The Life Sciences in New York State

CD Recommendation

Eric Skye has a new CD. If you enjoy fingerstyle guitar music like I do, you'll love Eric's music. His first CD gets a lot of playing time in my players. Check out his web site here.

COX II - Implications for Merck, Pfizer, and the Industry

As some of you know, I have a slightly warped, but loyal following of readers. One reader prodded me into commenting on my thoughts on the whole COX II issue. For a good perspective, I recommend Derek Lowe's blog, which is found here. Derek's take on the COX II situation is here. 

What do I think?

For Merck: It will cost Gilmartin his job. The only reason he hasn't been fired yet is due to the fear of bad PR, and his retirement is coming soon (2006)? My prediction is that the Board and Wall Street will force an ill-advised merger, likely with Schering-Plough.

For the Industry: I think this is healthy, although painful in the near term. Companies need to be reminded that a one drug-fits-all model will not fly. The industry is slowly moving towards the long tail model, with more drugs with lower sales each to cover smaller segments of the population. This, in turn, will force a radical look at how drugs are developed and marketed. eDetailing is nothing compared to what it will look like 5-10 years from now.

Oddly, the industry is fortunate that it is so heavily regulated, for it is this heavy regulation which makes it such a slow moving industry. Thus, these things take a very long time to play out.

Is government regulation a Sixth Force? Discuss...

Report from UVANY Meeting in Albany

I attended the Upstate Venture Association of New York conference in Albany last night. Agenda is here. This conference was held at the beautiful Albany Nanotech  facility on the campus of SUNY Albany.

I learned a lot about the Albany Nanotech initiative, both from a brief presentation and a guided tour. I knew precious little about "fabs" and "semiconductors" going into this meeting. But now, I can begin to see how this research is directly applicable to the life sciences. Technologies such as biosensors to be used in drug development, novel drug-device combinations (e.g., stents, implants), delivery systems, artificial pancreas technologies...all may potentially emerge from research being conducted in this single facility. Critically, there is a lot of room for company incubation, shared facilities, shared resources, etc. Couple this with research from other area universities (RPI, ACP, AMC) and labs (Wadsworth), and you have the potential for a really powerful discovery and development "engine" in the region.

Interestingly UAlbany recently signed a collaborative NanoBio alliance with the Albert Einstein College of Medicine in New York. This research alliance will cover a wide range of areas, e.g., disease diagnosis, drug discovery, drug delivery, etc. Press release is here. I learned of this alliance this afternoon (day after the conference), and it validates the notion that nanotechnology and medicine will become increasingly intertwined. Oddly, this was not mentioned during their presentation.

But what is nanotech? Our tour guide defined nanotechnology as, essentially, chemistry on an atomic level. This is a great definition, as it directly tells you what it is (basic science with multiple (infinite?) applications without the hype. So yes, things like liposomes are nanotech, but only in a very broad and frankly crude sense.

This is a great opportunity for venture capital with life science expertise to immerse itself in this visionary effort and create a number of very interesting companies. Imagine what can be done if the vision were extended to all four corners of the state!

Note to self: I need to learn more about investing in companies located within Empire Zones. One of the CEOs at this meeting quickly rattled off the benefits (tax breaks, etc.). Sounds like a good way to reduce burn rates.

The Civil War: A Narrative, by Shelby Foote

Last night, I completed reading the third installment of Shelby Foote's The Civil War: A Narrative. It took me nearly 3 years to read through ~1800 pages of text. I must say that I enjoyed it thoroughly. The entire work truly reads like a novel should, with an interesting plot, character development (compare Lincoln, Grant, and Jeff Davis at the start of the books versus the end), and so forth. While incredibly well researched, it is not what I would call "scholarly" in the sense that Foote attempts to back up every other sentence with a footnote. Indeed, footnotes are missing, which eliminates the distraction. Scholarly historical works and biographies can read like novels. Indeed, the Edmund Morris texts on Theodore Roosevelt are obvious examples of excellent, but more scholarly work.

My advice to anyone who enjoys reading good stories is to pick up a boxed set and dive in. Spend a few years learning about what are arguably the most important 4 years in American History. You will be richer for the experience.

Blame the MBAs?

There is an interesting article in the Feb 17th edition of The Economist entitled Business Schools: Bad for Business?. The article discusses a posthumous article written by long-time London Business School faculty member Sumantra Ghoshal. To quote:

In a forthcoming article to be published posthumously in Academy of Management Learning & Education, Sumantra Ghoshal argues that many of the “worst excesses of recent management practices have their roots in a set of ideas that have emerged from business-school academics over the last 30 years.

Continuing:

He believed that the desire of business schools to make the study of business a science, “a kind of physics”, has led them increasingly to base their management theories on some of the more dismal assumptions and techniques developed by economists, particularly by the “Chicago School” and its intellectual leader, Milton Friedman. These include supposedly simplistic models of individual human behaviour (rational, self-interested, utility-maximising homo economicus) and of corporate behaviour (the notion that the goal of a firm should be to maximise shareholder value). These assumptions, though in Mr Ghoshal's view badly flawed, were simple enough to allow business-school academics to develop grand theories of management supported by elegant mathematical models and empirical analysis that appeared scientific, and thus earned their subject academic respectability, but were, in fact, a pretence of knowledge where there was none.

Very interesting. I'm going to try to dig up Dr. Ghoshal's article before I comment further. But, I think he was on the right track...  

If you build it, will they come?

I had lunch today with an experienced venture capitalist who also happens to know New York life sciences quite well. We talked about a lot of issues, but one we talked about which I hear about consistently is the question of where management and scientific personnel will come from. In other words, if one were to seed a company in Upstate New York, where will the management and scientific talent come from? As  with so many issues, this one is not an easy one to tackle. Rich Karlgaard's book Life 2.0 is a terrific discussion of how people from the coasts are coming "inward" and starting new companies in places such as Montana, North Dakota, Iowa, etc. All of these regions face the same problem of recruiting talent, or do they?

The surprising answer is a qualified no. One source of talent are alumni. For instance, Montana State has one of the to engineering schools in the country. Thus, when RightNow needed to recruit, the CEO worked with the the alumni office to send postcards out to engineering school alumni to "come home" to Bozeman. What a clever, and inexpensive tactic! This idea could be replicated to attract SUNY alumni, Cornell alumni, etc., etc. Now, will postcards solve this problem? Not entirely. For C-level positions, I think professional recruiters will still be required.

Yet another approach is to "avoid" the issue via outsourcing. It's no secret that the outsourcing (contract research organization) industry is large and growing. In our work, we have found that there is absolutely nothing that cannot be outsourced in drug development...ADMET, toxicology, formulation, bulk manufacturing, etc., etc. The major CROs (Covance, Quintiles, Parexel) have made their mark as outsourcing resources for clinical trials, but the entire preclinical process has innumerable opportunities for outsourcing. So, from a start up/small company perspective, money that is being spent to hire scientists can instead be directed to external experts. This alleviates the hiring problem to some degree. Of course, experienced oversight will still be required, but that can also be provided by VCs and Board members.

Of course, none of this would be possible without cheap communication that the Internet provides. We've reached a level of sophistication where, for example, toxicology data can be generated and transmitted to clients in real time. In fact, I'm currently reading Malone's The Future of Work, and much of what I've read so far focuses on the relationship between decreasing cost of communication and decentralization. Decentralization, cheap, real time communications, and professional outsourcing are all factors which makes the creation of life science companies in non-traditional, rural areas such as Upstate New York a real possibility.

Criticism of Tech Valley VCs

I'll write more about this later, but Red Herring has a  criticism of the VCs in Tech Valley. The author criticizes their conservative nature, perhaps to the point where corporate growth is being hampered. Article is here.

OK, it's now later...here goes...

I think the article is generally correct, but perhaps a little hard on the VCs. I think the problem runs a  bit deeper than what is presented here, and the "blame" should not be cast entirely towards the VCs. I think part of the deeper problem is that entrepreneurs are not educated and experienced in the ways of venture capital. I can recall attending a biotech show in New York where a group of 7-8 companies presented for ~10-15 minutes each. (I won't say where or when, but it was NOT at RPI). I vividly recall one academic researcher who had a financing slide in which he said he/they wanted to raise $1-2 MM to complete Preclinical studies, then file for an IPO a year later....and this was well after the bubble! What this all tells me is that two things have to happen.

1. Funds in the region must be organized such that they have the time and the expertise to provide the "care and feeding" these companies and managers need. This means not only access to VCs, but having members of the fund management with the right collection of relevant contacts (industry contacts, consultants, fellow academicians, other VCs, etc.) to truly help their portfolio companies out. It frankly worries me a bit that VCs are surprised that companies need care. If VCs are not serving their companies, what are they doing? What is the value add?  I suspect that this is being done, but perhaps is not being reported.

2. There really must be a better effort to educate entrepreneurs on how venture capital works. About 3 years ago, I recall being called a "criminal" for even suggesting that we would need 50% of the company in order to make the "numbers" work. If I ever raise a fund, I'm going to put together a little folder. On the left will be information about the fund, while on the right, I'm tossing in a few articles introducing the readers to venture capital, plus a copy of "Art of the Start". It may be obvious and pedantic to some, but it will be helpful to many more, and it will set the fund apart from the others who are less willing to make the effort. I think the "numbers" and terminology (preferred shares, warrants, clawback, anti-dilution, discount rate, Black-Scholes...) are a huge black box to many entrepreneurs, especially those in regions which lack a history of modern venture capital investing. This has to change, and I would urge the local VCs and business schools to try to address this issue via seminars, classes, etc.

Regardless, I think the opportunity in Tech Valley and indeed the rest of New York is very real. There is an excellent opportunity here for a fund with the right team, the right Rolodex, extreme amounts of patience, and the right risk tolerance to really provide leadership and create value. Neither the VCs nor the entrepreneurial community are to blame, but both must recognize and deal with some of these broader issues.

The Biotech Governor

The Governorship of New York is up for grabs in 2006, and early polls suggest the populace wants new blood on State Street. The Empire Page has these data showing  respondents preferring that Pataki not even run next year, and that if he did, many would vote for somebody else. Even the Upstate region (both East and West) is anti-Pataki right now.

I have mixed feelings here. On the one hand, Pataki has done a great deal to help the life sciences industry in New York. Yet, I can't help but wonder, to paraphrase Tom Peters, that perhaps it's time to "blow it up" and start anew. I do not necessarily think that Spitzer is the answer either, though. I'm going to keep a close eye on this one, as I am concerned that this "new blood" many people are seeking may disturb the very positive momentum we currently have in the life sciences in New York.

Update on companies from September, 2003

A few posts ago, I mentioned that I attended a previous company showcase at RPI, and I wondered what had happened to those companies since then. Well, I dusted off my files, and noted that I attended the one on September 17, 2003. What has happened to these companies since then? Let's see...

Albany Molecular - Was and is still a publicly traded company. Would love to see them work with startups in Upstate New York...

Angiodynamics - Successfully filed an IPO last year.

Applied Robotics - Alive and kicking...

Drug Risk Solutions - They've expanded their management team significantly, which is always a good sign.

General Electric - Who?

MindGenix - Company has a neat mouse model for Alzheimer's. It's not clear from the web site if they've expanded, but I'm guessing that they're profitable. A nice little company.

Solidus Bioscience - I don't see a web site, but the NYBA lists them as a grant recipient. I'm not sure what they're up to.

Therion - Still around. My guess is that they are small, but profitable.

Well, what does this all mean? Let's assume  I'm a venture capitalist and I bought shares in all of these companies at that time (let's eliminate GE and Albany Molecular from this discussion). It's tough to judge as an outsider if these companies have made progress. Applied Robotics, MindGenix, and Therion already had products/services, so the questions there are focused on sales and profit targets. I'd be curious to see how Drug Risk Solutions has come along with their prototype. Not sure about Solidus. Overall, I'd be quite pleased. I would have made a little on an Angiodynamics IPO, 3 companies would be shipping product, and at worst, the others are surviving. Not bad at all!!!

This all bodes quite well for the Capital Region.

Inefficiency = Opportunity?

Had a good conversation with one of my colleagues today about new business opportunities. I was reminded of a goal of mine. Someday, I want to write a book. Actually, I want to write a lot of books. But, this one will consist of a collection of 10 essays, each one discussing a business "truism."

Anyway, the discussion we had today was around one of these truisms, which is that any inefficiency along a particular value chain is a potential business opportunity. This seems like a rather obvious statement, but what I find interesting is that it is true (I think) across so many (all?) industries. Of course, the Internet has become one major tool for dealing with these inefficiencies.

The pharmaceutical industry is just loaded with inefficiencies, across the entire value chain. How many sources of inefficiency can you identify in your industry? How can you develop a business model to exploit the inefficiency? Think about it...