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The Crisis in Investment in U.S. Medical

Innovation and the Imperative of FDA Reform

Vital Signs

Key Survey Findings

October 2011

Confidential: Do Not Distribute Prior to October 6, 2011

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We must act now or lose our leadership position inmedical innovation, job creation

and access to life-saving treatments in the United States.

Decrease their investmentin biotechnology and medical devicestart-ups

Reduce their concentrationin critical therapeutic areas, and

Shift focus awayfrom the United States towards Europe andAsia

A 2011 study found that U.S. venture capitalists have been andwill continue to:

Summary

FDA regulatory challenges were identified as having the highestimpact on these investment decisions.

NVCA MedIC Vital Si ns Re ort October 2011

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Study Methodology

Online survey conducted JulySeptember 2011

Sent to 259 NVCA member firms investing in the healthcaresectors

156 firm responses = 60% response rate = 92% of NVCAinvested capital (2008-2010)

Survey respondents accounted for $10 billion of VCinvestment in healthcare companies in the past 3 years.

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The Cycle of Innovation

NIH

U.S. Universities

EntrepreneursVenture Capital

Startup Companies

$$$$

Pension

Funds

Foundations

$$

$$ Jobs

Innovation

American Patients& Citizens

Tech Transfer

Govt Funded R&D

Funds Investedand Returned

FD

A

ProductApprova

l

IPO orAcquisition

$$

$$

$$

$$

$$

$$

$$

$$

$$

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-50%

-25%

0%

25%

50%

Decreased Increased

39% of VC firms reported decreases in theirhealthcare investment in the past 3 years.

Past 3 Years - Change in Healthcare Investments

39%

17%

% of Respondents

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Nearly twice as many VC firms expect to decreasetheir healthcare investment in the next 3 years.

-50%

-25%

0%

25%

50%

Decrease Increase

Next 3 Years - Expected Change in Healthcare Investments

39%

21%

% of Respondents

NVCA MedIC Vital Signs Report, October 2011

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41%

14%

40%

22%

17%

27%

11%

19%

9%

31%

10%

34%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Within healthcare, venture investment has alreadyshifted away from Biopharma and Medical Devices.

Past 3 Years - Change in Investments in Healthcare Sectors

% of Respondents

Biopharma Diagnostics Life ScienceTools /

Equipment

HealthcareServices /Consumer

Health

HealthcareIT

MedicalDevices

Increased Decreased

High FDA Regulation Low FDA Regulation

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VC investment in Biopharma and Medical Devicesis expected to continue to suffer.

40%

15%

42%

24%

21%

30%

9%

26%

9%

42%

8%

54%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Next 3 Years - Expected Change in Investments in Healthcare Sectors

% of Respondents

Biopharma Diagnostics Life ScienceTools /

Equipment

HealthcareServices /Consumer

Health

HealthcareIT

MedicalDevices

Increase Decrease

High FDA Regulation Low FDA Regulation

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FDA regulatory challenges are having the greatestimpact on VC investment decisions.

*Unrelated to Regulatory Challenges

Factors Cited as Having the Highest Impact on VC Investment

% of Respondents

RegulatoryChallenges

(FDA)

FinancialMarkets /

Availability ofCapital to Invest

CapitalRequirements

ClinicalTrial

Issues*

Firm / LPChanges orRequests

Lack of TaxIncentives

ReimbursementConcerns

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VCs expect to decrease healthcare investment inthe U.S. in favor of Asia and Europe.

31%

13%

0%

44%

7%

36%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Next 3 Years - Expected Change in Healthcare Investment by Region

% of Respondents

Asia /

Pacific

EuropeNorth

America

Increase Decrease

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FDA regulatory challenges have the highest impacton VC firm decisions to shift investment overseas.

*Unrelated to Regulatory Challenges

Factors Cited as Having the Highest Impact on Decision to MoveInvestment Outside of U.S.

% of Respondents

RegulatoryChallenges

(FDA)

ClinicalTrial

Issues*

FinancialMarkets /

Availability ofCapital to Invest

CapitalRequirements

Firm / LPChanges orRequests

Lack of TaxIncentives

ReimbursementConcerns

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VC-backed companies are expected to increaseoperations outside the U.S.

80%

86%

85%

0% 20% 40% 60% 80% 100%

Next 3 Years - Likelihood of Portfolio Company Decisions to ShiftOutside of U.S.

% of Respondents

CommercializeProducts Outside the

U.S. First

Set Up AdditionalCompany Operations

Outside the U.S.

Seek RegulatoryApproval Outside

the U.S. First

Increased Likelihood

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Meaningful FDA reform is critical to reversingthese trends.

Expected Impact on Investments from Changes at FDA

% of Respondents

58% 25%

64% 22%

68% 17%

69% 17%

71% 14%

0% 20% 40% 60% 80% 100%

Increased Efficiency /Speed with Decisions

Rebalancing Risk /Benefit Requirements

Increased Predictabilityof Decisions

High Impact Moderate Impact

Expanded AcceleratedApproval Pathways

Improved Transparencyof Communication

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Significant investment decreases in highly prevalentdiseases with increases in orphan diseases expected.

46%

39%

53%

53%

60%

0% 10% 20% 30% 40% 50% 60%

Orphan Diseases **

Cancer

Obesity/Metabolic

Diabetes/Endocrinology

Cardiovascular Disease

Next 3 Years Percent of Respondents Expecting to Decrease/IncreaseInvestment Prevalence *

(millions)

>50

23

72

12

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Implications

Many promising medical therapies and technologies willnot be funded and therefore will not reach the patients that

need them.

Those that are funded may not be brought to market in theUnited States first, or at all.

An estimated funding loss of half a billion dollars over thenext three years will cost America jobs at a time when wedesperately need employment growth.

The U.S. leadership position in medical innovation will be

placed in further danger and economic growth with suffer. 15

If the current situation is left unaddressed, the implications toU.S. patients and the economy are significant: