The Life Sciences in New York State

Skype a no-no in BigCo

Interesting article in strategy+business on company employees using Skype instead of a clunky internal phone system to conduct international projects.Quote:

It was one of those little-noticed incidents that in hindsight turned out to be a significant hint of something big to come. In February 2004, Daiwa Securities analyst James Enck wrote in the Web log EuroTelcoblog (http://eurotelcoblog.blogspot.com) that project teams at the consulting firm Accenture were bypassing their usual mode of communication — mobile phones equipped with GSM, a widely used protocol for enhanced privacy and security — during a shared job between Madrid and Pakistan. The teams had become frustrated with the erratic connections and dropped lines. Instead, according to Mr. Enck, they used Skype, a renegade Internet-based telephone service. They took this route “for obvious cost reasons,” said Mr. Enck, “but also because of the superior” voice quality.

From an IT manager's perspective, it's a nightmare...Big Brother wants to listen:

Skype is an IT manager’s nightmare. For one thing, Skype encrypts all its traffic, which makes it impossible to monitor what employees are doing, sending, or saying when they use this communications tool. In addition, Skype doesn’t follow the path of most VOIP services. It enters the corporate network as an application embedded in a mobile device; it is activated whenever a user accesses the Internet from within the corporate network to make a call. In this way, Skype could open holes in a corporate firewall from the inside. The fear is that Skype users could expose corporate networks to hackers, viruses, and malicious software (“malware”), or shield the activities of malicious employees.

Article is available here.

What I find interesting about Skype for business usage is that it gives me a free (or very cheap) way to conduct international calls (and soon, video conferencing). I don't need a corporate account nor an admin to help me dial into a call in number for a call. I have all that capability (and more, like IM) right on my laptop. It's a great asset to have as a solo practitioner. I'm curious to see how and when (if?) big companies will distribute Skype internally instead of a "regular" phone system.

We certainly live in interesting times...

Penwest receives non-approvable letter

Danbury, CT-based Penwest received a non-approvable letter from the FDA for their antihypertensive candidate. Quote:

Penwest said the U.S. Food and Drug Administration had informed it that the drug, called PW2101, was not approvable, in part because the degree of its absorption varied too widely among patients.

Large variance in absorption is generally undesirable, but it is especially so for agents to treat various cardiovascular diseases such as hypertension and angina. I'd be curious to know why the variance was so high...

Funds to study high speed rail in NY

I've blogged about this before, but there is a study about to begin to determine if high speed rail can be developed between New York City and Albany. Press release here. Quote:

"It takes too damned long to go to New York and back in the current way of travel," Senate Republican Majority Leader Joseph Bruno said during a news conference Tuesday at the Amtrak station in Rensselaer.

Senator Bruno is absolutely right. Given that Amtrak is on the verge of financial collapse, it may be an opportune time to start from scratch. A high-speed line between Albany and New York City may be a good first step. I can't imagine that this would be cheap nor easy, but I think it's something that we need.

Venture capitalists in rush to seize opportunities in India

Good article in today's San Jose Business Journal on the rush of local VCs into India. Focus of article is on IT/software, but nevertheless instructive. For example:

"Smart people in India are realizing that their jobs can be commoditized very soon to lower-cost companies eventually and that's why they're looking at product companies," Mr. Stjernfeldt says.

Carl Stjernfeldt is a partner at Battery Ventures. What I find interesting is that the arbitrage that exists in labor/development costs between India and the US is, in his view, unsustainable. Therefore, entrepreneurs in India are shifting away from cost-centric value propositions to product development initiatives.

This is also interesting:

Recognizing this trend of companies choosing to be cross-border at birth, Silicon Valley Bank spent five years scoping out the Indian market while building a network of consulting and business services for U.S. based and India-based technology companies and private equity firms that are pursuing cross-border business. Establishing an international subsidiary in Bangalore in September 2004, Silicon Valley Bank has 12 venture firms as consulting partners.

The bank's global markets head, Ash Lilani, recently traveled to India in relation to events targeted at young product companies in India and venture firms. "We really believe in India and that's why we've invested so much time and money there," he explains.

Developing a global company from scratch is not an easy task. The usual model is to start in the home country first, and expand from there. Now, an infrastructure is emerging to satisfy the demand by companies to be global from day 1. I wonder how many East Coasts banks do this as well.

Lastly,

The earliest of the venture capitalists to enter the Indian market, William H. Draper III explored uncharted waters in 1995 when deciding to focus on venture investments in India through the formation of Draper International, which is now fully invested.

After making an average of four trips a year over five years, he realized that it was better to incorporate companies in the U.S. and have others invest in the companies. Bringing a 15x return to the fund's limited partners, Mr. Draper decided to co-found a domestic fund that actively promotes Indian entrepreneurial activity in the U.S.

"Indians are one of the best talent pools of all times and they're starting to give back to the U.S.," he says. Out of 100 portfolio companies since 1994, Mr. Draper estimates that one-third have a connection to India.

Draper's model is to fund companies here in the US which have operations/ presence in India, and not the other way around (directly fund companies in India). Does this reduce some of the risks discussed in previous posts, e.g., IP risk? Is this model applicable to other industries?

To be continued...

 

Preliminary Thoughts on India/China/Outsourcing Issue

Having recently completed Prestowitz’ excellent book, I’ve decided to take a stab at codifying what these trends and issues mean for life science companies here in New York State, especially start ups, and their investors. Much of this thinking was complemented by email and verbal exchanges of ideas with a few like-minded people, but these comments are expressly my own.

 First, I’ll start with a gross generalization, namely, these trends simply cannot be ignored. It is also clear to me that the “solutions” require politically unpopular (Unfeasible?) changes in how we (Americans) view our relationship between government and industry. Because of this, I do not see these trends reversing any time soon. Thus, I think anyone who is contemplating starting a life science company must have a strategy for tapping into these global resources. I think a business plan must address two critical questions:

Can research and development be accelerated via joint ventures with academic or corporate researchers globally? If so, how? If not, why not? I concede the point that protection of trade secrets and technologies can be an important factor for keeping this internal.

How can prototyping and “manufacturability” be built into the design and development process to ensure a smooth outsourcing transition? This is a particularly thorny issue. I’m all for the use of venture capital to create companies and jobs. However, we also have to judicious with our capital deployment. I would much rather create 20 jobs and a lower burn rate (thanks to outsourcing) versus 35 jobs, a faster burn. Why? Because a lower burn rate gives the company more time to take corrective actions when things go wrong (and they will), negotiate deals, etc., etc. This gives the company the greater chance of succeeding, if not surviving, which may be sufficient to generate a reasonable return. I don’t think that the outsourcing of manufacturing is necessarily an all or none proposition. There may be creative ways to, for example, import components from Asia for final assembly in New York.

I also believe that anyone involved in a venture capital fund, or even contemplating raising one, must develop some thinking along these lines, perhaps even a paragraph or two in the offering memorandum. There are at least two reasons for doing so: 

First, from a competitive perspective, how can these trends (shifts to the East) impact prospective investments in the particular industrial segment of interest? What are the competitive implications for prospective portfolio companies? How will the fund/portfolio companies address (embrace?) unforeseen competitors from half a world away? As a prospective limited partner, would I want to invest in a fund which is targeting a segment in which an unknown competitor can quickly emerge from India or China?

Secondly, one can flip this around and ask if the fund managers have the network to turn these trends to their advantage. What contacts and resources does the general partner have at their disposal to leverage these trends, to the advantage of the portfolio companies? 

Let’s create a hypothetical example. Suppose a company is planning a series of Phase II trials for their lead compound, and is seeking a round of financing to pay for these trials. Does the management team have the experience to select a CRO to handle international trials, thereby reducing costs, reducing burn rates, and reducing the capital required? If not, can the investors (VCs) add value here? Does the Board have the experience to advise the company on this issue? It’s one thing for a VC to say “Run your trials in India, then make the device in China,” but it’s an entirely different matter for the VC to be able to say “Let’s call my contact at Pfizer who has overseen international trials by CROs, and who I know is willing to advise us on this issue.”

As I write this, I realize that the implications for life science venture capitalists are quite interesting. While a track record and historical performance (IRR) is important, it also means that a deep understanding of life science product development process, both strategic and tactical, is important. No, it’s more than that. It’s really a requirement to get the proverbial seat at the table. Flipping this around, as the CEO of a capital-seeking company, I would not accept capital from an investor who does not have these resources/contacts at their disposal. 

To boil this down to four points: 

• Study and understand these trends.
• Develop contacts and relationships accordingly.
• Incorporate this thinking into product development and fund raising.
• Make sure that your Advisory Board (current and future members) has experience in dealing with these issues, and then adjust Advisory Board composition as needed.

More on India

Having an MBA, this one really hit close to home. Quoting from Prestowitz, page 100:

Morgan Stanley long ago moved its back office operations to India to take advantage of the time difference and Indian salaries. Recently, however, it has moved about fifty of its analysts to India as well. Analysts are MBAs who do research and analysis of corporate financial statements, business plans, and execution in order to make investment recommendations on various stocks and bonds....guys who do it earn $80,000 a year and up in New York...Their American managers told me they (Morgan Stanley India) also work harder and make fewer errors while earning only $20,000 a year. [Emphasis added by me]

Incredible...

India and China - Help me figure all this out...

Earlier this week, I mentioned my reading of Three Billion New Capitalists by Clyde Prestowitz. I started reading this in part because I wanted to develop a better understanding of the benefits, challenges, and risks associated with this shift to the East.

Now, we hear a lot about GE and AMEX and Dell "outsourcing" manufacturing and services to India and China, but I don't see much written on how a small company, or better still, how a solo practitioner, can exploit this shift. How can I, as a consultant and adviser, working from my little home office, leverage this wealth of talent and capacity half a world away? What are the risks? What are the characteristics of the partnerships I would need to develop? And, most importantly, how can I (we) enable the emerging life science companies here in New York to tap into this wealth of talent and capacity, while at the same time creating companies and jobs here in New York?

I'll continue to study this issue, again, from the solo practitioner perspective, but I would be interested in hearing/reading your thoughts. Please post comments, or email/Skype/IM me. I will develop this line of thinking further in future postings, and perhaps even in an article somewhere.

This post was inspired, in part, by a recent post on Steve Shu's blog, regarding his very positive and productive collaboration with a fellow in India. Link.

Connecting the dots

I'm currently reading Three Billion New Capitalists by Clyde Prestowitz. It's one of those rare books in which the author does a nice job of connecting the dots. In other words, Prestowitz takes a seemingly disparate set of events and links them together into a coherent story which explains what is happening today. Indeed, my theory behind the popularity of The DaVinci Code is that Brown does just this, linking Leonardo, Mona Lisa, the floor of a museum...all into an interesting, suspenseful, and enjoyable story. For a more sophisticated treatment of this, try reading any of the novels written by written by Umberto Eco.

Now it's one thing for a novelist to connect these dots into a coherent story, and it's another to connect these dots into a coherent, real life strategy. I'm very interested in reading how Prestowitz puts all this together and makes suggestions for how we can all move forward economically, personally, as a country, and as a global economy.

NEW incubator space

What a great way to kick off the week.

On Friday, June 17, Senate Majority Leader Joseph L. Bruno announced $2.5 million in funding to create INVEST, an Incubator for Nanotechnology Ventures, Emerging Sciences, and Technologies, a joint nanotechnology incubator with Russell Sage and Evident Technologies. Located at Russell Sage College in Troy, this facility will be the first of its kind nationally at a women’s college.

The $2.5 million from Senator Bruno will be coupled with $1.5 million in private funding to help high tech companies grow and expand while advancing Sage’s science and technology programs.

Evident Technologies of Troy, committed to being the first tenant, projects having 32 jobs in the first year of operation in the Incubator, including 15 new lab technicians, and the number is expected to double over the course of three years.

Rest of press release can be found here and here. What's not mentioned in the press release is the close proximity of Russell Sage to RPI, and thus increasing the chance of having collaborative research programs.  See my earlier report from Bioconnex here.

Skype more popular that Firefox??

Some stats being reported on Skype Journal:

The latest Skype stats:

• Total Skype Downloads: 122,320,159
• Users Online Now: 3,014,635
• Total Minutes Served: 9,947,864,820 (should roll over)

For contrast: 64 million Firefox users

Whats missing here is some sense of how many actual Skype users there are. Just because >122 MM downloads took place, that does not mean that there are that many actual users. Same for Firefox. How many Firefox downloads are there?