A Blessing for Angels

The Access to Capital for Entrepreneurs Act of 2007, (H.R. 578) was introduced to congress last January. This bill would provide a 25% tax credit on up to $500,000 in investments per year in start-up businesses. So far the bill has received favorable response from the Kauffman Foundation, the Angel Capital Association, Women Impacting Public Policy and the National Association for the Self-Employed.

The beauty of this bill is that it provides tax incentive at the front end of the investment, where the incentive is sorely needed, rather than the partial capital gains exclusion given investors now. The Wall Street Journal quoted Susan Preston of the Kauffman Foundation as saying that the bill would double the number of angel investors.

Will this type of incentive cause investors to throw caution, and cash, to the wind? Does spending $500,000 to buy $125,000 in tax credits sounds like a good deal to you? Although the tax incentive reduces the upfront risk, getting a return on the investment is still essential. But with the reduced risk, maybe more investors would be willing to pull their money out of CD's and invest in the next Google.

Web 3.0 Already?

In the midst of the Web 2.0 hype cycle is it time to begin the buzz on Web 3.0? Although Web 2.0 was a big step forward, its limitations are becoming apparent even as its definition has only just been resolved. The connections put in place by Web 2.0 by social networking, folksonomies and tagging have provided a higher level of functionality for some applications, but the connections are only loosely defined. Much more powerful functionality will come with better defined connections and structured frameworks.

Although the term Web 3.0 was never used by the founders of Semantic Web, there is a growing acceptance that the two are synonymous. Certainly the proponents of Semantic Web technologies, including Tim Berners-Lee, could benefit from the idea that their ideas will form the next version of the Web. And it appears that the public is ready for the technology as well, the functionality if not the demands it will require.

So what can Web 3.0 do that 2.0 cannot? For one it helps computers better "understand" terms used on the Web. What is the difference between a book and a basketball? Simpler technologies would recognize that they are spelled differently and that would be it. Web 3.0 will categorize them and provide them with a set of associations that will define what they are. A book is a subject that contains information and is associated to readers by a relationship called "is read by." Many such associations can connect the book to other objects, i.e. "is stored on" a bookshelf. As these associated networks grow, more knowledge about what a book is, and how it is distinguished from a basketball, is compiled and a clearer vision of book is developed.

This is a similar process to human learning and, like humans, as the knowledge networks grow they will become more "intelligent." The process will begin with specific knowledge domains, such as libraries of books, airline travel or drug development, and continue, theoretically, until the barriers between the domains break down and connections through the entire Web are established.

One obstacle will be the structure imposed by the Semantic Web. Web 2.0 calls for a very informal structure where users apply their own tags however they see fit or not at all. Semantic Web on the other hand, requires strict adherence if it's going to function correctly.

But the pay off for applying structure is inference and reasoning; the ability for the software to make connections when given the proper data. This ranges from simple inferences such as: if hepatitis is a disease and it occurs in the liver, it must be a disease of the liver. Although not rocket science for humans, assembling networks of logical statements in a structured framework will be a big step forward for computers.

Much of human knowledge is acquired over time and through experiences. This type of knowledge is stored away in the brain to be pulled out at a later time when certain associations may be required, say in diagnosing a disease. A less experienced physician may not have experienced a patient with certain symptoms that an older colleague would have. But an effective Web 3.0 knowledge base may supplement the less experienced physician's knowledge and allow her to operate as if she had the knowledge possessed by the more experienced physician.

The value of such a system in the hands of a skilled user is to rapidly amplify the knowledge that they can process. Web 3.0 technology has been called "XML on steroids." Given the discipline that is required to implement it however, its use will be constrained to only the most valuable markets for the near term.

Gates on Basic Research

In his recent lecture to the senate, Bill Gates emphasized the need for the U.S. government to increase spending on basic research. Gates calls for an annual increase of 10% for the next seven years; doubling the amount spent on basic research. He feels that this is crucial in order that the U.S. remain a global technology leader.

Gates points out that industrial R&D has increased dramatically over the past 30 years, now making up for two-thirds of total R&D in the U.S. Microsoft itself invests over $6 billion in R&D annually. To a large extent this has been encouraged by the R&D tax credit, a credit which expires at the end of 2007 but which congress will most likely extend. This is of course a federal subsidy of industrial R&D.

Gates' implication is that the government pay for and manage basic research and industry manage applied research with a subsidy from the government. He states that the U.S.' current technological position as a global heavy weight is the result of investments in basic research make years ago. Although there is no doubt that the federal government spends billions in support of basic research and that industry spends twice as much on applied research, how much is actually transferred between the two? Will the transfer of ideas between academia and industry increase proportionally by doubling federal spending in basic research?

Gates' wish is that the U.S. find and commercially develop new and innovative products. His solution is to improve education, loosen immigration policy and increase R&D spending. All in the effort to produce maybe one Google. Meanwhile, Microsoft CEO Steve Ballmer is calling Google "insane" in its efforts to double their staff in the next year. Maybe, but perhaps Google is simply doing in-house what Gates is proposing the U.S. government do with tax-payer funding. Google or the government, you choose.

Bayh Defends His Act

The Bayh-Dole act changed the environment of university intellectual property when it was introduced in 1980. The act gave U.S. universities control of inventions resulting from federally funded research, gave them the right to license these inventions and earn royalties from those licenses. As a result of the act, Technology Transfer Offices at the major universities sprang up to manage and out-license the IP developed at those universities.

Some very notable tech transfers recently include Google's licensing of Stanford IP which resulted in a windfall for Stanford. This and other very lucrative deals have enticed universities into the commercialization arena, the impacts of which are receiving notice, not all of them favorable.

In an article in the January issue of The Scientist entitled The Trouble with Tech Transfer, Ed Silverman describes the tension between industry and academia with the tech transfer offices alternating between solving and causing the problems. With pressure on the TTOs to generate revenues for the university and to sustain themselves, they are often driving industry away with inflated valuations of their IP. University inventors often have exaggerated expectations; the TTO is expected to develop, commercialize and sell an idea from a single invention disclosure.

In a recent article in GenomeWeb News, one of the original sponsors of the act, former senator Birch Bayh of Indiana came to the defense of his act. Although not citing the source Bayh claimed that criticisms of the act included:

• Universities and researchers should not be entitled to financial reward because they don't manufacture anything


• It motivated universities to ignore basic research and be driven by patent royalties


• IP should not be exclusively licensed because the research is taxpayer-funded

Bayh said that before the act as much as 96% of patents were never licensed resulting no commercialized return on $30 billion in taxpayer revenues.

University TTOs are caught in the nether world between academic socialism and industrial capitalism. Before the Bayh-Dole act, the two worlds had only limited interaction; students received an education, performed some research and then went into industry never to return. With incentives to generate revenues from IP, universities are confronting the same problems confounding the former communist countries; just exactly what is the market value of IP, what is required to commercialize it, and who are these so-called competitors who are trying to devalue our ideas?

Risk Mitigation

As a serial entrepreneur you may think Dr. Michael Bristow has a high tolerance for risk, but in a talk yesterday morning at the downtown Denver offices of Holland & Hart, Dr. Bristow stressed the importance of mitigating risk in the drug development process. Dr. Bristow was a founder and the Chief Science and Medical Officer of Myogen, a biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapeutics for the treatment of cardiovascular disorders. In November 2006, Myogen was sold to Gilead Sciences for $2.5 billion.

Although a whopping success by most counts, Myogen did not achieve this lofty value without a few pitfalls. Development of enoximone, their first drug to be brought to clinical trials, was halted in Phase III after burning through $100 million on development due to its failure to demonstrate significant benefit. Ironically, Myogen's stock began to climb after this, the result of investor confidence in the other drugs in Myogen's pipeline.

When asked what could have been done to have better predicted the outcome of the enoximone trial, Dr. Bristow indicated that it was known that a certain patient sub-group characterized by a phenotype responded better to the drug than the population as a whole. He felt that by selecting for patients with this phenotype for inclusion in the clinical trial would have greatly improved the efficacy of the drug to the point where it would have received approval. But either because recruiting a sufficiently large patient sub-group with this phenotype would have taken too long or the FDA had not yet accepted a personalized approach to drug therapy, that approach was scrapped and the more risky strategy of recruiting patient's from the broader population was adopted.

Dr. Bristow has once again taken a risk on risk mitigation by starting up a new company; ARCA Discovery that is developing genetically-targeted therapies for cardiovascular disease. The FDA and the pharmaceutical industry is warming to the idea of personalized medicine as a way of improving patient health and reducing the costs of drug development.

Aversion to Adverse Events

The Wall Street Journal reported on Saturday on a report commissioned by the FDA regarding their development of a next generation Adverse Event Reporting System for the tracking of dangerous side effects associated with drugs on the market. The report was prepared by the Breckenridge Institute and delivered to the FDA in November 2006 but has not been released to the public. Although we don't know what it says specifically, "highly critical" is probably putting it lightly. No wonder the FDA is keeping it under wraps.

But reading between the lines, is the FDA really making major managerial mistakes here? The report contends that the FDA could have purchased an off-the-shelf software product in 2004 and have it up and running by 2005 for around $4.5 million. This would have only covered drugs and not medical devices which are also regulated by the agency. The FDA would then have to come up with another system, perhaps a custom built one, to cover medical devices and then integrate it with the off-the-shelf system.

If you put a conservative safety factor of two to the off-the-shelf system, double that for the medical device system and then throw in another $10 million to integrate them we're talking $40 million not including maintenance, support and training. The Breckenridge report states that the off-the-shelf software was a "one-time cost"? Wasn't the theory of "one-time cost" software thrown out with OS/2?

The FDA is making due with an existing "dysfunctional" system; their original AERS which results in a loss of 45 minutes per day per FDA employee because of inefficiencies and snags in the system. Presumably better software would solve that problem but it is a difficult call. Ideally the entire process could be automated resulting in the loss of the FDA employee, which is highly unlikely.

What the FDA needs now is a study to analyze why they gave the contract to the Breckenridge Institute in the first place.