VCs blame FDA for bleak investment outlook for drugs and devices

A whopping 39% of venture groups say they have pulled back on their investments in the U.S. life sciences field over the past three years. And the same proportion say they'll continue to hold back over the next few years, according to a new survey out from the National Venture Capital Association. If that proves to be the case, adds the venture group, the shortfall could starve the industry of $500 million.

The NVCA--which had a clear agenda in mind when it marshaled its survey numbers--pins the blame for the bleak trend squarely on the FDA, which has been feeling the heat recently from the country's drug and device developers. Because of the increasingly expensive hurdles faced by developers in the U.S., venture groups claim to be more interested in investing in overseas companies. One third of the VCs surveyed say they will increase their investments in Europe, with 44% planning to spread their wings in Asia and only 13% planning to get more ambitious in North America. Not surprisingly, the venture group wants the FDA to make some big changes to reverse the trend.

"The process has gotten to be so long, and the capital required so deep, that it's becoming more and more difficult to generate venture-type returns and therefore make it worth your while to do it," Terry McGuire, co-founder and general partner of Polaris Venture Partners and past chairman of the association, tells Bloomberg.

"This report confirms what has been suspected for some time, which is that venture capitalists are shifting investment capital away from lifesaving and life-sustaining products and into areas less regulated by the FDA as well as into other countries," said Dr. Beth Seidenberg, partner at Kleiner Perkins Caufield & Byers. "This trend is one that the venture industry and, we believe, the FDA, wants desperately to reverse."

- see the release
- read the story from Bloomberg

Special Report: Top 5 biotech venture capital deals, H1 2011