Supremely Irritating

This blog has been pretty dull lately, but as I’ve said before, I try to keep my mouth shut if I have nothing to say. This one has me pretty riled up.

The Supreme Court heard arguments yesterday on the patentability of genes.  There is a sense of jubilation coming from the academic camp, as evidenced by Eric Lander’s and Bob Cook-Deegan’s high five following the hearing. I’m not convinced that their jubilation is justified. If you’re having trouble sleeping, you can read the whole transcript, but from my reading, the Court didn’t sound like it’s ready to clamp down on gene patents.

What got me really riled up was, in the aftermath of the events at the Boston Marathon, on the advice of a tweet, I turned to PBS to watch what was promised to be unvarnished coverage. I happened on a piece about the SCOTUS hearings on gene patents. On the “academic” side of the argument was Ellen Matloff, a genetic counselor at Yale. She, characteristically of many academics, completely confused the issue, bringing arguments about the reduced cost of whole genome sequencing, insurance companies denying reimbursement, etc. None of which have anything to do with what’s at issue.

She claims that “Myriad invented nothing.” Really? Through linkage analysis, the BRCA1 gene was localized to one arm of one chromosome by the team led by Mary-Claire King, announced at an ASHG meeting in 1990. Four years later, the gene’s sequence was identified by, in part, Myriad scientists. Turning it into a commercially reliable clinical diagnostic test was done by one company: Myriad.

She also claims that Yale had been conducting diagnostic testing, which was subsequently shut down by Myriad. Correct. That’s how patents work. But it’s independent of whether or not the gene itself can be patented. What she’s really complaining about is that she can’t perform the testing in her lab (read: can’t make money from offering the test). That’s what gets under the skin of most academics. I’m not aware that Myriad, or any other patent holder, prevents others from doing true, basic, academic research. It’s not in their interest to do so. Think of it this way: a company discovers a bunch of mutations responsible for a disease. An unrelated researcher identifies a new mutation. Would they propose not licensing that mutation to the dominant provider and offering testing for that single mutation? How does that benefit anyone – the company, the researcher, or most importantly, patients?

I’m not a lawyer, and certainly not qualified to argue before the Supreme Court, but it all seems pretty simple to me. If you identify a method to diagnose a patient with a disease, assuming that it’s scientifically and clinically justified, it is novel, non-obvious, and reduced to practice, and therefore, should be patentable. Why does it matter if the method uses DNA as the substrate as opposed to, say, serum?

Nobody is patenting a person’s DNA. Never have; never will. Nobody with any knowledge of the matter believes that such a thing would be patentable. However, utilizing the chemical nature of something found in nature to identify a person with a disease meets the criteria of patent eligibility. What’s so difficult about that?

Don’t Play That Song Again

I hesitated posting this because it sounds very self-serving, and because I’ve made the point before. And before that. But I think it’s worth noting, and the validation of the point is noteworthy.

I recently attended the Xconomy Forum: New England’s Emerging Biotech Stars. It was an interesting juxtaposition of panels and company presentations. The point that stood out for me, that was made by both Joe Yanchik, CEO of Aileron and by George Scangos, CEO of Biogen Idec, was how important “team” is for biotech companies. The point was made in two very different ways, reflecting the vast differences in the two companies.

In his presentation, Yanchik repeatedly pointed out how impressed he was with his team, and how much of an impact a small group of people has been able to make. It’s a cool technology, and they’ve attracted a great syndicate of investors. If you look at the company’s history, they operated with a very small team until they had validated some key scientific findings before hiring a bunch of people. Great. I totally support that plan. There’s no need to hire me to find a bunch of senior executives when they’re not really needed. This point was echoed by Mike Webb in another forum a couple of weeks later. Mike reminded the group about the days when a young entrepreneur would found a company, walk across Kendall Square, pick up a big check from a VC, hire a complete staff of VPs, and start burning cash. His analogy was to a fire station. With all due respect to firefighters, we’re all very happy they’re there when there is a fire, but most of their time is spent not fighting fires. The senior executives in startup biotech companies back in the day spent a lot of time sitting in their offices reading Nature Biotech.

But once a company reaches critical technology mass, it’s important to have the right group of seasoned executives to carry the technology to market. That’s when you call me. And it’s important to do so, because that’s when there’s tremendous value in being able to walk down the hall to someone’s office and talk about the article you just read (last night at home) in Nature Biotech.

Scangos made the same point in a different way. One of the first things he did after coming on board in 2010 was to initiate plans to bring the entire organization back under one roof. Well, ok, not precisely one roof, but at least all within walking distance of each other. Interlocking his fingers, he underscored the importance of having R&D, Sales, Marketing, Finance, etc. all working together and able to interact. It’s what humans do. The move back from Weston is expected to be complete by the end of next year, and will cost millions. He’s a smart guy, and recognizes that it’s worth it. (Do you think he’d get BoD approval if it weren’t?)

Just to add icing to the cake, at a WPI Venture Forum event last year, Kevin Bitterman was asked to rate the relative importance of technology and management team when Polaris evaluates an investment opportunity. His answer? “Management team, management team, management team, management team and technology.”

The point was furthered by Mark Levin of Third Rock. In a free-wheeling interview by Tuan Ha-Ngoc, CEO of Aveo, Levin commented that the fastest way to be shown the door at Third Rock is to come in with a slide deck articulating a plan for a quick flip. They’re interested in building companies. Maybe not the next Amgen or Genzyme, but a company. And companies consist of teams. And teams get things done, not CROs that are 8 time zones away.

Well, as I said, it may sound self serving, coming from a recruiter’s perspective, but I think it’s an important point. And it’s nice to know that I’m not the only one who feels that the expense incurred in building top executive teams is worth it. There are some people putting real dough against it. I just can’t countenance plans to build “companies” with 3 FTEs and a host of outsourced support.

Getting From A to B

I had coffee with a biotech CEO the other day, and as is often the case, the conversation turned to building top tier executive management teams. We spoke about a need in the company’s Board of Directors, and how some of the other BoD members were seeking a very high profile candidate. They wanted an “A team” director. Through their own personal networks, they had identified three very high profile people, all of whom I knew. We both danced around it for a while, but it ultimately came out – none of them would have been good for the company’s board.

What I knew, and what the CEO suspected, was that all three had been very fortunate in their careers. Not that they lacked any talent, but in large measure, they happened to be in the right place at the right time. They had had some early successes in their respective careers, but had all been drinking their own Kool-Aid for too long. One in particular, perhaps the most high-profile of the group, was on the board of a company that I knew and had personal knowledge of his participation there – or should I say lack of participation. He was known to come to board meetings never having read the board book, completely unprepared, believing that the mere aura of his presence in the room justified his compensation.

I said to the CEO: “That’s why I always cringe a little inside when people tell me they want an A team candidate.” It depends on what you mean by the A team. If you’re looking for “marquee value,” then yes, perhaps the heavyweight who doesn’t do anything is appropriate. However, I’d argue that what you really want is someone from the B team. Now before you all jump on that, let me explain.

If any of you have college-aged kids, you know how impossible it is to get even the brightest, most qualified students into the “top” schools. The competition is unfathomable, and is orders of magnitude more so than when I was applying. My advice to college bound kids? There is a small club of the very top schools – the Ivys and the “Ivy rejects.” There’s also a tier at the very bottom with shaky credentials. But in the middle, there is an enormous range of perfectly good schools that will provide you with tremendous opportunity, where you will get a world class education, and with faculty and facilities that can compete with any Ivy. Many of the students at the schools in that middle range could easily have been at a “top” school, but there simply isn’t room for everyone. Any arguments so far?

So when we’re looking for top talent, I’m far more impressed with what someone has done, than I am with their pedigree. A resume with top schools and “Academy” companies is nice, but when I’m building a team, I’d rather stock the pond with eager, energetic, roll-up-the-sleeves types, not the folks who are riding on past successes and have great resumes, but are secretly relying on the hard work of subordinates to get things done. That’s what I mean by the B team. They’re the executives who, by sheer chance, were the ones who were not selected for the position at the top company at some point in their careers. Maybe they were the number two or three candidate, and the HR person didn’t like their shoes. Maybe the chemistry between the CEO and the successful candidate was just better. It doesn’t mean the B teamer isn’t capable or couldn’t meld well in a different culture.

Of course, none of this is to say that there aren’t great, accomplished, hard working, skilled executives (with nice shoes) who are at the top tier companies. It’s just a caveat – don’t get taken in by the brand names, when there are “generics” that are “bioequivalent.”

The Impossible Dream

It’s been a long while, but I have a reasonably legit excuse. It’s been crazy busy, including a sellout for the second annual Startup Downhill. I have several topics started, but this one trumps them.

This morning I attended the Mass High Tech BioForum. The topic was quite broad – how to get your life sciences product to market. As you can imagine, the discussion was similarly wide-ranging, though nicely kept apace by the co-chair of Foley Hoag’s life sciences practice, Jeff Quillen.

When it was announced that another Foley Hoag attorney was going to give the keynote, I didn’t have high hopes, since my experience is that in this type of setting, lawyers get way too deep into technical details, and lose sight of the objective. I was pleasantly surprised when Paul Kim gave a great overview, with particular focus on the FDA and some of the challenges of commercializing products in this highly regulated context.

There wasn’t time for my question, but as you know by now, I sure had one. It was intended mostly for Paul, and here’s the issue:

Years ago, my kids were watching some DVDs in the back of the car while I was driving, so I was only half paying attention. There was a scene with what must have been an ad on TV for a drug. One character says to the other, “Wow, all those nasty side effects.” The other says, “Oh, they just say all that. Those side effects never happen.” “Well, then why do they put them on the ad?” Pause. “In case they happen.” I was secretly chuckling to myself, because it is precisely true.

So my question for Paul was, “Is it possible to have an agency that works?” On one hand, the public wants absolute safety. The role of the FDA is to ensure that drugs and devices that make it to market are safe. We don’t want to think of ourselves as Guinea Pigs. On the other hand, patient advocacy groups and others exert constant pressure to get drugs to market rapidly, and criticize the agency for unnecessary delays. So what’s it gonna be? Safety or access? I would argue that you can’t have both. If someone from the agency is going to get dragged in front of a Congressional Sub-Committee every time someone has an adverse reaction (or death) from a drug product, who at the agency would ever take any risk? There was a time, in the memory of some of us, where the mood at FDA was to evaluate products based on safety and efficacy. The feeling was that it was not their job to determine whether or not the market needed another me-too product. That pendulum has swung completely in the other direction to a far more paternalistic attitude, where me-too products now need to show a clinical benefit that exceeds that of existing approved products. (Which begs the question, is it ethical to do a placebo controlled trial when there are approved products for the condition?)

I’m not a huge fan of the FDA in general, but agree with panelist Bruce Booth that they do shine in certain areas of regulation. In their defense, I don’t see how a government agency can effectively navigate the balance between protecting the public and facilitating rapid deployment, within a political climate where a single misstep is grounds for dismissal.

Once again, no solution, just framing the problem.

Lamarck’s Legacy

A few years ago, I wrote an article that was published in Mass High Tech (yeah, yeah, I know. It’s a lousy picture…), the working title of which was “Cleantech Recapitulates Biotech.” Not surprisingly, that’s not the title it ended up with. I was making a reference to embryological parallelism, a disproven evolutionary hypothesis typically stated as "ontogeny recapitulates phylogeny," which suggested that embryological development (ontogeny) is a microcosm of the phylogenetic tree – different species' embryos pass through stages of “lower” organisms their evolutionary history as they develop into offspring (e.g., a human passes through the stages of chimp, ape, etc. on its way to becoming a human baby).

The MHT article highlights one of the key similarities between biotech and cleantech – the need to look to other industries for key executive management as the nascent industries are taking shape. It was originally written with another theme which was removed to shorten it for the magazine. The other point of similarity between the industries is the financing structure – the need for an early slug of venture cash, then long development timelines and hence the need for a much more substantial slug somewhere down the line, with no guarantee of success for many years. For those of us with some grey hair, it’s an old song. When the biotech industry was getting started, and every VC wanted to be in on the next Genentech, they were chasing biotech entrepreneurs with their checkbooks, with an eye on an IPO in a few years and a quick 5X ROI. As biotech has matured, and much of the low hanging fruit has been picked, similarly-motivated investors’ attention has turned to the sexier cleantech space.

Last week I attended a packed NECEC event at Choate on doing cleantech financing deals with large strategic partners. A great discussion with a number of industry luminaries like Bill Brady, Dennis Costello and Eric Emmons, and expertly moderated by Peter Rothstein. As I listened to the discussion, I was struck how this same discussion could have taken place (and probably did) 20 years ago in the context of biotech investment. The titles of the participants would have been the same; just the company names would have been different.

Well, there’s nothing like a good straight man. Just as I was about to make the observation (What? You thought I would attend a panel without asking a question?), Doug Zingale saved me the effort. Andrew Lackner, with GE Capital, made the comment that the difference is that cleantech is much more diverse. It includes everything from biofuels to smart grid to wind to solar, and all things in between. I would argue that the comparison is flawed. The correct one is between cleantech and life sciences (which I consider to include everything from biotech to diagnostics to med device to health care IT). If we compare just biotech against biofuels, for example, the comparison is effectively the same. However, there are two key differences.

First, a lot has changed in the last 20 years. In those days, pre-clinical companies went public; now you need Ph IIb data to do an A round. When those early biotech investors realized that Mother Nature would be the final arbiter of success, not market size and penetration and reimbursement, and that it would be 10 – 15 years before the answer was known, many became disillusioned and started looking for investments with shorter horizons. It didn’t help the life sciences industries that all the Internet opportunities came along. Some of that corporate memory has been carried into cleantech investing, and is why many more businesses look like project finance than company formation.

Second, at the end of the road with a biotech investment, you end up with a product that someone will pay you thousands of dollars a year to inject in their veins. At the end of the road with a cleantech investment you end up with a commodity. If you miss your numbers by $0.02 a gallon or KW, you’re screwed.

After the panel I spoke with Doug for a minute, who made the interesting observation that yes, it’s a commodity, but it’s worth trillions of dollars. We didn’t have time to finish the conversation (but we plan to), but I would counter that prior to the patent running out, Lipitor® was good for almost $11B of revenue for Pfizer. That’s one company with billions in revenue from one product. Trillions, yes, but it will be spread over hundreds of companies, since it’s clear that no single company will own the market for production and distribution of all cleantech products.

Still, the problem is that regardless of the similarities and differences between the industries, it’s mighty tough to get investors’ attention on a multi-year, hundreds of millions of dollars investment when they can fund the next Angry Birds, which will be profitable in about 15 minutes and will cost a lot less to get to market. What we need is to get some of the “venture” back into venture investing.

"Where’s the Beef?" You Mean: “Where’s the Fat?”

First, an apology. I know it’s been a long time, but to borrow a line from the Talking Heads: When I have nothing to say, my lips are sealed. And now, on with the show.

Yesterday I was chatting with some friends and one of them mentioned something that I jumped on making the point that it was yet another example of the negative impact of our constant quest to cut fat out of society and the economy. But, you say, “Cutting fat is a good thing, right?” Well yes, but only up to a point.

Some of you may know that I’m an amateur chef. As any chef will tell you, the flavor is in the fat. While the texture of a fillet mignon is unmatched in any other cut, there’s way more flavor in a New York strip. Why? There’s more fat in the strip steak. Nobody’s asking you to eat it, but let’s not forget what it adds to the meal. (As an aside, I’m both excited and nervous about being featured as “guest chef” next month alongside my good friend, fellow snowboard instructor and Executive Chef at The Hunt Club, Chris Fratkin!)

My home is in a neighborhood association that was started around the turn of the century (…the century, not the current one). There are several common areas, and between many of the houses, pathways linking them. When it was being built, they added a small stone house on association property where a full time caretaker kept tools to maintain the common areas. I can easily imagine the “old days” when that person was on the grounds all day, knew every neighbor and their cars, and perhaps most importantly, knew when something was wrong in the neighborhood. That person made a decent living and put his kids through school. To have someone in that role today, with OSHA, SSS, disability insurance… it would be over $100k all in, and no neighborhood could afford it (which is a whole other story, and don’t get me going…). Now, the common areas are badly overgrown and houses are being broken into. In the effort to be “capital efficient,” we keep taking fat out, but we’re losing flavor, too.

Last week I attended Acceleration 2011 at Nutter, and co-sponsored by Halloran. The event was quite well done. Well organized, good facility and excellent panelists. The first panel was “How Lean is Too Lean?” Great discussion, and Bruce Booth of Atlas made some great points. One was the distinction between lean and virtual, and the ensuing distinction in the discussion of what is too lean versus too virtual. I agree that there’s a difference, but as I’ve previously noted, there is a point where companies lose the flavor if they’re too lean or too virtualized.

In a tech company, and certainly in any life sciences company, popping into someone’s office and saying, “Did you see the article in Nature last week on chromosomal rearrangements?” is invaluable. I agree that it’s easier to conduct business remotely these days, and young people are far more accustomed to it than the old guard, but let’s not minimize the value (and flavor) of human interaction. There may indeed be a cost associated with it, but it pays dividends.

On a related note, one of the panelists relayed the story of how he filled a key C-level position in the company using LinkedIn, and was happy with the result. Don’t get me wrong, we use LinkedIn, and unlike many of my colleagues who see it as a threat, we embrace social media, but as a tool. I would argue that he got very lucky. Again, I’m a big fan of efficiency, but don’t overlook the value of having a pro do the research, vet candidates and benchmark them against a known database. I know it sounds self serving, but again, it’s about the flavor.

Wish me luck in Vermont!

Settle Down, Beavis

My friends at Xconomy hosted another great event on Thursday – XSITE 2011. They did a really clever thing at the event – they invited several people to rant for one minute about what makes them angry about Boston’s entrepreneurship ecosystem. I was pleased to share my rant with the audience, and it got me thinking about a bunch of other things that get under my skin. With graduation season in full swing (two of my own and about a million friends and family), and a string of networking events with appealing titles, it’s been busy, personally and professionally. I’ll try to keep it civil, but I have a few things to get off my chest.

Let’s start with my son’s college graduation. I attended the baccalaureate service, replete with an address by an alumnus who was to receive an honorary PhD the following day. Now with all due respect (the speaker was an accomplished diplomat and theologian), I was irritated when he completed his speech for two unrelated reasons. First, the speech itself was preachy and condescending. Why must graduation speakers use the occasion to speak to the audience and not to the graduates? Indeed, I think it’s safe to say that all the speakers at all the graduations I’ve attended in the last few weeks (they all kinda blend together, frankly) took the same approach. One was introduced as “the most humble person I’ve ever met,” and went on for about 15 minutes about herself. I thought the point of being invited to speak at commencement was to provide some pearl(s) of wisdom to the graduates based on the speaker’s experiences and accomplishments. Second, the audience rose to give the speaker a standing ovation. I did not. I’ve reached my limit. Standing ovations recognize something truly exceptional. Two years ago, my other son’s lacrosse team did not win a single game. At the awards ceremony, the coach gave the most inspirational speech the audience had ever heard, and it was for a losing team. It brought many to tears. That deserved, and got, a standing ovation. You would think the baccalaureate speaker had delivered the first workable plan for Mideast peace. It was an ordinary speech, and I’ve finally dug in my heels.

On Monday I was invited to an event where the speaker was Joseph Ternullo, JD, MPH, Director of International Corporate Relations for Partners HealthCare and Associate Director of Partners’ Center for Connected Health. Instead of thoughtful comments on connected health (using technology to monitor and provide healthcare remotely), I was disappointed that he simply read the draft of an article he was preparing for publication. His halting speaking style made it difficult to listen to (by his own admission he “could talk a dog off a meat wagon”), and I felt as though his statement that he intentionally had no slides was an attempt to distract the audience from the fact that he was just going to read the draft. In addition, there were several content issues I took issue with. First, he said that the “market” was estimated between $17 and $35B. Market for what? The cost of the tools? The cost of implementation? Second, assuming there is some kind of market, who’s going to pay for it? Third, Connected healthcare and EMR (Electronic Medical Records) are similar in the sense that they’re limited by “politics.” Hospital systems and payors want to “own lives.” It is not in their interest to implement technology that makes it easier to transfer information about a person to a competing system or payor. Fourth, this is the Beta/VHS problem to the 8^th power. Every hospital system has its own IT system, making “standardization” for EMR or connected healthcare virtually impossible. The only solution I’ve seen with a chance is one that “sits on top” of all the systems and allows them to talk to each other. Finally, Mr. Ternullo raised the point that nobody wants to carry around a health monitoring device because it singles one out. While I take the point, I also believe that it would work over time; my own children grew up wearing bicycle and ski helmets, and now wear them instinctively. Things like that do take time, but eventually, society absorbs them.

Rant over.

Tuesday was a T3 capital markets update hosted by Foley Hoag, which was quite nicely done. The most important comment was made by Ben Nye, Managing Director, Bain Capital Ventures, who, in closing, made a cogent argument for why the overall economy is in a very fragile state. I wouldn’t do it justice if I tried to summarize it, but it was a bit of an eye opener.

Interestingly, in my Breakfast Club meeting on Wednesday, I did my best McLaughlin Report imitation and asked everyone at the end: “Business up or down?” To a person, business is up. When I asked: “Double dip – yes or no?” about half the group said “no,” but the other half didn’t say “yes,” they said “flat.” I think we’re all beginning to grasp the reality that flat is the new up, but maybe it’s not such a bad thing. Slow growth is way better than a bubble, and I wish that message could sink in.

Thursday was a panel hosted by my friends at Goodwin Procter, and hosted by NECEC President, Peter Rothstein. Panelists included über-blogger, Rob Day, Goodwin’s own, RJ Lyman, and Kim Stevenson, Manager, New Technologies, Connecticut Clean Energy Fund. Very lively debate about a wide range of financing issues. What struck me was the point that I’ve been making for some time – in terms of financing, cleantech bears a lot of similarities to biotech. Look at biofuels. Biofuels and biotech both have long commercial development timelines, require boatloads of cash (clinical trials vs. pilot plants), and both will get started by VCs and require some kind of major infusion. The panelists all provided some interesting perspectives, but at the end of the day, my belief is that cleantech investors can learn a lot from all the mistakes that have been made by their life sciences colleagues.

Oh, and my Xconomy rant? Let’s get the Venture back in Venture Capital. For 30 years I’ve been listening to entrepreneurs say they can’t get any funding and VCs say there’s no deal flow. Private equity looks like i-banking these days, VC looks like PE, and angels look like VCs. Angels are a bunch of orthodontists with checkbooks, not organizations with a receptionist and an investment committee. What the hell is the difference between a superangel and a VC?! My theory was recently corroborated when Ampersand Ventures changed their name in April to Ampersand Capital Partners, recognizing their focus on middle market PE. Back in the day, biotech companies went public on pre-clinical data; today, VCs want PhII data for an A round. What we need is someone to take some risk again.

And I still managed to get some work done over the last two weeks…