NVCA Study Finds Biopharma, Med Devices Investments Shifting Abroad

Venture capitalists in the United States are shifting investment dollars for biopharmaceutical and medical device companies away from the U.S. toward Europe and Asia, says a study from the National Venture Capital Association’s MedIC Coalition. More than 150 venture capital firms surveyed for the report cited Food and Drug Administration regulations as well as reimbursement concerns and the adverse
financial environment.

PRESS RELEASE

U.S. MEDICAL INNOVATION AT RISK:
FEWER NEW COMPANIES AND THERAPIES RECEIVING FUNDING,
SAYS REPORT

October 6, 2011, Washington D.C. – U.S. venture capitalists are decreasing their investments in
biopharmaceutical and medical device companies, reducing their concentration in prevalent disease areas
and shifting investment away from the United States toward Europe and Asia, according to a report
released today by the National Venture Capital Association’s MedIC Coalition.

The survey of more than 150 venture capital firms identified Food and Drug Administration (FDA)
regulatory challenges as the most significant factor driving away investment from startup companies that
are bringing critical therapies to market. Other factors included reimbursement concerns and an adverse
financial environment. The report, Vital Signs: The Threat to Investment in U.S. Medical Innovation and
the Imperative of FDA Reform, strongly indicates that America’s medical innovation economy is in grave
danger of losing its primary source of funding, causing serious harm to both U.S. patients and the national
economy.

“For decades, the U.S. has been the leader in delivering medical innovations to our citizens due to the
thousands of startup healthcare companies that have been brought to life with venture capital funding.
Millions of high quality jobs have been created, and iconic companies such as Genentech, Amgen,
Medtronic, Biogen-Idec and Lifescan have been built. But our leadership is now at risk,” said Dr. Beth
Seidenberg, partner at Kleiner Perkins Caufield & Byers and chairwoman of the MedIC Coalition. “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. This trend is one that the venture industry and, we believe, the FDA,
wants desperately to reverse.”

In a press conference held today on Capitol Hill, Senator Michael Bennet (D-CO) expressed what has
become a bi-partisan and bi-cameral concern among lawmakers.

“As a driver of our global economy, the FDA should constantly examine its regulatory framework with a
21st century lens,” said Senator Bennet. “This is an urgent issue both for giving our patients the greatest
access to lifesaving therapies and for our national economic competitiveness. We must strive to provide
our nation’s drug, biotechnology, and medical device startup companies with regulatory clarity and
predictability in a way that is safe for patients but also meets their expectations regarding innovation.”

Investment Decline in Innovative New Therapies

The survey found that U.S. venture capital firms have been decreasing their investment in
biopharmaceutical and medical device companies over the past three years and expect to further curtail
such investment in the future. Overall 39 percent of respondent firms have decreased their investments in
life sciences companies over the last three years and the same percentage expect to further decrease these

investments over the next three years, some by greater than 30 percent. This is roughly twice the number
of firms that have increased and/or expect to increase investment.

While 40 and 42 percent of firms expect to decrease investment in biopharmaceutical and medical device
companies respectively, 42 and 54 percent expect to increase their investment in non-FDA regulated
healthcare services and healthcare information technology companies respectively.

In another alarming sign, survey respondents expect to see significant investment decreases in companies
fighting serious and highly prevalent conditions including cardiovascular disease, diabetes, obesity,
cancer, and neurological diseases.

“More than 100 million Americans suffer from diseases for which there are still no cures, or even
meaningful therapeutic options. To conquer disease and relieve suffering, we must have a medical
innovation pipeline that is as strong and robust as possible,” said Margaret Anderson, executive director,
FasterCures. “Bringing critical therapies to market requires venture capital investment to spur a thriving
life sciences industry as well as having a regulatory system that’s appropriately resourced and equipped to
ensure innovation is translated to better health.”

Drivers of Investment Decisions

Among the multiple factors impacting investment decisions, FDA regulatory challenges were most
frequently cited as having high and significant impact in driving these investment trends followed by
reimbursement challenges. Respondents believe these challenges are primarily related to an imbalance in
risk/benefit assessment, and unpredictability at the FDA.

“Venture capitalists have always embraced risk and long-term investment to fund breakthrough
innovation and form great companies,” said Dr. Jonathan Root, general partner at U.S. Venture Partners
and MedIC Steering Committee member. “While many factors are at work in driving away investment
from U.S. medical innovation, it is the FDA approval process – and the cost, time, and unpredictability
that it adds to the development of innovative products – that weighs most heavily on investors. The FDA
and the Administration are already taking significant actions to reverse these trends, but we need the
support of Congress to make sure these reforms are effective and lasting.”

U.S. Competitiveness and Job Creation at Risk
In response to FDA challenges, venture capitalists and the companies in which they invest are
increasingly looking to Europe and Asia to bring their medical products to market. According to the
survey, 36 and 44 percent of firms plan to increase investment in life science companies in Europe and
Asia, respectively, while only 13 percent plan to increase in North America. Correspondingly, 31 percent
of firms indicated plans to decrease investment in life science companies in North America while seven
percent and zero percent of respondents plan to decrease investment in Europe and Asia, respectively.

Additionally, a majority of the respondents indicated a continued trend for U.S.-based startup medical
companies to seek regulatory approval and commercialization of their products outside the United States
first and to establish and grow operations abroad. This major shift will reduce the availability of
lifesaving and life-sustaining treatments for Americans and will result in a decrease in U.S. job creation,
threatening the global leadership of the U.S. in medical innovation.

If left unaddressed, patient health care, job creation and the U.S. economy will suffer substantial further
damage. Based on the survey responses, America can anticipate approximately half a billion dollars less
of investment into healthcare start-up companies in the near term, placing American jobs at risk.

U.S. Game to Lose
Despite the grim prognosis, there remains an opportunity to address these challenges. Nearly all
respondents indicated that FDA reform would have a significant positive impact on venture investment in

biopharmaceutical and medical device companies in the United States. Improvements that were favorably
rated as showing promise include better predictability of decisions, increased efficiency and speed of
decisions, rebalancing of risk/benefit requirements, expanded accelerated approval pathways and
improved transparency in communications.

Recently, the FDA and the White House have begun a broad set of reform initiatives that are intended to
address some of these problems, including new guidances on risk/benefit assessment, clinical trial design
and new pathways for approval of innovative medical devices.

“The venture capital and startup communities are committed to working with lawmakers and regulators to
continue to reform the FDA approval process so that Americans can have access to these important
medical innovations without compromising safety,” said Mark Heesen, president of the National Venture
Capital Association. “We are encouraged by our constructive dialogue with senior FDA officials, who
recognize the gravity of the situation and are taking action. However, fundamental reform is urgent and
will require a dedicated, bipartisan effort. We must give FDA the vital tools and resources it needs – along
with a clear legislative mandate – to promote and protect the public health in a manner that encourages
the development of innovative products for patients in need. We must act now or the U.S. public will lose
access to breakthrough innovation at a very high cost to public health and the economy.”

For a copy of the survey data slides, please visit: http://www.nvca.org/vital_signs_data_slides.pdf

About NVCA’s MedIC Coalition

The Medical Innovation and Competitiveness (MedIC) Coalition educates policymakers on the critical
role America’s medical innovation plays in the U.S. healthcare system and high quality job creation,
where and how disruptive innovations are developed and the challenges currently facing the medical
innovation system. MedIC educates stakeholders and policy makers and supports legislation to address
the threats facing America’s medical innovation system. Founded in 2010 as a partnership between the
National Venture Capital Association (NVCA), member venture capital firms and their early-stage
portfolio companies, the coalition aims to preserve U.S. leadership in medical innovation and ensure that
America remains the primary incubator for global innovation. MedIC is based in Washington, DC.

About NVCA

Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely
with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation
and economic growth. According to a 2011 Global Insight study, venture-backed companies accounted for
12 million jobs and $3.1 trillion in revenue in the United States in 2010. As the voice of the U.S. venture
capital community, the National Venture Capital Association (NVCA) empowers its members and the
entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term
investment. As the venture community’s preeminent trade association, NVCA serves as the definitive
resource for venture capital data and unites its nearly 400 members through a full range of professional
services. For more information about the NVCA, please visit www.nvca.org.