Innovation in Health Care: Time for a Gut Check

Abstract

Over the past several decades, advances in science and technology have yielded great strides in our ability to treat major medical conditions such as heart disease and cancer. The genesis of many of these technologies has been innovative biopharmaceutical, medical device, and diagnostic start-up companies often formed by physicians and researchers within academic medical institutions and hospitals.These start-up companies often have taken on venture capital funding to complete product development and clinical trials. As a reward for successful clinical trials, these companies were historically able to raise additional capital through multiple investment rounds and sometimes through an initial public offering of their stock to public investors.Indeed, there are several very successful examples of new therapies that followed this playbook in the area of gastroenterology including treatments for morbid obesity, hepatic encephalopathy, hepatitis C, reflux disease, and Barrett's esophagus, all developed by small companies that effectively developed and launched these products with the backing of high-risk investment capital and in concert with thought-leading physicians and inventors.Over the past 30 years, this ecosystem of physician, academia, start-up, and venture capital fostered a very successful milieu for the advancement of innovation in health care and has yielded many new drugs and devices in use today by physicians. Indeed, it has been shown previously that contrary to popular belief, venture capital returns from health care start-up investments actually have exceeded the returns from information technology and Internet investments since 2000 by a very wide margin.1Booth B.L. Salehizadeh B. In defense of life sciences venture investing.Nat Biotechnol. 2011; 29: 579-583Crossref PubMed Scopus (16) Google ScholarToday, however, we are at serious risk of dismantling this medical innovation ecosystem. There are 3 major reasons for this looming crisis in financing innovation in health care.Increased RegulationAs has been documented by many industry observers, obtaining Food and Drug Administration (FDA) approval for a novel drug or device has never been more challenging.2Makower J. Meer A. Denend L. FDA impact on U.S. medical technology innovation, November 2010.http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-9AB1C0A7A3CF/0/makowerreportfinal.pdfGoogle Scholar Regulatory inconsistencies have scared away many companies from commencing research and development work on the areas of highest unmet medical need for fear of no clear path to US approval. Indeed, regulatory schemes outside the United States today are considered far more navigable and predictable for trial sponsors.As a case in point, in the past 2 years, 3 novel biopharmaceuticals targeted at obesity, all with extensive clinical testing histories, were rejected for approval by the FDA. Furthermore, novel device therapeutics aimed at creating alternatives to gastric bypass and gastric banding have raised well over $600 million of venture capital financing in the past decade but none has seen a US approval, having been hamstrung by the FDA's unwillingness to provide the definitive guidance required to structure a clinical trial.Another form of impending regulation is the Physician Payment Sunshine Law of 2010, which mandates reporting and public disclosure by manufacturers of any transfer of value greater than $100 to physicians and other health care providers, including education materials, clinical trial recruitment fees, and drug samples. This added level of regulation and reporting will lead to scrutiny by the press and patients and will no doubt impact the interaction between physicians and industry, which when performed ethically and responsibly has been the lifeblood of medical innovation for the past 30 years. Indeed, many academic medical centers are considering banning outright many forms of sponsored research and industry interactions.Decreased PaymentOver the past several years, a dominant topic of national political discourse in the United States has been the future direction of the health care system. With expanding deficits and exploding elderly and chronic disease populations on a collision course, the future is indeed not rosy for the country's ability to pay its future medical bills.The 2010 Patient Protection and Affordable Care Act, which likely will add insurance coverage for 34 million Americans starting in 2014 unless portions of the law are overturned by future court decisions, but the law does little to tackle the growth in health care costs.What generally has been avoided by politicians to date is a constructive dialog around the required significant cuts in health care reimbursement that will be necessary for the survival of the US health care system. This payment reform likely will take the form of outright reimbursement cuts in certain categories and bundling or capitation in other areas such as chronic conditions, perhaps to be spearheaded by Accountable Care Organizations.Physicians, many of whom already are overburdened with increased patient loads, likely will face significant new pressures on their time and compensation over the coming decades.For medical technology and biopharmaceutical companies, considerations of cost effectiveness and health economics must be front and center as decisions to start new companies and to undertake new major clinical trials are taken. Indeed, this adds an additional layer of risk to small companies already working through significant clinical trial and FDA approval risk.Reduced Access to CapitalDespite a good track record of returns from health care–related venture capital investments in the past decade, the market for initial public offerings for health care companies has deteriorated steadily in the past 5 years such that the initial public offering of a biopharma or medical device company is practically impossible today, whereas it was a major form of financing in the 2 prior decades.With public market investors unwilling to fund risky biotech and medical device ventures, small health care companies are increasingly dependent on being acquired by larger global pharmaceutical and medical device companies who have increasing negotiating leverage.Furthermore, because of the relative underperformance of venture capital in information technology over the past decade, the overall capital available to venture capital partnerships has decreased and likely will continue to shrink. Indeed, venture capital investments only represented 0.15% of the US gross domestic product in 2010.3Heesen M. Testimony to house economic sub-committee, May 12, 2011.http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=727&Itemid=93Google ScholarA reduction in access to capital starves the creation of new high-risk ventures that aim to solve the biggest unmet clinical needs and those chronic diseases that will cost the system the most over the coming decades. This inevitably will lead to a reduction in the creation of innovative new companies in health care.The confluence of these issues is not only a risk to start-up companies and their investors, but more importantly presents a roadblock to patients and physicians to be able to access effective and safe therapies that likely will be approved in other nations but will remain unavailable and unfunded in the United States.Furthermore, the US medical device and biopharmaceutical industries have been a source of strong domestic job creation and US competitiveness in the global economy for decades. For example, the medical device industry alone directly employs more than 357,000 individuals in the United States. Many of these positions are at risk for being sent offshore if regulatory burdens on manufacturers are not rationalized.2Makower J. Meer A. Denend L. FDA impact on U.S. medical technology innovation, November 2010.http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-9AB1C0A7A3CF/0/makowerreportfinal.pdfGoogle ScholarAgainst this backdrop of significant challenges to medical innovation, the involvement of physicians in the creation of novel lifesaving therapies, and the overall burden on the health care system, how are physicians to think about their role in medical innovation?Indeed, the same formula that worked so well for the past several decades to bring new therapies to patients likely will not work going forward. The ideas that increasingly are receiving new funding and support in venture capital–backed health care share at least 2 characteristics, as follows.Compelling Cost Reduction DataTherapeutics and diagnostics without a strong health system cost-reduction rationale will continue to be in disfavor. This implies that me-too products or products with a high procedural cost but marginal efficacy benefit will no longer have an effective chance at receiving venture capital financing because the costs to take these products through clinical trials will not be worth the risk of challenged reimbursement.A recent unfortunate case study of the perils of not having compelling cost-effectiveness data was Calypso Medial, a Seattle-based company that received $180 million in venture capital financing over the past decade to create a novel real-time tracking system for more accurate prostate cancer stereotactic radiation. Despite published efficacy and FDA approval, the cost of the system and each procedure were not compelling to insurers and the company ultimately was acquired for $10 million, resulting in a massive investment write-off.Low Capital RequiredCompanies that can push their products through clinical trials and launch for a fraction of the capital previously required are increasingly compelling. With the costs of clinical trials and drug and device development increasing in recent years, new projects must be designed from the ground up to reach early clinical proof-of-concept milestones on very small amounts of invested capital before investing more capital for larger trials. New so-called asset-light, virtual company models of biopharmaceutical financing are being developed to support this kind of environment.4Lawrence S. Finance: virtue in virtual BioCentury.http://www.biocentury.com/biotech-pharma-news/finance/2011-02-28/creating-pipeline-not-companies-a13Google Scholar In addition, many of the newly funded innovations may be in areas that traditionally are considered lower technology but can be cost saving to the health care system such as nonimplantable medical devices and systems.Physicians who work with industry on novel therapies or who create new intellectual property from their research with the hopes of someday commercializing it should force themselves to focus on issues of FDA regulation and future payment for new medical technology.Finally, I propose a new mechanism to help foster additional investment in medical innovation: namely, a $100 billion government-sponsored financing vehicle with a 20-year outlook to help support early stage and translational medical innovation and specifically start-up creation in these areas.This proposed National Medical Innovation Fund (NMIF) would allocate its capital to existing well-vetted and high-performing professional investment managers who would receive little or no annual management fee to operate these funds but who would in exchange be able to deploy NMIF capital to innovative start-up companies in biopharma, medical device, and health services companies tackling the largest unmet clinical needs using both low-tech and high-tech means. NMIF funds would be used alongside existing funds of these managers to reduce the risk that lesser-quality investment managers would self-select to operate under the reduced economics of a government-backed venture fund.It could reasonably be expected that the profile of returns for this fund would follow the profile of returns of health care venture capital in the past decades, which has generated realized annual internal rates of return of 15% to 22% according to previous studies. Recognizing that medical innovation takes longer than information technology innovation, with a long 20-year time horizon, the government could expect to recoup its investment in NMIF with a significant profit. As a tangible additional benefit, tens of thousands of new high-value jobs in these medical start-up companies would be created and of course patients ultimately would benefit, and physicians and academia would see their research commercialized.Indeed, there would be many key details to be worked out, but with 40 million additional Americans entering Medicare in the next 2 decades, this is precisely the time that we as a nation cannot afford to reduce our willingness and ability to fund the largest unmet medical needs or to stifle job-creating medical innovation with increased regulation.In conclusion, every part of the medical innovation ecosystem, from physicians to academic medical institutions to start-ups and their venture capital investors, are now faced with the new reality of the collision of demographics, chronic diseases, and health care costs. It will take bold thinking among each of these constituencies as well as government and policy makers to solve the quagmire in which we are currently involved. Over the past several decades, advances in science and technology have yielded great strides in our ability to treat major medical conditions such as heart disease and cancer. The genesis of many of these technologies has been innovative biopharmaceutical, medical device, and diagnostic start-up companies often formed by physicians and researchers within academic medical institutions and hospitals. These start-up companies often have taken on venture capital funding to complete product development and clinical trials. As a reward for successful clinical trials, these companies were historically able to raise additional capital through multiple investment rounds and sometimes through an initial public offering of their stock to public investors. Indeed, there are several very successful examples of new therapies that followed this playbook in the area of gastroenterology including treatments for morbid obesity, hepatic encephalopathy, hepatitis C, reflux disease, and Barrett's esophagus, all developed by small companies that effectively developed and launched these products with the backing of high-risk investment capital and in concert with thought-leading physicians and inventors. Over the past 30 years, this ecosystem of physician, academia, start-up, and venture capital fostered a very successful milieu for the advancement of innovation in health care and has yielded many new drugs and devices in use today by physicians. Indeed, it has been shown previously that contrary to popular belief, venture capital returns from health care start-up investments actually have exceeded the returns from information technology and Internet investments since 2000 by a very wide margin.1Booth B.L. Salehizadeh B. In defense of life sciences venture investing.Nat Biotechnol. 2011; 29: 579-583Crossref PubMed Scopus (16) Google Scholar Today, however, we are at serious risk of dismantling this medical innovation ecosystem. There are 3 major reasons for this looming crisis in financing innovation in health care. Increased RegulationAs has been documented by many industry observers, obtaining Food and Drug Administration (FDA) approval for a novel drug or device has never been more challenging.2Makower J. Meer A. Denend L. FDA impact on U.S. medical technology innovation, November 2010.http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-9AB1C0A7A3CF/0/makowerreportfinal.pdfGoogle Scholar Regulatory inconsistencies have scared away many companies from commencing research and development work on the areas of highest unmet medical need for fear of no clear path to US approval. Indeed, regulatory schemes outside the United States today are considered far more navigable and predictable for trial sponsors.As a case in point, in the past 2 years, 3 novel biopharmaceuticals targeted at obesity, all with extensive clinical testing histories, were rejected for approval by the FDA. Furthermore, novel device therapeutics aimed at creating alternatives to gastric bypass and gastric banding have raised well over $600 million of venture capital financing in the past decade but none has seen a US approval, having been hamstrung by the FDA's unwillingness to provide the definitive guidance required to structure a clinical trial.Another form of impending regulation is the Physician Payment Sunshine Law of 2010, which mandates reporting and public disclosure by manufacturers of any transfer of value greater than $100 to physicians and other health care providers, including education materials, clinical trial recruitment fees, and drug samples. This added level of regulation and reporting will lead to scrutiny by the press and patients and will no doubt impact the interaction between physicians and industry, which when performed ethically and responsibly has been the lifeblood of medical innovation for the past 30 years. Indeed, many academic medical centers are considering banning outright many forms of sponsored research and industry interactions. As has been documented by many industry observers, obtaining Food and Drug Administration (FDA) approval for a novel drug or device has never been more challenging.2Makower J. Meer A. Denend L. FDA impact on U.S. medical technology innovation, November 2010.http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-9AB1C0A7A3CF/0/makowerreportfinal.pdfGoogle Scholar Regulatory inconsistencies have scared away many companies from commencing research and development work on the areas of highest unmet medical need for fear of no clear path to US approval. Indeed, regulatory schemes outside the United States today are considered far more navigable and predictable for trial sponsors. As a case in point, in the past 2 years, 3 novel biopharmaceuticals targeted at obesity, all with extensive clinical testing histories, were rejected for approval by the FDA. Furthermore, novel device therapeutics aimed at creating alternatives to gastric bypass and gastric banding have raised well over $600 million of venture capital financing in the past decade but none has seen a US approval, having been hamstrung by the FDA's unwillingness to provide the definitive guidance required to structure a clinical trial. Another form of impending regulation is the Physician Payment Sunshine Law of 2010, which mandates reporting and public disclosure by manufacturers of any transfer of value greater than $100 to physicians and other health care providers, including education materials, clinical trial recruitment fees, and drug samples. This added level of regulation and reporting will lead to scrutiny by the press and patients and will no doubt impact the interaction between physicians and industry, which when performed ethically and responsibly has been the lifeblood of medical innovation for the past 30 years. Indeed, many academic medical centers are considering banning outright many forms of sponsored research and industry interactions. Decreased PaymentOver the past several years, a dominant topic of national political discourse in the United States has been the future direction of the health care system. With expanding deficits and exploding elderly and chronic disease populations on a collision course, the future is indeed not rosy for the country's ability to pay its future medical bills.The 2010 Patient Protection and Affordable Care Act, which likely will add insurance coverage for 34 million Americans starting in 2014 unless portions of the law are overturned by future court decisions, but the law does little to tackle the growth in health care costs.What generally has been avoided by politicians to date is a constructive dialog around the required significant cuts in health care reimbursement that will be necessary for the survival of the US health care system. This payment reform likely will take the form of outright reimbursement cuts in certain categories and bundling or capitation in other areas such as chronic conditions, perhaps to be spearheaded by Accountable Care Organizations.Physicians, many of whom already are overburdened with increased patient loads, likely will face significant new pressures on their time and compensation over the coming decades.For medical technology and biopharmaceutical companies, considerations of cost effectiveness and health economics must be front and center as decisions to start new companies and to undertake new major clinical trials are taken. Indeed, this adds an additional layer of risk to small companies already working through significant clinical trial and FDA approval risk. Over the past several years, a dominant topic of national political discourse in the United States has been the future direction of the health care system. With expanding deficits and exploding elderly and chronic disease populations on a collision course, the future is indeed not rosy for the country's ability to pay its future medical bills. The 2010 Patient Protection and Affordable Care Act, which likely will add insurance coverage for 34 million Americans starting in 2014 unless portions of the law are overturned by future court decisions, but the law does little to tackle the growth in health care costs. What generally has been avoided by politicians to date is a constructive dialog around the required significant cuts in health care reimbursement that will be necessary for the survival of the US health care system. This payment reform likely will take the form of outright reimbursement cuts in certain categories and bundling or capitation in other areas such as chronic conditions, perhaps to be spearheaded by Accountable Care Organizations. Physicians, many of whom already are overburdened with increased patient loads, likely will face significant new pressures on their time and compensation over the coming decades. For medical technology and biopharmaceutical companies, considerations of cost effectiveness and health economics must be front and center as decisions to start new companies and to undertake new major clinical trials are taken. Indeed, this adds an additional layer of risk to small companies already working through significant clinical trial and FDA approval risk. Reduced Access to CapitalDespite a good track record of returns from health care–related venture capital investments in the past decade, the market for initial public offerings for health care companies has deteriorated steadily in the past 5 years such that the initial public offering of a biopharma or medical device company is practically impossible today, whereas it was a major form of financing in the 2 prior decades.With public market investors unwilling to fund risky biotech and medical device ventures, small health care companies are increasingly dependent on being acquired by larger global pharmaceutical and medical device companies who have increasing negotiating leverage.Furthermore, because of the relative underperformance of venture capital in information technology over the past decade, the overall capital available to venture capital partnerships has decreased and likely will continue to shrink. Indeed, venture capital investments only represented 0.15% of the US gross domestic product in 2010.3Heesen M. Testimony to house economic sub-committee, May 12, 2011.http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=727&Itemid=93Google ScholarA reduction in access to capital starves the creation of new high-risk ventures that aim to solve the biggest unmet clinical needs and those chronic diseases that will cost the system the most over the coming decades. This inevitably will lead to a reduction in the creation of innovative new companies in health care.The confluence of these issues is not only a risk to start-up companies and their investors, but more importantly presents a roadblock to patients and physicians to be able to access effective and safe therapies that likely will be approved in other nations but will remain unavailable and unfunded in the United States.Furthermore, the US medical device and biopharmaceutical industries have been a source of strong domestic job creation and US competitiveness in the global economy for decades. For example, the medical device industry alone directly employs more than 357,000 individuals in the United States. Many of these positions are at risk for being sent offshore if regulatory burdens on manufacturers are not rationalized.2Makower J. Meer A. Denend L. FDA impact on U.S. medical technology innovation, November 2010.http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-9AB1C0A7A3CF/0/makowerreportfinal.pdfGoogle ScholarAgainst this backdrop of significant challenges to medical innovation, the involvement of physicians in the creation of novel lifesaving therapies, and the overall burden on the health care system, how are physicians to think about their role in medical innovation?Indeed, the same formula that worked so well for the past several decades to bring new therapies to patients likely will not work going forward. The ideas that increasingly are receiving new funding and support in venture capital–backed health care share at least 2 characteristics, as follows. Despite a good track record of returns from health care–related venture capital investments in the past decade, the market for initial public offerings for health care companies has deteriorated steadily in the past 5 years such that the initial public offering of a biopharma or medical device company is practically impossible today, whereas it was a major form of financing in the 2 prior decades. With public market investors unwilling to fund risky biotech and medical device ventures, small health care companies are increasingly dependent on being acquired by larger global pharmaceutical and medical device companies who have increasing negotiating leverage. Furthermore, because of the relative underperformance of venture capital in information technology over the past decade, the overall capital available to venture capital partnerships has decreased and likely will continue to shrink. Indeed, venture capital investments only represented 0.15% of the US gross domestic product in 2010.3Heesen M. Testimony to house economic sub-committee, May 12, 2011.http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=727&Itemid=93Google Scholar A reduction in access to capital starves the creation of new high-risk ventures that aim to solve the biggest unmet clinical needs and those chronic diseases that will cost the system the most over the coming decades. This inevitably will lead to a reduction in the creation of innovative new companies in health care. The confluence of these issues is not only a risk to start-up companies and their investors, but more importantly presents a roadblock to patients and physicians to be able to access effective and safe therapies that likely will be approved in other nations but will remain unavailable and unfunded in the United States. Furthermore, the US medical device and biopharmaceutical industries have been a source of strong domestic job creation and US competitiveness in the global economy for decades. For example, the medical device industry alone directly employs more than 357,000 individuals in the United States. Many of these positions are at risk for being sent offshore if regulatory burdens on manufacturers are not rationalized.2Makower J. Meer A. Denend L. FDA impact on U.S. medical technology innovation, November 2010.http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-9AB1C0A7A3CF/0/makowerreportfinal.pdfGoogle Scholar Against this backdrop of significant challenges to medical innovation, the involvement of physicians in the creation of novel lifesaving therapies, and the overall burden on the health care system, how are physicians to think about their role in medical innovation? Indeed, the same formula that worked so well for the past several decades to bring new therapies to patients likely will not work going forward. The ideas that increasingly are receiving new funding and support in venture capital–backed health care share at least 2 characteristics, as follows. Compelling Cost Reduction DataTherapeutics and diagnostics without a strong health system cost-reduction rationale will continue to be in disfavor. This implies that me-too products or products with a high procedural cost but marginal efficacy benefit will no longer have an effective chance at receiving venture capital financing because the costs to take these products through clinical trials will not be worth the risk of challenged reimbursement.A recent unfortunate case study of the perils of not having compelling cost-effectiveness data was Calypso Medial, a Seattle-based company that received $180 million in venture capital financing over the past decade to create a novel real-time tracking system for more accurate prostate cancer stereotactic radiation. Despite published efficacy and FDA approval, the cost of the system and each procedure were not compelling to insurers and the company ultimately was acquired for $10 million, resulting in a massive investment write-off. Therapeutics and diagnostics without a strong health system cost-reduction rationale will continue to be in disfavor. This implies that me-too products or products with a high procedural cost but marginal efficacy benefit will no longer have an effective chance at receiving venture capital financing because the costs to take these products through clinical trials will not be worth the risk of challenged reimbursement. A recent unfortunate case study of the perils of not having compelling cost-effectiveness data was Calypso Medial, a Seattle-based company that received $180 million in venture capital financing over the past decade to create a novel real-time tracking system for more accurate prostate cancer stereotactic radiation. Despite published efficacy and FDA approval, the cost of the system and each procedure were not compelling to insurers and the company ultimately was acquired for $10 million, resulting in a massive investment write-off. Low Capital RequiredCompanies that can push their products through clinical trials and launch for a fraction of the capital previously required are increasingly compelling. With the costs of clinical trials and drug and device development increasing in recent years, new projects must be designed from the ground up to reach early clinical proof-of-concept milestones on very small amounts of invested capital before investing more capital for larger trials. New so-called asset-light, virtual company models of biopharmaceutical financing are being developed to support this kind of environment.4Lawrence S. Finance: virtue in virtual BioCentury.http://www.biocentury.com/biotech-pharma-news/finance/2011-02-28/creating-pipeline-not-companies-a13Google Scholar In addition, many of the newly funded innovations may be in areas that traditionally are considered lower technology but can be cost saving to the health care system such as nonimplantable medical devices and systems.Physicians who work with industry on novel therapies or who create new intellectual property from their research with the hopes of someday commercializing it should force themselves to focus on issues of FDA regulation and future payment for new medical technology.Finally, I propose a new mechanism to help foster additional investment in medical innovation: namely, a $100 billion government-sponsored financing vehicle with a 20-year outlook to help support early stage and translational medical innovation and specifically start-up creation in these areas.This proposed National Medical Innovation Fund (NMIF) would allocate its capital to existing well-vetted and high-performing professional investment managers who would receive little or no annual management fee to operate these funds but who would in exchange be able to deploy NMIF capital to innovative start-up companies in biopharma, medical device, and health services companies tackling the largest unmet clinical needs using both low-tech and high-tech means. NMIF funds would be used alongside existing funds of these managers to reduce the risk that lesser-quality investment managers would self-select to operate under the reduced economics of a government-backed venture fund.It could reasonably be expected that the profile of returns for this fund would follow the profile of returns of health care venture capital in the past decades, which has generated realized annual internal rates of return of 15% to 22% according to previous studies. Recognizing that medical innovation takes longer than information technology innovation, with a long 20-year time horizon, the government could expect to recoup its investment in NMIF with a significant profit. As a tangible additional benefit, tens of thousands of new high-value jobs in these medical start-up companies would be created and of course patients ultimately would benefit, and physicians and academia would see their research commercialized.Indeed, there would be many key details to be worked out, but with 40 million additional Americans entering Medicare in the next 2 decades, this is precisely the time that we as a nation cannot afford to reduce our willingness and ability to fund the largest unmet medical needs or to stifle job-creating medical innovation with increased regulation.In conclusion, every part of the medical innovation ecosystem, from physicians to academic medical institutions to start-ups and their venture capital investors, are now faced with the new reality of the collision of demographics, chronic diseases, and health care costs. It will take bold thinking among each of these constituencies as well as government and policy makers to solve the quagmire in which we are currently involved. Companies that can push their products through clinical trials and launch for a fraction of the capital previously required are increasingly compelling. With the costs of clinical trials and drug and device development increasing in recent years, new projects must be designed from the ground up to reach early clinical proof-of-concept milestones on very small amounts of invested capital before investing more capital for larger trials. New so-called asset-light, virtual company models of biopharmaceutical financing are being developed to support this kind of environment.4Lawrence S. Finance: virtue in virtual BioCentury.http://www.biocentury.com/biotech-pharma-news/finance/2011-02-28/creating-pipeline-not-companies-a13Google Scholar In addition, many of the newly funded innovations may be in areas that traditionally are considered lower technology but can be cost saving to the health care system such as nonimplantable medical devices and systems. Physicians who work with industry on novel therapies or who create new intellectual property from their research with the hopes of someday commercializing it should force themselves to focus on issues of FDA regulation and future payment for new medical technology. Finally, I propose a new mechanism to help foster additional investment in medical innovation: namely, a $100 billion government-sponsored financing vehicle with a 20-year outlook to help support early stage and translational medical innovation and specifically start-up creation in these areas. This proposed National Medical Innovation Fund (NMIF) would allocate its capital to existing well-vetted and high-performing professional investment managers who would receive little or no annual management fee to operate these funds but who would in exchange be able to deploy NMIF capital to innovative start-up companies in biopharma, medical device, and health services companies tackling the largest unmet clinical needs using both low-tech and high-tech means. NMIF funds would be used alongside existing funds of these managers to reduce the risk that lesser-quality investment managers would self-select to operate under the reduced economics of a government-backed venture fund. It could reasonably be expected that the profile of returns for this fund would follow the profile of returns of health care venture capital in the past decades, which has generated realized annual internal rates of return of 15% to 22% according to previous studies. Recognizing that medical innovation takes longer than information technology innovation, with a long 20-year time horizon, the government could expect to recoup its investment in NMIF with a significant profit. As a tangible additional benefit, tens of thousands of new high-value jobs in these medical start-up companies would be created and of course patients ultimately would benefit, and physicians and academia would see their research commercialized. Indeed, there would be many key details to be worked out, but with 40 million additional Americans entering Medicare in the next 2 decades, this is precisely the time that we as a nation cannot afford to reduce our willingness and ability to fund the largest unmet medical needs or to stifle job-creating medical innovation with increased regulation. In conclusion, every part of the medical innovation ecosystem, from physicians to academic medical institutions to start-ups and their venture capital investors, are now faced with the new reality of the collision of demographics, chronic diseases, and health care costs. It will take bold thinking among each of these constituencies as well as government and policy makers to solve the quagmire in which we are currently involved.