Local VCs more worried about FDA moves than healthcare reform

May 3, 2010 by MassDevice staff

A small survey of the New England Venture Network by MassDevice.com shows real concern among local investors over moves made by the Food & Drug Administration.

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Concerns in the investment community over changes in the 510(k) clearance process and other uncertainty over new regulation at the Food & Drug Administration outweigh worries about the healthcare reform act, according to a MassDevice survey of local med-tech investors.

The survey, conducted with the help of the New England Venture Network, polled a dozen VC professionals in the life science community. The respondents said that, overall, the climate for medical technology investment was "mostly negative." The survey was kept small and anonymous to ensure open and honest responses.

The investors cited regulatory changes at the Food & Drug Administration as their primary concern.

"For now, we have stopped investing in any new med-tech companies with FDA exposure," wrote one investor.

Another pointed directly to the agency's proposed changes as directly affecting the investment climate.

"Fear of further FDA regulation, including 510(k) reform, is making it very difficult to manage risk and leading to fewer investments in devices," that investor wrote.

In fact, most investors said major changes to the 510(k) process would be the most damaging to deal flow, even more so than the 2.3 percent excise tax imposed on American medical device makers as part of healthcare reform. An exclusive new MassDevice report shows that 510(k) decision times increased once again in 2009, to an average of 119 days — up 37 percent from 2005, when times to decision averaged 87 days.

"Early-stage medical device investment has already slowed considerably due to regulatory issues. The incremental effect of the tax will be small compared to the damage already done," wrote one investor.

But that doesn't mean the device tax will have no effect on deal flow. Investors were very negative on the impact of the tax. Here's a sampling of what they wrote: