Venture capital firms are investing less in US medical device and pharmaceutical companies in favor of European and Asian firms, and expect that trend to continue unless the US Food and Drug Administration reforms its regulatory processes.

A new study by the Medical Innovation & Competitiveness Coalition (MedIC), a branch of the National Venture Capital Association, surveyed 156 venture capitalists investing a combined $10 billion in the health care sector over the past three years. Nearly 40% of respondents reported decreasing their health care investments between 2008 and 2011, and nearly 40% of firms also plan to further reduce allocations to life sciences companies over the next three years.

Furthermore, 42% of respondents indicated plans to reduce investments in medical device firms; increased allocations to the health care information technology sector as well as to health care services outside the purview of the FDA are planned instead. US medical device and drug manufacturers focused on conditions such as cardiovascular disease, diabetes and cancer are expected to see significant decreases in venture capital support.

A strong majority of respondents (61%) cited FDA regulatory challenges as the key factor behind their investment decisions; concerns about reimbursement (38%) and financial market conditions (35%) also factored heavily, according to survey results.

While 58% of respondents currently invest only in US life sciences companies, 31% of venture capitalists plan to decrease US investments in the next three years; 36% of respondents plan to increase their European investments, and 44% plan to increase allocations to Asian firms. On a related note, respondents anticipate that more and more US-based medical technology manufacturers will seek regulatory approval and commercialization of their products first in other markets.

To reverse these trajectories, venture capitalists recommend that the FDA to improve predictability and speed of its regulatory decisions—familiar suggestions that the agency itself claims to be pursuing in earnest. But what degree of predictability and efficiency would suffice in order to reverse the flow of medical device venture capital out of the US market?