Biotech VC trends to watch in 2010 (2)

Healthcare Reform

On top of the angst caused by the economic crisis, investors and developers now have another outside force to contend with: Healthcare reform. Investors are already cherry-picking investments based on whether the potential product will be reimbursable under the new system. "VCs have to ask themselves what kinds of innovations will be sufficiently compelling to the payor community to result in good payment. It's fairly clear that these days incremental value does not cut it," observes Neff. 

In light of this change, the industry needs to say 'so long' to me-too drugs. If it wasn't already clear these incremental improvements have fallen out of favor, the healthcare reform discussions underway in Washington should be the nail in the coffin. "VCs will be focused on how much money a drug will need to get something commercialized," says Datin, and me-too drugs have an uphill battle to compete with established drugs. Additionally, payors may not be willing to reimburse for newer, expensive treatments that don't offer a significant benefit over older therapies.

Finally, Datin, Bloch and Neff all agree that, for the most part, venture capitalists will be steering clear of mass-market drugs. "We are in increasingly avoiding the mass-market drugs that require distribution through primary care physicians that require massive clinical trials. Because they are used broadly in the marketplace, the FDA is focused more on safety than efficacy," observes Neff.  That means many VCs are avoiding the crowded markets for general cardio drugs, general metabolic drugs and some areas of oncology.