WASHINGTON, D.C.--The stark fiscal reality that is currently facing U.S. innovators is curtailing medical innovation and potentially preventing new technologies from emerging for unmet patient needs, according to Peter J. Fitzgerald, MD, PhD, a professor of cardiology and engineering at Stanford University School of Medicine in Stanford, Calif., who spoke at the 2011 annual Cardiovascular Research Technologies (CRT) conference last week.
“The innovative spark cannot be predicted, cannot be planned and cannot be taught,” Fitzgerald said. “It’s often spontaneous.” He said that living in Stanford has given him the “lucky opportunity” to witness and participate in innovation first hand with both clinicians and technologists. In 2005, 50 percent of FDA device approvals came from within an 18-mile radius of Stanford.
“There needs to be funding for medical innovation,” he said. In 2007, $33 billion came from venture capitalists—more than 50 percent of investments were on the West Coast. Since that time, funding has dropped, falling to only $15 billion in 2010.
“There is a significant decrease in capital, which can serve as kerosene for innovation. Without dollars and support, new technologies cannot really come to fruition,” Fitzgerald said.
On a positive note, he reported that while the overall figure is dropping, 30 percent of all funding issued has consistently been filtered to the life sciences community—this figure has been steady for the past six and a half years.
In the Stanford region alone, healthcare funding has dropped 52 percent, and venture capitalists have dropped not only in amount but in investment size by 25 percent. He also noted that the occupancy of commercial retail locations in the Stanford region—which Fitzgerald said is the “best barometer” for innovation—has dropped 39 percent. Finally, private equity funds have decreased a “whopping” 65 percent in support of life science, he reported.
“For medical innovation, funding, policy, education and leadership have taken significant blows over the past couple years,” Fitzgerald said. For instance, federal financing for research is down 45 percent compared with 1976.
According to market researcher Rand, in 2010, 68 percent of students who received PhD degrees in the U.S. left to return to their native country, which is a “significant change to the choices made by foreign students 30 years ago.” Also, 30 to 45 percent of schools in India, China and Israel offer engineering degrees, which is much higher than U.S. schools. “Conversely, the U.S. was fueled by innovation 30 years ago,” Fitzgerald said.
“With respect to funding, investors are extremely risk adverse right now, especially at early stage research,” he said. “The venture capitalists are looking for late-stage deals, where they can get their money out quickly.” The MedTech venture return on investment between 2000 and 2010 has been zero, compared with the 1990s when it was 70 to 80 percent.
“In the 1980s, there was always a linear appreciation of value, but today, it takes a lot more to get to that revenue out of the commercialization stage,” Fitzgerald said.
Also, the regulatory constraints and costs are pushing innovators outside the U.S. While he described the FDA as “underfunded and underappreciated,” Fitzgerald also pointed out that pre-market approval times increased 140 percent since 2003, and there has been a 65 percent increase in 510(k) approvals since 2005. In 2002, there were 17 black-box warnings and 68 drugs approved, compared with 2008, when there were 75 black-box warnings and 18 drugs approved.
“These statistics are not meant to be critical of the FDA, but instead to demonstrate how times have changed,” he explained. “The process is taking longer, costing more and requiring more legal finesse in attempting to drive innovation.”
While innovation is flattening globally, it’s slowing quicker within the U.S., he said, and more innovation is occurring in Taiwan, China, Israel and India.
“Overall, it’s not coming back–as we had known it before–because change will require bipartisan incentives and policy change. However, on the individual level, MedTech and IT innovators need to come together to formulate new, leaner plans of action for healthcare efficiencies,” concluded Fitzgerald, who added that technologies that prevent disease as opposed to fix disease will be the wave of the future.