Dr. Nick Goes to Washington

VCs in the healthcare space are getting desperate to make some exits and save their businesses.

They lined up behind Republican Erik Paulsen after the congressman suggested the FDA ease rules that would hasten drug and device approval processes, paving the way to near-term exits. They are merging healthcare practices from disparate entities. At a time when Internet investing is at its most recent zenith in the United States, healthcare VCs are struggling to put together funds and other investors, spooked by potentially lengthy regulatory processes, longer commitments and repeated rounds before exits are increasingly likely to cut off their drug and device development arms altogether. Kleiner Perkins has already given up on biotech investing, and it is virtually guaranteed other VCs will do exactly the same, as the IPO market has basically shunned biotech companies.

Biotech and device VCs’ trajectory compared to their tech and Internet counterparts creates an apples-to-oranges comparison, and an unfair one at that: an IPO is by no means an exit; further cash might be required to fund operations. That’s only if they can push a company that far; an IPO comes after a length of time most tech investors would call interminable—eight to 10 years. LPs acknowledge their concerns about the US regulatory process; even the biggest VCs in the country say they’re increasingly shy toward medical device development. The secondary market, exchanges operated by SharesPost and Secondmarket, among others, has not seen substantial trajectory in clients’ interest in healthcare, drug and device companies, mostly due to “me, too!” investors hitching high hopes to Facebook shares, instead. They, too, are eyeing a quick IPO.

Already, American universities are generating talent our backward Visa program fails to retain, at a time when developing markets offer a more speedy regulatory process as well as potentially burgeoning economic prospects that could outstrip that of the US. Overseas, large corporations have taken notice of the opportunity to develop products in an industry where, before, the US was a titan. At the same time, corporate strategics are trimming R&D teams amid an industry-wide push to slash headcount.

It is difficult to imagine what argument, then, Erik Paulsen and his other supporters, whoever they are, will use to persuade legislators that de-regulation of drugs and devices will benefit Americans. VCs aren’t getting any more funding for these companies; large corporations have already cut jobs and funding for US R&D. And if it is just an opportunity to make a quick exit they’re after, there’s already legislation for that.