that on the one hand in the new health reform legislation, we are busily tying the other hand behind our back with counter-productive policies. It is going to take a serious public-private partnership and increasing, not declining, public and private capital investment to maintain our innovative edge and ensure our nation’s ongoing leadership as pioneers in the development of products and services that keep our nation healthy and prosperous.
So back to MedIC. Their goal is to engage VCs, entrepreneurs and patient advocates in this effort through lobbying, public relations and industry education to help preserve and nurture what we have long valued. If you are an entrepreneur and or venture capitalist in the healthcare and life sciences field, please take a moment and read up about MedIC. They are still in the formative stage but are looking for members–both venture firms and young companies–who will work together to spread the word about how to keep America at the vanguard of medical innovation. Companies focused on pharma, medical devices, healthcare IT and healthcare services are all welcome. Information about MedIC will shortly be forthcoming from NVCA and I will post the link to it when it arrives.