Monday, February 16, 2009

Public policy can impact the types of new research that get funded
By Kelly Winget, DCRI Communications

Innovative research in healthcare leads to better treatments and medications, safer devices and less-costly care. Typically, smaller companies are leading this research. Venture capital helps support these smaller businesses during the early stages and larger pharmaceutical companies then frequently buy them up to expand their product offerings.

In a new study led by DCRI fellow Clay Ackerly, MD, and senior author Kevin Schulman, MD, researchers look at how public policy and the venture capital business are linked and how federal policies can impact the type of research and development that get funded.

The study was published in the January/February issues of Health Affairs.

Venture capital is a business about risks, because the small companies that are leading innovative healthcare research often need at least five years before being considered for acquisition. Because of the high risk, the investors tend to place their money in areas where they think high returns are likely. Due to the high return opportunities, companies working on medical devices have received significant funding from venture capital investors.

Researchers surveyed 20 investment managers and found that where they were investing was consistent with what researchers had seen in national trends, such as increasing investments in medical devices.

When asked, all but one of those surveyed said that how much return on investment was likely was “all that mattered” or that it mattered “very much.” Everyone rated the potential health impact as less important. The investment managers consistently viewed pharmaceutical and biotechnology companies as higher risk than medical devices manufacturers.

Most of those surveyed said if risks increased, they would likely reduce health care investments, even though these high-risk areas can potentially have significant benefits to improving public health.

Researchers note that federal policy-makers can impact the level of risks that come with investing in startup companies. The researchers suggest that a system needs to be developed that monitors the impact of policies on how venture capital can invest in new technologies.

The DCRI's Lawrence Diener and Kristin Dossary were also involved with this study.

Click here to read the full study.