Crowdfunding the next medical cure

Creating a new medical device is not an inexpensive exercise. There are development costs, clinical trial expenses, and the lengthy process of getting a piece of new equipment approved by the Food and Drug Administration.

Those hurdles are a leading reason why most medical innovations come out of universities or established research firms.

A couple of start-ups are trying to change that.

MedStartr and HealthFundr — both online crowdfunding platforms — connect potential medical innovators to scores of people willing to put money into the projects.

“There’s a lot of capital sitting on the sidelines,” said Sean Schantzen, co-founder and chief operating officer of Healthfundr, a platform allowing accredited investors to buy shares in fledgling medical start-ups. “We bring more capital into what we consider a very important sector, that otherwise may not be in play in that area.”

But while new fundraising methods could create new entrepreneurial opportunities in the medical field, some are worried unsophisticated investors could underestimate the risks, or worse — patients desperate for a cure might throw away money chasing ideas developed outside conventional regimes.

“When you’re going to put a drug in a human being, you can’t do it in a garage. You have to use the clinical trial infrastructure,”said Margaret Anderson, executive director of FasterCures, the medical branch of the Milken Institute, an economic think tank headquartered in Santa Monica, Calif. “That’s how we’ve built our system, to ensure people aren’t taking magic potions and being exploited.”

Indeed, the lure for a cure can be powerful. For MedStartr contributor Kari Ulrich — a patient with fibromuscular dysplasia, a rare vascular disease — the promise of medical solutions for her disease motivates her donations. She hasn’t yet contributed to any biomedical devices, but she did give over $1,000 to help develop “FMD Chat,” an online community focusing on her malady.

MedStartr allows entrepreneurs to collect financial contributions from the public in exchange for rewards — pre-orders of services or devices, for instance. Due to regulations about unaccredited investors from the Securities and Exchange Commission, users can only contribute to — and not invest in — projects on the platform..

Ulrich feels better donating to individuals instead of large, national organizations fundraising for medical cures. “You don’t know where [the money] is going. Sometimes these smaller projects never get a chance.”

But in the case of medical devices, it could take years to develop investment expertise, said Yaniv Sneor, founder of Mid Atlantic Bio Angels, a New York-based angel investment group.

“It requires a good understanding of the market, and understanding of the science as well. The science can be very tricky. Also, you have to look at where you think the science is going to be in a few years.”

It could be years before a device hits the market, during which it might change completely — the average crowdfunding contributor might not understand these market nuances, he added.

Source: Washington Post – By Mohana Ravindranath, Published: July 8, 2013

link: http://www.washingtonpost.com/business/on-small-business/crowdfunding-the-next-medical-cure/2013/07/08/5b3b562c-c871-11e2-9f1a-1a7cdee20287_story.html

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