CRT: U.S. gov’t should reinvest some of med device tax into start-ups

WASHINGTON, D.C.—“I’m afraid we are slowly losing the [medical device] innovation pipeline unless we address it very quickly,” Yuval Binur, PhD, a venture capitalist and managing partner of Orchestra Medical Ventures, said Feb. 26 at the Cardiovascular Research Technologies (CRT) annual meeting.

Binur began by noting that his talk was “in no way” an attack on the FDA, as they are collaborators and partners with investors who work hard to bring innovations to commercialization in the U.S. “It is the overall ecosystem that requires a total revision, including the financial world, the regulatory world and the reimbursement world. We share a common ground of wanting to improve treatment while reducing healthcare costs.”

The current medical device innovation ecosystem, according to Binur, consists of:

  • The ability to willingly take risks is currently being challenged by the availability of risk capital. “In fact, this is a major stumbling block to innovation in the U.S.,” he said.
  • Understanding unmet needs in the market; however, there is a current difficulty with identifying strategic needs, which is necessary to commercialize devices.
  • Management talent and capital efficiency is being challenged by the lack of a conducive regulatory environment.
  • Intellectual property is being challenged by a clear and fast path to liquidity.

A few things are deterring Binur as an investor from an early-stage device investments, he said, including the lack of risk capital, the length of time it takes to bring a product to market due to the FDA process and the inability to think globally. “Venture capitalists are looking for late-stage investments, but they do not understand that there will be no late stage unless we invest in early-stage medical devices.”

In speaking about the lack of a conducive regulatory environment, he said that the FDA has been a huge barrier or obstacle, where approvals are sometimes held up by “irrational bureaucracy.”

Also, there is a lack of liquidity available today in the financial markets, said Binur, which is “an important part of the medical device innovation ecosystem, but mainly only supports mergers and acquisitions of late.”

To retain the innovation stream, Binur recommended that the U.S. federal government copy the successful examples of the governments of Israel, China and Scandinavia, which supported early-stage start-ups. For instance, tax incentives should be granted to multinational companies that strategically invest in early-stage innovations.

Also, he also suggested that the Obama administration take 2 percent out of the 10 percent medical device tax, which was part of the healthcare reform act, and create a fund that will get shuttled to medical device innovations. “If not, those taxes have the danger of being burned up in bureaucracy.”

He also recommended revising the FDA structure to allow for the acceleration of certain processes, including allowing for U.S. first in man studies. Binur acknowledged that the FDA is confined by the congressional mandate.

Finally, he recommended that corporations and strategic investors create a stronger lobby group. “We are not the NRA, but we can learn from them and we have a larger group.”

Binur encouraged entrepreneurs to think globally to address emerging markets; to learn to operate in capital efficient manner (“cash is your lifesaver, and it’s not in ample supply"); to invest time in building bridges and strategics with the FDA; and be beware of toxic venture capitalists and advisers.