I think you're actually supporting the point. The people actually doing the research don't care whether they're being financed by VCs, or by NIH. As long as they're getting the money, they're happy.

Moreover, if you're advocating pushing private investment even farther out, there are undesirable side effects. It means that the decision about what to pursue stops being driven by what there's actual demand for, and becomes a matter of political policy.

We can already see the effects of this. Government investment in medical research is not proportional to the number of sufferers, or the expected gain in QALYs (Quality-Adjusted Life Years). It's clear that the investment is strongly slanted toward research on maladies that have distinct demographics - i.e., that are represented by organized voting blocs. Thus, you'll find far more money spent, proportionately, on research for HIV than for something that's pretty widely distributed like colon cancer. I believe it's wrong for politics to drive this so strongly.