ScaleVP’s Mitchell: FDA’s Capriciousness Is Driving Out Life Sciences Investors

Xconomy San Francisco — 

Yesterday’s announcement by Scale Venture Partners that it will make no new investments in healthcare companies may not have come as a huge surprise to some insiders. Kate Mitchell, a founder and managing director at the firm, says ScaleVP has been pondering the shift for two or three years, and that it effectively stopped investing in the life sciences a while ago. “It was known to people who know us,” Mitchell says. But now that the shift is public, she says, the firm and its life sciences partners Lou Bock and Mark Brooks will have an easier time taking part in discussions about what ails the biotech industry.

The ailments are many, but if they had a single name, it would be the Food and Drug Administration, in Mitchell’s view. When I reached her by phone yesterday and asked her to elaborate on yesterday’s announcement, Mitchell returned over and over to what she called the FDA’s “capriciousness” when it comes to reviewing clinical trial results. In the post-Vioxx years, she says, the FDA’s approval process for new drugs has grown so drawn-out and unpredictable that ScaleVP can no longer, in good conscience, ask its limited partners to risk new money on drug development deals. (She says the company will fully back the healthcare firms already in its portfolio, however.)

ScaleVP’s announcement did not go unnoticed in Washington. Mitchell (an Xconomist) says several members of Congress called her for more information yesterday after the announcement appeared—and she was happy to share a piece of her mind with them. “I hate to have ScaleVP be the sacrificial lamb, because I believe in this sector,” she says. “But if we can use this, we are going to.”

An edited version of our phone chat follows.

Xconomy: This must have been a difficult decision. Can you tell me how it came about?

Kate Mitchell: We have a very open and close-knit group. We think of venture as a team sport, not an individual sport here. We talk about these things as a group over time, and sometimes we go off-site and think about the sectors we want to focus on and the challenges and opportunities of each. So we have been talking about this, really, since the 2008 or 2009 time frame.

Our strategy in technology is that we like to invest after the pure science experiment is over and a company has a product that’s complete, and they are usually hiring sales and building out their commercial capability. In healthcare, our strategy had been to look for drugs that had some preliminary data in humans. One of our companies, Prestwick Pharmaceuticals, was going after a drug for Huntington’s disease. It was already approved and selling in Europe and Canada. Therefore it should have been a six- to 10-month process with the FDA. Well, it took us three years to get it approved.

There is such turn over at the FDA that there are a lot of people who are former insiders, so we have had some of these folks come in and talk to us about [the regulatory process]. As a result, we evolved our emphasis further to look at repurposed drugs. Orexigen is in our portfolio now; they make a version of wellbutrin, which is available generically and is one of the most widely available antidepressants. Early this year, the FDA said, ‘We can’t approve it and we aren’t even going to tell you what we need…We are going to wait for a year to even tell you what you need to go forward.’ They got some pressure from Congress, and now they have agreed that there should be another trial—after we had already done a successful Phase III trial. So, starting in 2008 through this year, we have had a continual series of problems with the FDA.

Our very first investment after we founded the fund was Seattle Genetics, which was a very successful investment for us. So our question to ourselves was, … Next Page »

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