60 Minutes Bob Simon and Ebola

Last week, 60 Minutes newsman Bob Simon was tragically killed in a car accident. My heart goes out to his loved ones.  Last night, they had his final report on television.  It was about Ebola and creating a vaccine.

There was a lot of great detail in the piece.  But I want to quibble with one of the finer points of it.

Simon interviews two entrepreneurs from a 9 person company out of San Diego that did the initial research on the vaccine.  (I am paraphrasing) They said, “Venture capitalists don’t invest in these kinds of companies because the time to exit is too long.”  Simon replied, “So we have to rely on the government.”

There is more to that than those statements.  Let’s peel the onion a bit.

Venture capitalists typical holding period is 7-10 years.  This vaccines development is within that holding period.  VC’s like to invest in companies that have big ideas and big markets.  It’s unclear if the Ebola vaccine is a big enough market-although it’s sure an important vaccine.  It just depends on how you draw the lines of the market.

On the flip side, what else might be out there that could cause the vaccine to have problems getting to market?  You guessed it, the same government that Simon cites.

The FDA is a massive pain in the ass to investors.  In the case of the Ebola vaccine, investors wouldn’t just have to navigate the US government, but the Canadian government too!  Not to mention the governments in places like the Ivory Coast where distribution systems would have to be set up and payment systems used to get the vaccine into the right hands.  All of that doesn’t come free.  It also injects a lot of undiversifiable risk into the deal that is impossible to manage and account for.

We talk a lot about rising health care costs and the cost of prescription drugs in the US.  It’s important to note that the federal government is the monolith that stands in the way of innovation.  That monolith greatly increases the cost to innovate under the umbrella of safety.  However, we have passed the point where the costs don’t outweigh the benefits to innovation.

Venture capitalists would invest more into medical device and drug startups if the government were not so heavy handed and totalitarian when it came to regulating them.  Until the government does, medical startups will always be cash starved and have to fight over SBIR grants and research grants.  That’s not enough to drive the innovation that we need to create a better overall medical system.