Hire the Nerd

I recently completed a search for a finance role and had an interesting discussion with the client about a candidate (let’s call him John). He said, “You won’t appreciate this, Chris, because you’re not a finance person, but I really liked John. We had a long discussion about expense reports, and we were really on the same page.” My client figured that I wouldn’t appreciate the arcane details of expense reporting. (Little did he know, but that’s a separate story.) His point was that only finance people could spend an enjoyable half hour discussing accounting for employee expenses, and that non-finance people would rather have their teeth cleaned.

There is some truth to his statement. However, as a recruiter, I look for enthusiasm as one of the differentiators among candidates. And one of the best ways to assess enthusiasm is to see how jazzed the candidates get about their area of expertise. That is, are they nerdy enough?

As a technology nerd myself (with academic training in math, computer science, biology, psychology and neuroscience), it would be very easy for me to drift into technical discussions with candidates. I have trained myself to focus on the management skills of the candidates, but I do allow and enjoy the technical discussions, and purposely cover that in the process.

Why? For two key reasons. First, I have long argued that all roles in a technology company are technology roles. Everyone in a technology company needs to have some level of grounding in the technology. As an example, I’ve often heard CFO candidates argue that numbers are numbers, and they should be considered for life sciences opportunities. Well if you’ve never heard the term “third party payer,” or don’t understand the long development timelines and capital requirements, or don’t know what a “burn rate” is, you’re going to have a tough time in a life sciences company. It’s the same reason you wouldn’t hire a CFO for your public company who didn’t have post-SOX public company experience. There’s even a recent example. Jolene Varney was hired from The Dr. Pepper Snapple Group to take the reins at Mylan Pharmaceuticals last year. Hunh? What were they thinking? It’s true she did the heavy lifting on the $4B demerger from Cadbury Schweppes, and I’m certain she’s very talented, but she had no experience in the life sciences! Not surprisingly (to me, anyway), she lasted three months. Now of course it’s possible that she took a look under the sheets and didn’t like what she saw, but at least one analyst wrote that “…Varney's departure was driven primarily by fit issues, as compared to something more serious. As a reminder, Varney had been with MYL since May 28 and had no prior CFO or generic industry experience."

Second, I want to hear the candidate’s level of enthusiasm about the technical requirements of the role. In John’s case, I was glad to hear that he got jazzed talking about expense reports. For a CTO or VP, R&D role, I want to hear excitement in the way they want to drill into the technology. In a Marketing role, I need to feel the excitement about their last campaign. You get the picture.

Having said all this, too nerdy isn’t good either. I once walked into a lunch interview and knew in about 7 milliseconds it wasn’t a fit. The candidate was way too nerdy for the culture at the client company. (Of course, I gave the candidate the benefit of the doubt and diligently conducted the interview, but it was only further confirmed by the time the check arrived.)

So hire the nerd. And in a shameless plug, it’s why you’re always better off with a recruiter who understands the client’s business. The life sciences industry is just different. Trust me.

Gen-O

We’ve had Gen-X and Gen-Y, but now we are about to have the onslaught of a generation of people who grew up with Linux and Napster and Firefox and so many other open source technologies that I wouldn’t be surprised if this generation comes to be knows as Gen-O (for "Open").

Myriad Genetics filed a Notice of Appeal on Wednesday in the suit brought against them by the ACLU challenging the validity of the BRCA1 and 2 patents. The ACLU claimed a first round victory on March 29 when a New York district court held that genes are products of nature and therefore not patentable. My friends at Choate, Hall and Stewart have a great summary of the case in last week’s GEN.

In October of 2007, Radiohead released their album, In Rainbows using a unique pricing policy: pay what you want. Fans were able to download a complete digital version of the album and only had to pay what they thought was fair.

How exactly do these things relate? And more importantly, relate to life sciences and cleantech? We are about to experience a sea change in the way technology businesses are conducted, and it will be driven by an open souce mindset. We have, for decades, operated under the model of patent protection for technological innovations, and so far it has worked quite well. Why is the US arguably the world’s foremost center of innovation? Because there has long been a clear, consistent plan for encouraging entrepreneurship through the patent system. In the case of Radiohead, it’s copyright law that applies, but it has the same net effect. That clear path is about to get a little murky.

The music industry was caught unawares when technological innovations made violation of copyright law as simple as a click of a mouse. Radiohead’s response was unique and innovative. The life sciences industry has been seeing this coming for some time. Years ago, I served on the rare disease sub-committee of the (HHS) Secretary’s Advisory Committee on Genetic Testing. Nucleic acid patents were (and still are) under attack from the likes of Mildred Cho, Deborah Leonard and John Merz who were making the case that there was no inventive step in developing a diagnostic test based on alterations of a gene. (Wanna know the truth? 1. It’s about the money. Academicians who had a side business of testing patient samples were mad that a commercial organization could block them from performing the test in their lab, despite the fact that the commercial organization had paid to license the rights to the patents from an academic center and was incurring the cost of developing, marketing and distributing the test, not to mention those of prosecuting the patents. 2. Their stated goal was to increase “access,” but that is precisely what will not happen. Patients and physicians would somehow just know that a particular test was available in someone’s lab? Quality Control and Quality Assurance is enhanced by having numerous academic labs across the country performing the assay using different standards? 3. They went after diagnostics first because the argument is reduced to triviality if you apply the same logic to therapeutics, but I’m sure it won’t be long before they start down that path. But I digress.) Now, the successor to the SACGT, the SAC on Genomics Health and Society, is arguing for exemption from infringement for certain categories of people and is taking on genomic data sharing. Heaven help us.

The Myriad case will be overturned on appeal, but it’s a shot across the bow. The nucleic acid patent hand-wringers have an accidental ally in Gen-Oers. We will continue to see attacks on nucleic acid patents, and concurrently, will see approaches similar to that taken by Radiohead in new settings, but most commonly in industries where intellectual property rights are important to de-risk investment and to foster innovation. Do I believe we will move to abolish patents or move to a system like India or China where there is a patent system but effectively no enforcement? Clearly not. The early results from Radiohead and other similar experiments (like video games offered on a pay-what-you-want basis) were not great. Most people paid something, but it was far less on average than it would have been had they sold through traditional channels. (The analyses I’ve seen don’t account for the reduced production cost when offering the product as a download, so the net to the artists may actually be better.) However, a generation of people who grew up with an open source mindset will certainly continue to challenge the existing model, and technology industries will feel the pressure the most.

Is this a bad or a good thing? It’s a little of both. In fairness, I fully agree that there are quite a number of nucleic acid patents that have no business being around. Remember all those EST patents in the late 90s? When a point mutation in a gene is found to cause a disease, it seems to me it’s a novel and perfectly patentable discovery. After the fifth or seventh or tenth point mutation in the gene is found to cause the same disease, is it truly novel and patentable? I’d argue no. However, invalidating patents based on completely novel disease gene discoveries will result in less, not more, access to commercial products, including, and very importantly, diagnostic testing.

Oh, and one last thing. Did you know that Francis Collins, who has been behind this jihad against nucleic acid patents from the beginning, is an inventor on the original patent protecting the discovery of the gene for cystic fibrosis and about 20 other patents?

I'm just sayin'

The New Talent Pool

A couple of weeks ago I was invited by a group of bioscience graduate students at The University of Washington in Seattle to give a talk on making the transition from academia to industry. It's an interesting organization - a group of UW grad students across a number of bioscience disciplines who are exploring careers outside of traditional academic roles. They receive funding from a number of academic departments and bring in folks like me who have made the transition to talk about their learnings and (hopefully) provide some insights. If you have an hour to kill, you can watch the video, although the audio is pretty bad, especially at the beginning, and until the end, it's just video of my slides. Very exciting.

Prior to the talk I was meeting with Anson Fatland of the Allen Family Foundation who asked me why I agreed to schlep across the country for a 45 minute talk. I responded that I believe the children are our future. Seriously, though, these folks are the VP R&Ds, CSOs, CTOs and for some, CEOs of the next wave of bioscience companies. I'm happy to make the investment. I only hope they took away some pearls of wisdom...

At one point, it was evident that the whole investment world was largely unknown to most of the young people in the room. I wish I had this link the week before; Rob Day at Black Coral Capital, an alternative energy / cleantech investment firm, just posted a nice article on his Cleantech Investing blog that would have been helpful. It wasn't the main focus, but it gives the uninitiated a few good handles with which to figure out a little bit about how venture capital works. By the way, If you're into green/clean, it's a great blog and you can sign up for the feed (although I must say I find the GreentechMedia site impossible to navigate - at least in IE8).

Another group focused on cultivating talent is PropelCareers, whose goal is to connect employers with academic talent. They've already had some great success connecting companies and interns, some of whom have turned into FTEs at the companies where they interned.

I guess I've always tended to see the long term picture better than the here and now. Most retained recruiters wouldn't bother spending time cultivating such early stage talent, but I see it as an investment. And I fully recognize that I'm helping current and future competitors of mine, but I believe there's enough work out there for everyone, and we'll get our share.

When I was a lot younger (when emails were produced using line editors), I belonged to “The Young Scientists’ Network,” which was an Internet-based group that in effect, was a group whine about how tough it was to find meaningful employment with a PhD. There were huge debates about which side of the fence had greener grass, but for the most part, we thought rather poorly of industry. Years later, as Director of BD at Athena Diagnostics, I was galled every year at the Academy of Neurology annual meetings when a particular immunologist used to make disparaging public comments about our technical acumen. These comments came from an academic who likely had his lunch in the same fridge he kept research samples in. We consistently had the highest possible ratings from organizations like the American College of Medical Genetics, the College of American Pathologists, CLIAC, NYSDOH and more. What happens when he made a mistake in an assay? He ran the experiment again. What happens if we made a mistake? We give a doctor and patient an incorrect diagnosis; we couldn't allow it. The stakes were much higher on our side of the fence, and there’s a big difference between running an assay in an academic lab and making a commercially viable, bulletproof diagnostic assay. Most PhD candidates and post-docs simply don’t recognize that critical difference until they get a peek behind the curtain. There are data to support this. At this year’s MassBio annual meeting, a young post-doc presented a poster showing significant changes in perception about industry employment after spending a day at a biotech company. The work was supported by MassBio, and won top honors at the annual meeting of the National Postdoctoral Association. The abstract is available as a .pdf here (link to the annual meeting program book and search for "MGH"). It is important to continue to show these bright young minds that there is true purpose in taking discoveries that would otherwise sit on a shelf in a dusty corner of an academic lab and transforming them into commercial products that can help patients.

Aaahhh, it’s so touching watching them grow up.

Virtually Everything

I just got back from a conference on “Optimizing Early-Stage Drug Development” sponsored by Cooley and Talaris Advisors. John Hession was his customary jocular, professional self as emcee. Well organized, well attended. The only issue was that the landlord at 500 Boylston seems to think that it’s OK to shut off the AC at 6:00. What? Do they think lawyers don’t work past 6? Well, I guess that wasn’t the only problem. The presenters all went over their alloted time, and combined with the rising temperature in the room, it put pressure on everyone to get out and get back to the wine and cheese. Thus, nobody was in the mood for asking any questions. Which was good, since everyone went so far over that they completely consumed the Q&A time, not to mention half of the networking time. I did have one burning question, though.

In any case, it was an interesting group and presentation:

• VC Perspective: Doug Onsi, Venture Partner, (HCV), Derek Lee, Chief Financial and Corporate Development Officer, Talaris Advisors
• Big Pharma Incubator: Wing Delatorre, MD, Head of Business Development, Biogen Idec Innovation Incubator
• Pre-clinical: Steven Richter, PhD, President and Scientific Director, Microtest World Class Life Sciences Services (streamlined non-clinical models)
• Pre-IND to Phase 2: Mark Hurtt, MD, Chief Medical Officer, Talaris Advisors (drug development efficiency)
• CMO Perspective: Patti Seymour, Senior Consultant, BioProcess Technology Consultants (innovations in contract manufacturing out-sourcing)
• IP Risks: Erich Veitenheimer, Partner, Patent Intellectual Property, Cooley, LLP 

Doug told us that the VC model is broken (despite yesterday’s Xconomy article to the contrary), and that the HCV investment thesis (as virtual as possible, ≤$15M to get to POC in 2 – 5 years, strong IP and products that Pharma wants) is the way to go. Wing told us that you want to be in her incubator because it reduces costs. Steve, Mark and Patti all made cases why an entrepreneur with a molecule should use their services to develop it into a product and manufacture it, and Erich told us to hire Cooley to do your IP work. Virtually everything is virtualized. (Doug even told us about an HCV investment with only one FTE!)

So what was my burning question? Well let’s assume that Doug is right and I can get some money put together for my drug. Then I go out and hire all these service providers and contract out all the work. What’s left for me to do? My job becomes the General Contractor on a construction project managing all the subs. We even heard from Patti that it can take as many company FTEs to manage the contractors as it does to do it yourself. So if we completely virtualize a development project, I wonder if it would end up costing more than just putting a reasonably sized company together. And wasn’t that the point of putting these companies together in the first place? That you could tap into the multiple expertises of the team? The old VC mantra – I’d rather fund an A team with a B idea than a B team with an A idea – seems to be turned on its head. The “team” is the list of contractors. As an investor, I’d be very concerned that they didn’t share my passion for success.

John promised more events this summer. If they’re as thought provoking as this one, I’m looking forward to them.

Keep Your Money

The MassBio Annual Meeting was held Wednesday and Thursday of this week in its new venue. For the second year, the meeting took place at The World Trade Center – a welcome change from the Sheraton, where it seems as if it has been since I was a green Senior Associate at Feinstein Partners (about 100 years ago). The format was pretty much the same as it has always been – plenary sessions and some breakouts.

Some of the panels were better than others. Deborah Dunsire moderated a fireside chat with Henri Tremeer and Jim Mullen. If you believe what they said, no entrepreneur and no investor would set foot near any biotech company. You’d be better off keeping your money.

The article in the Globe about the panel, which has been widely picked up by other outlets, latched onto the apparent major difference in their opinions about the effects of healthcare reform on the drug business. Maybe it depended on where you sat, but while I agree that they said different things, I didn’t see the great chasm that was described in the article. Here’s what I did hear:

• Henri, who is an expert in this regard, managed to not answer a single question that was asked of him. His preference is to wax on about how great Genzyme is, and to actually take pride in the fact that he has been at the helm for 35 years.
• He proclaimed that there is now an international marketplace for talent. That might be true if you’re Genzyme or Biogen, but try recruiting someone from overseas for a venture-backed startup in Cambridge.
• He told us that it's important to be sensitive to cultural differences while maintaining the organizational culture. In other words, get Asians to work in Asia, Germans to work in Germany. Thanks. Didn't we learn that lesson when Nissan (back when it was Datsun) sent Japanese managers to market their cars here in the US? In a culture where people take their shoes off before getting in their cars, they couldn't understand why the US cars' seat belt retractors were failing until they got them back to the lab in Japan and found a month's worth of french fries mangled inside them.
• It’s better to be lucky than smart. Henri’s sage advice? “Don’t work on things that don’t work.”

(ok, enough Henri bashing; there were some takeaways)

• Jim made the somewhat provocative statement that everyone is abandoning cardiovascular drug development because the agency has made it impossible.
• The old saw about “US = 60% and ex-US = 40% of sales” is no longer valid. Emerging markets (think India and China) will soon totally eclipse the US market in numbers of patients. However, I can’t believe they’ll all have the same diseases as us (think genetics, environment), which is good and bad. Bad for currently marketed drugs, good for R&D and discovery of new therapies (read: good for the industry).
• One of the best points was one made by Jim – don’t forget that no matter how big your company is, there is always more R&D happening outside your company than inside. Collaborations and partnerships are the lifeblood of this industry.

We may finally be at a point, as is said to be at hand during every economic downturn, where Big Pharma will finally see Biotech as providing its near term pipeline. Pfieth has cut nearly 20,000 jobs – 6 of 20 R&D sites worldwide. When Big Pharma starts cutting R&D, I start getting nervous. However, coupled with the constipation in the investment community, there may well finally be some early stage Biotech assets that will end up in Pharma and be carried through to market. On Michael Lytton’s panel, he aptly characterized the current Biotech venture capital community as project finance, and the current state of R&D as S&D (Search & Development). Good call.

There’s an old saying that if aspirin were discovered today, it wouldn’t be approved. I wanted to ask them if Cerezyme or Avonex were discovered today, would anyone invest? Oh, but silly me, there were no audience questions. I can only guess. First question: “So, what do you guys think of Carl Icahn?” Second question: “This is to Henri. Henri: what the hell is going on in Allston?” I guess the organizers didn’t want any bloodbaths in the meeting hall.

To add insult to injury, the morning after the meeting, Richard Pops writes a piece in Xconomy about PDUFA 5 – another disaster in the making.

On a different panel, Tim Coetzee, PhD, President of FastForward, part of the National MS Society that funds drug development projects (as opposed to never-ending academic research morasses), made a chilling observation. There are 200 compounds in development for MS. There are 2.5 million people with MS worldwide. Do the math. There aren’t enough patients to do the trials.

What’s an entrepreneur to do? There’s no money, no blockbusters left, the FDA won’t approve any drugs and there aren’t enough patients to do a trial.

The hopeful thing that I got out of all this is that all the assets that are not being funded now will be highly sought after in a few years. Arguments that the venture model for Biotech is broken appear to have more validity now than they used to. But that, to me, represents opportunity. I have confidence that Yankee ingenuity will drive the development of novel funding mechanisms. Look at the PXE story. An incredibly rare disease, the parents and other patient advocates took the bull by the horns and funded an investigator to identify the gene that causes the disease. What was so clever was that they pre-negotiated rights to the intellectual property coming out of the research. This and other novel funding mechanisms are what are going to have to be developed to get us out of this mess. The good news is that you can’t stop innovation, no matter what the economy.

Just the Fax, Maam

Remember fax machines? They are those things we used to use before scanning and sending an email attachment. For the younger set, you put a document into your fax (short for "facsimile") machine, then dialed a number and the document was transmitted over phone lines to a receiving fax machine on the other end. In the early days, they required thermal paper, so receiving a fax was more akin to receiving something from The Holy Land. I have heard that some are still in use to this day.

There was, of course, a time when fax machines were ubiquitous. If you were important enough an executive, you even had one right in your office! These days, they're a bit less common, and have been reduced in size and importance to be on a tiny card in your computer. But at one time, they provided a critical function, and one would be foolish not to have embraced the technology. Looking back, we have the luxury of seeing them as quaint, but it's easy to forget that they were once the bleeding technological edge.

To me, this is a lot like ethanol. "What?!" you say. Yes, ethanol. In virtually any issue of the Biofuels Digest, articles discuss variously how ethanol will be a key fuel source, or why it won't work. (If you're in this space and not subscribing to the Biofuels Digest daily email digest, do it now.) Ethanol will certainly play a role in the world's fuel supply, but I believe it is the fax machine of the alternative energy space - it is not a long range solution. I won't debate the entire industry here, but let's just agree that there are good reasons why it makes sense to add it as a component of our supply, as well as excellent reasons why the infrastructure and other changes necessary provide significant barriers. In any event, and in case you haven't noticed, the industry is upon us. My view is that we should certainly keep working and researching and investing, but let's not lose sight of the long range view. Will we ever be a global society that runs on totally ethanol vehicles? I seriously doubt it. That doesn't mean we should stop developing the technology.

Entire companies were built on fax machine technology. The products improved, got faster, went to color -- all kinds of technological advances. Despite the fact that far fewer are in regular use today than even five years ago, I would not support an argument that we shouldn't have made the investment, or exploited the technology. Similarly, people who point out all the warts on ethanol are missing the point. No, I don't think it will be with us for the long haul, but that doesn't mean we won't learn anything by developing the technology.

More Tea Leaves

Just a quick one with no particular insight.

I mentioned a while ago how the question of whether or not we're coming out of the economic Dark Ages depends on whose tea leaves you choose to read. I just received a new datapoint and thought I would share it with you.

John Hession at Cooley just sent me a copy of their latest report on the state of early stage deal making. Some ups, some downs, some flats, but it's good reading. It's based on Cooley's impressive portfolio of 376 transactions in 2009 where they served as counsel to one of the two sides of the table. Despite an abysmal start to the year, Q4 ended up strong in many areas including deal flow, pre-money valuations and overall deal size.

It's only 6 pages. Take a look. I choose to see this as additional good news.