Partners HealthCare’s Center for Connected Health is holding its sixth big Connected Health Symposium in Boston this week, and there’s definitely more optimism here that information technology is becoming more mainstream in healthcare than in years past. The big focus of the conference is on technology that is used to extend healthcare outside of traditional clinics or hospitals into the homes of patients—something often called telemedicine or, at least at Partners, connected health.

Telemedicine got a big boost when IT was identified earlier this year in the American Recovery and Reinvestment Act (a.k.a. the economic stimulus) as playing an important role in improving quality of care—and perhaps most urgently—reducing healthcare costs. Currently there are provisions in bills under consideration in Congress that would create incentives for healthcare providers to adopt, say, remote patient monitoring and teleconferencing technologies. Indeed, the healthcare reform train is moving fast in Washington nowadays, and major players in the telemedicine market such as Philips Healthcare and Intel—which both have strong presences here at the symposium—are working hard to jump aboard and ensure that technologies that allow connectivity between patients and doctors are part of the agenda.

This symposium is interesting because it attracts a rare mix of physicians, entrepreneurs, hospital administrators, academics, and technology executives. Big names in tech like Google, Microsoft, and Verizon Wireless have sent executives here. Meantime, there are plenty of folks from Harvard, MIT, and the multiple research hospitals in town involved in the discussions to add a strong clinical or scientific perspective to the conference.

I’m also seeing or catching wind of new innovations from the gaming and wireless industries that have the potential to help patients stay healthy in their homes. (However, I have to say that the Boston Park Plaza Hotel, replete with its great big crystal chandeliers and Romanesque columns, makes an incongruous backdrop for someone talking about how an academic used the popular video game Warcraft in her medical research.)

Here are five of the VIPs who spoke here on Wednesday at the symposium:

—Daniel Palestrant, CEO of Sermo. Palestrant, a surgeon by training, has led the growth of Cambridge, MA-based Sermo into an online community of 120,000 physicians.

—Paul Bromberg, vice president and general manager at Philips Healthcare. Bromberg, whose office is in Framingham, MA, heads Philips’ remote patient monitoring unit.

—Ben Sawyer, founder of Games for Health, based in Portland, ME. Sawyer, a devoted gamer who plays Rock Band and other games in his spare time, does R&D on gaming technologies that are designed to improve healthcare.

—Jamie Heywood, co-founder and chairman of PatientsLikeMe. PatientsLikeMe, based in Cambridge, provides an online forum and community for patients with diseases such as HIV/AIDS, depression, and multiple sclerosis to share information about their illnesses with each other.

—U.S. Representative Ed Markey, a Democrat representing Massachusetts. Though I wasn’t around for his panel, Markey and Partners CEO Jim Mongan talked about healthcare policy and politics in Washington.

Here, in no particular order, are a few of the themes emerging from the symposium that I think are particularly interesting:

—Philips’ Bromberg noted that 24 percent of patients treated for heart failure are …Next Page »

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Choicestream, the Cambridge, MA, startup that helps companies create targeted, personalized online display ads, said today it has hired three new executives, including two formerly at Yahoo. The Internet portal’s former senior director of retail, Amy Vener, joins Choicestream as director of retail advertising solutions. A former Yahoo video advertising engineer, Rod Perkins, joins Choicestream as chief architect of ad products. Tim Peacock, formerly of Lotus and online physicians’ community Sermo, has also joined Choicestream as vice president of development. Yahoo has been a rich mine for Choicestream; in a February profile we interviewed Choicestream board member Usama Fayyad, who is Yahoo’s former chief data officer.

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There was quite a bit of news this week relating to RNA-interference drugs, and to FDA approval (or non-approval, as the case may be) of drugs under development by local biotechs. Without further ado:

—It was sports week for Ryan. First, he interviewed biotech hedge fund founder Rich Aldrich, part of the group that owns the Boston Celtics, who said why he’s excited about Alnylam, Alnara, and the future of his fund. Then he talked with David Lucchino, CEO of Cambridge, MA-based Semprus Biosciences and nephew of Red Sox CEO Larry Lucchino, about Semprus’s $8 million Series A round and its plans to develop longer-lasting polymer-based surface materials for plastic and metal medical implants.

—Yet another new pharmaceutical company focusing on RNA-interference, Norwood, MA-based AiRNA, emerged from stealth mode, with a focus on so-called asymmetrical interfering RNA molecules 15 base pairs in length, which are shorter (and may therefore have fewer side effects) than the RNAi molecules being developed by Alnylam and others. Alnylam, meanwhile, announced it has filed an application with the FDA to start the first clinical trials of its systemic RNAi anti-cancer drug, ALN-VSP.

—In Waltham, MA, Entra Pharmaceuticals collected the first $4.2 million of what could end up being a $12.5 million Series A venture round, with Flybridge Capital Partners and North Bridge Venture Partners participating.

—BioTrove of Woburn, MA, changed its mind about going public in the current market, canceling the planned $75 million IPO for which it first filed eight months ago.

—Weeks after news that the FDA had declined to approve its lead drug candidate, an antibiotic intended to treat the MRSA infection, Cambridge, MA-based Targanta Therapeutics laid off 86 employees, about three-quarters of its staff.

—In a private offering of its stock, genetic analysis tools maker Helicos Biosciences …Next Page »

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Looks like Cambridge, MA-based startup Sermo is trying to one-up Google, at least when it comes to tracking flu outbreaks. Back in November, Google researchers revealed that for the last year or more they’ve been keeping track whenever users enter search terms related to common flu symptoms. Working with flu experts at the Centers for Disease Control and Prevention, the researchers discovered that the frequency of these search queries correlates closely with real flu prevalence data that the CDC collects through surveys of doctors and patients. When people are feeling sick, apparently, one of the first things they do is go online to see what might be wrong.

In fact, they do this so consistently that a group of authors from Google and the CDC concluded, in a paper published November 19 in the prestigious journal Nature, that they can use search data to “accurately estimate the current level of weekly influenza activity in each region of the United States, with a reporting lag of about one day,” as opposed to the 10- to 14-day lag in the CDC’s own data.  Google has even made the geographic flu data available to the public, on the Flu Trends page of Google.org, the search giant’s philanthropic wing. (At the moment, the Flu Trends map says flu activity is low everywhere in the United States except for Maryland and Hawaii, where it’s moderate.)

Not to be outdone, Sermo, an exclusive online community for doctors, said today that it has created its own flu tracking system, called Sermo FluMonitor. The system taps information entered by Sermo’s 100,000 physician members and displays it on a map almost instantaneously, making it the only real-time online flu tracking application, according to the startup.

Sermo says members can upload data on each suspected flu patient’s age, gender, vaccination status, presenting symptoms, flu test results, and living situation. The system aggregates this data and can “pinpoint potential outbreaks down to the zip code,” according to the company’s announcement. The application’s map (accessible only to members) shows the number of new cases in the last week, the increase over the previous week, and the number of confirmed new cases, as well as patients’ age ranges and the top symptoms they’re relating to doctors.

If physicians can see from the Sermo flu tracker whether there is a local outbreak, the company says, they may be able to better, faster decisions about whether to test and treat individual patients for the influenza virus, which is most easily combated when caught early.

“Two days is too late with influenza because we’re working with, roughly, a 40-hour window of opportunity,” Gary Munk, director of clinical virology at Hackensack University Medical Center, said in Sermo’s statement. “If you can catch it in under that, you can interfere with the virus by offering prevention methods to minimize disease spread in the area. We could not only treat influenza, but potentially prevent it.”

Sermo says the FluMonitor application could adapted to track other conditions as well, such as tuberculosis, staph infections, and HIV and other sexually transmitted diseases.

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Seattle and Boston, two of Xconomy’s network cities, have something extra to be proud of today—at least when it comes to Internet startups. Each city contributed two companies to a popular list of the year’s best Web applications for improving customers’ real lives.

That’s according to the tech-news blog ReadWriteWeb, which has published its list of the “top 10 real world Web apps of 2008.” These are Web services that help keep people’s offline lives more organized and efficient. The categories were finance, health, education, politics, nonprofits, and travel. Without further ado:

—In Seattle, the teacher/student community site TeachStreet won in the education category, while the airfare-tracking site Yapta won in travel. TeachStreet expanded to the San Francisco Bay Area last month, from Seattle and Portland. Yapta is in the process of closing a funding round of at least $2.7 million.

—In the Boston area, the social-networking sites PatientsLikeMe and Sermo, both based in Cambridge, MA, won in the health category. PatientsLikeMe is an online community for people with life-changing medical conditions like Lou Gehrig’s disease, HIV, and Parkinson’s disease. Sermo is a site where 90,000 doctors exchange information about medical practice. Sermo recently signed a deal to open up access to this network to financial industry experts who subscribe to the Bloomberg Professional information service.

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Boston-area life sciences firms were awfully busy last week, particularly the public ones—and it wasn’t even all bad news.

—New York-based Antigenics (NASDAQ: AGEN), whose operations are based mainly in Lexington, MA, announced that it’s seeking European approval for its vaccine-based treatment for kidney cancer, vitespen (Oncophage). The treatment is so far only approved in Russia.

—Wade posted the video of his fascinating chat with legendary biotech startup partners Robert Langer, an MIT Institute Professor and Xconomist, and Terry McGuire, managing partner at Polaris Venture Partners. Conducted at our September 23 forum, “How to Build a Life Sciences Company,” the conversation offered a uniquely personal take on life sciences company creation from one of the best teams in the business.

—Cambridge, MA-based Targanta Therapeutics (NASDAQ:TARG) released data showing that fewer doses of its antibiotic oritavancin—which is awaiting FDA approval as a treatment for skin infections—are as safe and effective as a three-to-seven day course of therapy.

—Neuroptix raised $18.5 million in a Series B financing round led by Inventages. The Acton, MA-based startup is developing a non-invasive test that uses an eye drop and a laser scanner to diagnose Alzheimer’s disease at its earliest stages.

—Ryan did some reporting (and a little eavesdropping) at the Boston Biotech R&D Conference, where he found the mood among local life sciences luminaries to be surprisingly optimistic. Christoph Westphal, one of the event’s organizers and the CEO of Cambridge, MA-based Sirtris, revealed …Next Page »

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The deals news from Boston-area firms last week was dominated by the life sciences companies.

—Archemix of Cambridge, MA, inked a deal giving drug giant Eli Lilly (NYSE:LLY) options to apply its “aptamer”-based drug technology to up to two disease targets. The agreement, financial terms of which were not disclosed, follows similar ones that Archemix has forged with Pfizer (NYSE:PFE) and Merck (FRA:MRK).

—Internet content distribution network operator Akamai (NASDAQ: AKAM) of Cambridge, MA, announced it will pay $95 million for Acerno, a New York- and San Francisco-based targeted-advertising company.

—Waltham, MA-based ImmunoGen (NASDAQ: IMGN) granted drug giant Bayer an exclusive worldwide license to its “Tumor-Activated Prodrug” technology. Bayer will give the Waltham firm $4 million up front, plus up to $170 in milestone payments, as well as sales royalties, for each drug it develops with the technology.

—Acton, MA-based Neuroptix, which is developing a non-invasive test for Alzheimer’s disease, closed a $18.5 million Series B financing round led by Inventages. Neuroptix’s test uses a laser eye-scanning device and an eye drop to identify proteins related to Alzheimer’s disease in the lens of the eye.

—GE revealed that it had invested an additional $30 million in battery maker A123Systems, bringing its total investment in A123 to $55 million and giving it a 9 percent ownership stake in the Watertown, MA-based firm. The investment was part of a $102 million Series E round raised by A123 in May.

—Cambridge, MA-based Sermo, which operates a social networking site for doctors, inked a deal to give the 280,000 analysts and investors who subscribe to the Bloomberg Professional information service access to Sermo as part of their subscriptions. The deal, financial terms of which were not disclosed, represents a vast expansion of Sermo’s AlphaMD service, which was launched last year.

—NitroMed (NASDAQ: NTMD) of Lexington, MA, reached an agreement to sell all the assets related to its only product, a heart-failure pill for African Americans, to New Jersey-based JHP Pharmaceuticals for $24.5 million in cash plus up to $1.8 million for existing inventory.

—Cancer drug developer Mersana Therapeutics of Cambridge, MA, raised $4 million in a convertible note placement, bringing its total private investment raised to date to about $36 million.

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It seems that Sermo, the exclusive online community for physicians, is finding new ways to monetize its population of members almost as quickly as that population is growing.

Last year, the password-protected site, where some 90,000 practicing physicians consult with one another on medical cases and other issues via a system of comments and polls, rolled out a service called AlphaMD that gives investors read-only access to Sermo’s user forums, plus the ability to query members directly through surveys. The company markets AlphaMD as a source of early, “actionable” intelligence about healthcare industry trends.

And today, at the Health 2.0 conference in San Francisco, Sermo CEO Daniel Palestrant introduced a new service called the Health Exchange that amounts to a vast expansion of AlphaMD. All 280,000 analysts and investors who use the Bloomberg Professional information service will soon have access to Sermo as part of their regular subscriptions, Palestrant announced. For an extra fee, Bloomberg users will also be able to survey Sermo users on breaking healthcare news and other questions and connect directly with consenting physicians.

Sermo touts the Healthcare Exchange as an exclusive source of information that could help Bloomberg subscribers outmaneuver other investors, by providing them with new “transparency” in an industry where gatekeepers such as journal editors and paid pharmaceutical-industry consultants have traditionally had an outsized influence on investor opinion. “The Healthcare Exchange tears down the barriers between those who need information and those who have it,” Palestrant said in a speech at the Health 2.0 meeting.

Of course, it’s a rarefied form of transparency that Sermo is promoting. The group of investors who could make good use of the insights exchanged on the Sermo network is arguably much larger than the group that can afford to pay $1,500 to $1,800 per month for access to Bloomberg terminals.

But there are certainly plenty of voices on Sermo vying to be heard. When Rebecca first reported on Sermo in July 2007, the Cambridge, MA-based startup had only about 20,000 members. That number had grown to 26,000 by the time of her followup story in September 2007, nearly 50,000 by January 2008, and 77,000 by late August. It’s now 90,000, and growing at 7,000 per month, according to Palestrant.

For Bloomberg, supplying subscribers with access to these medical experts could give service a big leg up over its main rival, the newly-merged Thomson Reuters. Sermo, which has been staffing up rapidly since its $26.7 million Series C financing round last fall, obviously stands to benefit as well. The terms of the agreement with Bloomberg weren’t disclosed, but on top of any direct fee it’s collecting from the news service, it will likely have a long line of Bloomberg subscribers queuing up to quiz physicians directly—say, about the prospects that a particular company’s drugs will fare well in clinical trials.

And investors aren’t the only ones feasting on the physician discussions at Sermo. As Ryan reported in August, Palestrant says he has lined up deals giving site access to M.D.’s at nine of the world’s 12 largest drug companies, including New York-based Pfizer.

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This week’s Boston-area life sciences news has a little bit of everything—venture deals, new drugs, lawsuits, and a big-time donation. And for the entrepreneurs among you looking for an alternative to the typical venture capital firm, check out Ryan’s directory of corporate VC operations.

—The ranks of New England life sciences companies with their own venture capital arms are growing, so Ryan put together a directory of such outfits, complete with some fascinating details on each one’s focus and personality.

—Luke profiled the efforts of Cambridge, MA-based Biogen Idec (NASDAQ: BIIB) to develop the first drug that might help the body repair the damage done to nerves’ myelin coatings by multiple sclerosis. Currently available MS drugs, such as Biogen’s own Avonex and Tysabri, tamp down flare-ups of the disease in an effort to prevent further damage, but don’t fix myelin defects; a repair drug might help restore walking and other functions affected by the disease.

—Ryan checked in with our Kendall Square neighbor Sermo, and found that the popular social networking site for physicians—which had in the past announced new corporate partnerships, such as one with Pfizer (NYSE:PFE), with great fanfare—had quietly inked deals with eight more of the world’s 12 largest drug companies. Sermo CEO Daniel Palestrant also had a bit of advice for his fellow Health 2.0 firms.

—Dover, NH-based Salient Surgical Technologies pulled its planned $86.25 million initial public offering, for which it originally filed back in March.

—Cambridge, MA-based Quanterix, a Tufts spinoff developing technology for early diagnosis of cancer, Alzheimer’s disease, and other illnesses, closed the second half of a $15 million financing round from Arch Venture Partners, Bain Capital Ventures, and Flagship Ventures.

—A U.S. District Court in Texas reduced the patent-suit damages owed by Boston Scientific (NYSE: BSX) of Natick, MA, to rival Medtronic (NYSE: MDT) from $250 million to $19 million, finding two of the involved patents to be unenforceable.

—Cancer-drug developer Ariad Pharmaceuticals (NASDAQ: ARIA) of Cambridge, MA, is moving quietly toward having its first approved product on the market, Luke discovered. And if its lead drug, developed in conjunction with Whitehouse Station, NJ-based Merck (NYSE: MRK), is a success, Ariad is lined up to hold on to an atypically large chunk of the profits.

—MIT spinoff Hepregen, reportedly raised $3 million out of a $5 million first round of venture capital from Battelle Ventures and Innovation Valley Partners. The startup is developing technology to screen drugs in development for liver toxicity.

—Our sources tipped us off yesterday that Eli and Edythe Broad, the founding benefactors of the Broad Institute of Harvard and MIT, are donating an additional $400 million endowment to the Cambridge, MA-based genomic medicine research powerhouse. The announcement of the donation and its implications is currently underway; we’ll post more when we know more.

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Sermo has garnered the interest of the popular press by drawing doctors into the social networking sphere. Yet among venture capitalists and entrepreneurs the Cambridge, MA, startup has attracted more attention for devising a value proposition to convince the pharmaceutical industry and others to pay for access to its coveted online community of doctors; the first pharma to take Sermo up on that proposition, in a deal announced last year, was global giant Pfizer (NYSE:PFE).

Now Sermo CEO Daniel Palestrant says that his company’s list of paying pharma clients has grown to include nine of the 12 largest drug companies in the world (he wouldn’t name names, but think of Eli Lilly (NYSE:LLY), GlaxoSmithKline (NYSE:GSK), and Novartis (NYSE:NVS) as potential customers). This news answers some looming questions about whether Sermo would be able to sell multiple pharmas on the concept of paying for online interactions with docs. What’s more, it may be a positive harbinger for the budding Health 2.0 sector, which is banking on the migration of pharma marketing dollars to the Web as a main source of revenue.

Sermo, with a physicians-only community of nearly 77,000 members, is reaching out to a pharma industry besieged by mounting government oversight of its interactions with doctors, hampering the ability of drug reps to court clinicians through traditional means such as company-paid meals and golf outings. This clampdown is spurring the drug industry to find new ways to interact with its target audience.

“I think what’s happening is that Sermo is very quickly emerging as a medium that can not only allow industry to redefine its relationship with physicians but also to have tremendous cost savings and have tremendous insights,” Palestrant says. “It’s not unusual to have our clients find that the same things that they did offline or through other mediums they can do on Sermo for a tenth of the price and in a quarter of the time.”

Palestrant makes those claims without revealing details about how much his privately held firm charges pharma clients for access to its members. However, he talked about new products luring those customers (Sermo doesn’t allow advertisements or product promotions on its site), including an offering launched in recent months that allows drug companies and contract research organizations …Next Page »

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Richard Gayle is one of those rare individuals who can really carry a conversation with a molecular biologist and a software developer. He’s a Caltech-trained biochemist, with 16 years of experience at Seattle-based Immunex. While doing his wet-lab experiments, he built that company’s first Intranet in the early 1990s. Why? To make it easier for scientists to kick around ideas, at least when the company got too big to fit inside a local pub.

Teamwork among scientists with complementary skills is seen as so vital to drug development that Immunex (later bought by Amgen) spent more than $600 million for a campus along Seattle’s Elliott Bay, specifically to foster more face-to-face interactions that could lead to Eureka! moments. Yet when it comes to online interactions, despite the fact that Facebook and others are now bringing networking to new heights, Gayle sees that biotech and pharmaceutical companies still can’t figure out how to exploit the technology.

“This idea is probably still a year or two away,” Gayle says.

Unless Gayle, 52, has his way. He has been pushing online social networking for biologists through a Seattle startup he formed in April called SpreadingScience. He doesn’t have a product to sell yet, but that will come later, he says. So far, he is concentrating on drumming up interest—with some success—in a road show he’s planning for later in the year to explain the concept, and its potential benefits.

It’s a bit surprising that large biotech and pharmaceutical companies, with researchers spread around the world, have been slow to embrace internal blogs, wikis, or commercial software to foster better brainstorming, Gayle says. Computer giant IBM has. Even physicians, notorious for being late adopters of technology, are starting to embrace social networking through sites like Sermo and IMedExchange to find a colleague who can help answer a question. Yet the drug industry, which threw an estimated $44.5 billion last year into research and development, still doesn’t exploit in-house social networking that might help it speed up the process or cut the failure rate, which still stands at 9 out of 10 drug candidates that enter clinical trials.

Cultural barriers are one big reason. Secrecy is prized in an industry where patents are essential to commanding monopoly pricing power on drugs, which, in turn, are essential to attracting investors to such a risky business. Many companies are afraid that by sharing ideas too broadly, even in-house, competitors will find a way to steal them. Some biologists are simply embarrassed to let their peers know how often their experiments fail, Gayle said.

“It’s really hard to share without going over the line of divulging secrets, that’s the problem,” says Martin Simonetti, CEO of VLST, a venture-backed biotech startup in Seattle.

Gayle is convinced that biologists need to adopt the new technology, because in an era when the entire human genome is in the open, there is too much information for an individual, or even small group inside a company, to sort through it efficiently. Larger teams of people inside a company need to set aside their secrecy culture, and share more information to work better together, he says. Even in the era of instant communications, it’s still common in large drug companies to have two teams of scientists in different parts of the world doing unnecessary work on the same drug without even knowing it, he says.

Besides eliminating that waste, Gayle says companies could reap big benefits by exploiting the “Weak-Ties” hypothesis first stated by Anatol Rapaport in 1957. At a biotech company, an example would be when the biochemist from the other side of the building sees the protein engineer he barely knows on his way to the water fountain, and they have an impromptu discussion that leads to a new experiment. Those interactions don’t have to be chance encounters, they can be harnessed on the Internet, Gayle says.

“You get your greatest ideas from people you don’t see every day,” Gayle says. “You can be in different places and different times and still collaborate. It’s about transferring information that allows people to make better decisions. I don’t know a scientist in the world who discovered anything without interacting with other people.”

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For the better part of a decade, advocates of computing in healthcare have fixated on the dream of paperless medicine—a new era in which every patient’s medical records would be stored digitally and every hospital, physician’s practice, pharmacy, and insurer would have access to these records, reducing paperwork costs and medical errors. But for all of the time stakeholders have spent squabbling over standards for electronic medical records, and all of the money providers have spent rolling out costly and controversial proprietary medical-database systems, these dreams haven’t gotten very far. More than 80 percent of medical practices still keep paper records, according to a study published last week in the New England Journal of Medicine.

Meanhile, the Internet has given birth to a totally new way of doing business and interacting with consumers: Web 2.0. And in a rush of Web-based health initiatives that has picked up significant steam just in the last few weeks, entrepreneurs and programmers are leapfrogging over the problem of electronic medical records to tackle much broader (and ultimately more important) issues such as how to use the Internet to track people’s health, how to use the power of social networking to improve standards of treatment, and how to deliver medical advice over the Web.

And it’s not surprising—given the Boston area’s dense concentration of high-tech hospitals, leading universities and medical schools, computing hardware and software companies, and Web startups—that much of this “Health 2.0″ revolution is happening right here in the Bay State. Last week’s launch of Boston-based American Well is only the most recent local example, and it’s sure to be followed by more.

The area’s Health 2.0 cluster may not be quite as big as the New England clean energy cluster, but it’s larger and more varied than some other clusters we’ve covered, such as the music and technology cluster and the Internet video cluster. It’s also growing fast, with new companies being launched every month. And it has all the hallmarks of success, including buy-in from big outside players like Microsoft (which is partnering with American Well to roll out its HealthVault service) and Google (which recently signed up Boston’s Beth Israel Deaconess Medical Center and Blue Cross Blue Shield of Massachusetts as its first partners for its Google Health project in the hospital and insurance industries, respectively).

What qualifies a company as a Health 2.0 venture? In this list, we’re including any New England-based company that uses the Web or other digital media to deliver software or services intended to help people manage their own health or to help providers manage healthcare delivery. That means we’ve left out a number of local firms, such as Health Dialog, D2Hawkeye, MedAptus, MedVentive, and mTuitive, that could be classified as “e-health” companies, since they are in the business of collecting or analyzing data that’s used to improve patient health or healthcare administration. But if a company doesn’t tap into Web 2.0 technologies and/or use digital media to communicate with consumers, we didn’t include them here.

As always, we invite you to send comments and additions to editors@xconomy.com.

American Well
Boston, MA

A 24/7 online network that matches consumers seeking medical care with doctors for live consultations via Webcam, instant message, or telephone (profiled in Xconomy last week).

Athenahealth
Watertown, MA

Subscription, Web-based software aimed at helping individual clinics and provider networks manage billing and electronic medical records. (Athena shelved plans for a secondary public offering in February 2008.)

Body1
Cambridge, MA

Creates online, interactive multimedia training courses for healthcare executives and clinicians as well as consumer-oriented, advertising-supported health information portals such as Heart1.com.

…Next Page »

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Turn your attention for a moment from the Bear Stearns debacle to the Web 2.0 world, where the news isn’t quite as depressing, but where investment may be peaking, according to a new report by Dow Jones VentureSource. The company bases this assessment on the fact that there was only a 25 percent increase in the number of deals between 2006 and 2007, from 143 deals to 178. From 2002 through 2006, by contrast, the number of deals was doubling every year.

On the other hand, the total amount of dollars invested in 2007 was up nearly 88 percent over 2006, to a whopping $1.34 billion. The only caveat there is that 22 percent of that money, at least $300 million, all went to one company, Facebook. The company raised $240 million in a corporate fundraising round, plus at least $60 million more from individual investors. The next largest Web 2.0 deal was for Ning, a company that allows users to create their own social networking site. Ning, like Facebook based in Palo Alto, raised $44 million.

But much of the action was outside of Silicon Valley, with a big chunk here in New England (meaning, essentially, Massachusetts, plus one company in Connecticut). VentureSource lists 20 deals in 2007, up from 15 in 2006, for a total investment of $158 million (see list below for regional totals), exactly double the previous year. The New York Metro area had more deals—25, up from 9 the previous year—but those only amounted to $58 million. And the total number of deals in the San Francisco Bay Area actually dropped from 74 in 2006 to 72, including Facebook. Take Facebook out of the picture, and investment dollars in Silicon Valley were down 3 percent.

Of the top three Bay State companies—and this definitely puts a pall on the local news—one is struggling and one is out of business. N2N Commerce, of Cambridge, MA, raised $30 million from General Catalyst Partners and Limited Brands, the biggest chunk of venture capital locally. But the ecommerce company, which aimed to let retailers manage their sales across the Internet, their catalogs, and physical stores, went belly up over the holidays. The number three fundraiser, Boston-based Eons, which was at the time a web portal for the over-50 set, pulled in $22 million (much of it, incidentally, also from General Catalyst), but wound up laying off a third of its staff and redesigning its social networking site to appeal to a wider—younger—audience. (The top 10 New England deals are also listed below).

VentureSource didn’t say that the second largest deal in New England last year was Sermo, also of Cambridge, which runs an online community of doctors, but we figured it out. Sermo closed a Series C round for $26.7 million in September. The company also had the sixth biggest deal, a $9.5 million Series B back in January ‘07.

Web 2.0, by the way, refers to those companies that offer some sort of user participation through a dynamic interface and include user-created content, networking, or collaboration. Examples would be podcasting, tagging, blogs, social networking, mashups, and wikis. Xconomy is a Web 2.0 company and was ranked in a tie for 17th-19th place on VentureSource’s list, with about $1 million raised.

Jessica Canning, director of global research for Dow Jones VentureSource, says Web 2.0 companies are relatively inexpensive investments, which makes them attractive to venture capitalists. With just a few million dollars, they can have web presences attracting users and advertisers. But she adds that 2008 could be the make-or-break year for companies that rely on advertising. “The slumping economy, coupled with a slowdown in click-through rates for online advertising, is going to pose a real challenge to their ability to generate revenues and position themselves for an exit,” she said in a press release.

Here’s VentureSource’s list of 2007 Web 2.0 investments by region:

Bay Area — $721 million, 72 deals

New England — $158 million, 20 deals

Pacific Northwest — $140 million, 13 deals

Southern California — $115 million, 14 deals

New York Metro — $58 million, 25 deals

Southeast — $47 million, 7 deals

Mountain (CO, AZ, UT)—$31 million, 7 deals

North Carolina — $10 million, 2 deals

Texas — $4 million, 2 deals

And here are the top 10 deals in Massachusetts in 2007:

1. N2N Commerce, Cambridge, MA — $30 million, first round
2. Sermo, Cambridge, MA — $26.7 million, third round
3. Eons, Boston, MA — $22 million, second round
4. uLocate Communications, Framingham, MA — $11 million, later stage
5. EveryZing, Cambridge, MA — $10.5 million, first round
6. Sermo, Cambridge, MA — $9.5 million, second round
7. Awareness, Waltham, MA — $7 million, first round
8. Acquia, North Andover, MA — $7 million, first round
9. RatePoint, Needham, MA — $6.5 million, first round
10. Peermeta, Acton, MA — $6 million, first round

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It’s a little bit of an odd week, with the Monday holiday and all the last-minute preparations for last night’s AWESOME battle of the bands (more on that soon), so I’m rounding up last week’s deals a little later than usual. The bonus is you get the first part of this week’s action as well.

—Woburn, MA’s LogMeIn, a provider of IT support and remote-connection services, registered for an $86.25 million IPO.

—Physicians-only social network Sermo inked a deal with Nature Publishing Group (NPG). The partnership will give Sermo’s 50,000 or so members online access to the full text of 10 of the medical journals that NPG publishes.

—MIT forged a five-year, $50 million research agreement with Italian energy firm Eni. Under the agreement, half the money will be used to help set up the MITEI (MIT Energy Initiative), spanning research, education, energy security efforts, supply and demand studies, and a variety of other energy-related programs at MIT, and half will go to establishing the Eni-MITEI Solar Frontiers Research Program.

— Pervasis Therapeutics, a regenerative medicine company in Cambridge, MA, closed $9.75 million in new funding from Flagship Venture Partners, Polaris Venture Partners, Highland Capital Partners, and Musket Research Associates.

—EMC virtualization subsidiary VMware (NYSE: VMW) acquired San Francisco-based Thinstall for an undisclosed sum. Wade explains how Thinstall’s technology lets corporate computer users run Windows programs on their desktops without actually installing them.

—Cambridge, MA-based Elixir Pharmaceuticals postponed what would have been the first Boston-area IPO of the year. The company, which is developing treatments for diabetes, obesity, and other metabolic diseases, had filed for an offering of five million shares, and set a range of between $14 and $16 per share.

—Genzyme spinoff PeptImmune of Cambridge, MA, raised a $8.2 million first tranche of a Series D round. The deal was led by New Enterprise Associates, MPM Capital, Hunt Ventures, Boston Medical Investors, and Silicon Valley Bank Capital, among others.

—Bedford, MA-based Hologic (NASDAQ: HOLX) sold the rights to Gestiva, a drug for preventing preterm birth, for $82 million to St. Louis, MO’s KV Pharmaceutical. The drug must earn FDA approval, however, for Hologic to collect the full sum.

—Art Technology Group (NASDAQ: ARTG), an e-commerce firm in Cambridge, MA, said it’s set to acquire Seattle’s CleverSet for some $10 million in cash.

—Finally, the last week saw a couple of new rumors of deals for Biogen Idec (NASDAQ: BIIB). Last Tuesday, billionaire investor Carl Icahn said in an interview on CNBC that he still believed that the Cambridge, MA-based biotech giant would be bought, despite its unsuccessful effort to find a buyer, which ended in December. Then, on Monday, came the news that Biogen CEO Jim Mullen had said in an interview with news service Mergermarket that the company could make an acquisition of its own this year, perhaps spending as much as $10 billion.

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Back in October I braved a couple of blocks’ worth of rain to visit Sermo, our startup neighbor around the corner, which runs an online community for doctors of the same name. At the time, the company was just about to announce that it had inked an agreement with Pfizer granting the pharmaceutical giant access to its then over-30,000-member-strong community of physicians. Yesterday, I skipped the foot-deep snow and got on the phone instead to talk to Sermo’s VP for Research, Alex Frost, about today’s planned announcement of another significant partnership—one that will give Sermo’s now nearly 50,000 members access to the offerings of Nature Publishing Group (NPG), and vice versa.

By the end of the first quarter, Frost said, every article in the online version of a dozen NPG medical journals, including Nature Medicine, will include a link inviting users to discuss the article on Sermo. There, users can poll their fellow doctors—about whether they agree with the article’s conclusion, say, or have tried the treatment that the article describes in their own practice—as well as posting more traditional free-text comments. What’s more, Sermo users (who must be licensed as physicians in the U.S. to register for the site) will have access to free full-text versions of 10 of the NPG journals from within Sermo.

For a medical publisher to offer a large group of people unfettered access to so much content is unprecedented, Frost said. “It’s a sign of NPG’s progressive commitment to breaking down barriers and looking at new business models.” Indeed, this is not the first time that NPG has dipped its toes into the Web 2.0 waters of social networking and user-generated content; the London-based group launched Nature Network in the spring of 2006, starting with Boston as its hub, as a place for scientists to blog, network, discuss research, and according to Joy Moore, an NPG publisher, generally do whatever they want to with the platform.

While there are certain similarities between Nature Network and Sermo, Moore said, the big difference is Sermo’s large, ready-made community of physicians, a group that wouldn’t naturally participate on Nature Network. (One central reason why they might not: Sermo is a closed, password-protected, community—something many of its users value passionately—whereas Nature Network is open to all comers.) It was access to that community that was the main driver for NPG in forging the agreement, Moore said. “We’re looking to gain more insight into what readers are looking for and how the content we publish is meeting their needs.” And Sermo’s existing partnerships with the likes of Pfizer and the American Medical Association add another dimension to the community that NPG would have had a hard time creating on its own, Moore said.

There’s one other key thing about the partnership (financial terms of which have not been disclosed) that evidently appeals to both sides. That’s the opportunity to hasten the flow of information from medical researchers to practicing physicians and, perhaps, back again. “In its ideal form, Sermo is about closing the loop between research and practice,” Frost said. He described, for instance, a scenario where journal editors might publish a summary of the relevant polls and discussions on Sermo, stripped of any identifying information, as an addendum to an article. Sort of a “composite letter to the editor,” he said—a means of bringing the consensus of Sermo clinicians on a topic back to the researchers investigating it, as well as to the journal’s readers.

Both Frost and Moore said, however, that there are not yet any firm plans for Nature journals to publish any content derived from Sermo. Moore said that NPG will first need to simply gain familiarity with the community and the platform. “We’re very excited about working with such a dynamic company,” she said. “It’s a great opportunity for us to use the next generation of Web tools.”

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This is the week that everybody in the media seems to be gazing back upon 2007, but here at Xconomy, well, we’re not that into the first half of the year. No offense intended to January, February, et al—we just weren’t around yet to cover all the people, companies, and happenings that surely made those first six months of the year a fascinating time in the New England innovation ecosystem. So, in honor of the hemi-anniversary of our June 27 launch (no need to send gifts, a few extra clicks will do), we present the Xconomy Half-Dozen-Stories-of-the-Half-Year Awards.

The “Who Knew?” Story of the Half Year:
Boston: The Hidden Hub of Music and Technology
Wade, a recent transplant from the West Coast with a healthy interest in the intersection of technology and entertainment, began to notice that the Boston-area music-tech scene is a lot more rocking than stereotype would lead you to expect. He spent weeks exploring a fascinating web of companies, all combining music, computing, and the Web, and unearthed a hidden technology cluster. The story was part of the inspiration for Xconomy’s upcoming Battle of the Tech Bands.
Runner Up:
VC Varsity (showcasing the little-known athletic prowess of the area’s private equity circuit)

Home-Team Victory of the Half Year:
iRobot v. Robotic FX
We did our journalistic best to be objective in our coverage of Burlington, MA-based iRobot’s patent-infringement and trade-secrets-violations cases against an Illinois rival and the firm’s founder (a former iRobot employee). But the whole massive shredding/tossing of evidence thing… Well, it makes an impression, doesn’t it? Evidently it did on judges in Massachusetts and Alabama, because they endorsed settlements that put Robotic FX out of business and locked founder Jameel Ahed out of the industry for the next five years.
Runner Up:
Red Sox v. Rockies

Story Tip of the Half Year:
Upheaval at MERL
Don’t want to reveal too much about how this one came in, except to say that in a town like this one, kids’ playdates are shockingly prone to becoming parental networking events.
Runners Up:
IRobot’s Dumpster Diving Detectives (the classic anonymous phone call)
The Inside Story of Eons Layoffs (the classic insider source)
Metcalfe Takes GreenFuel Reins (the semi-classic e-mail tip, but we would have had the story two days earlier if our spies at Lanes and Games had recognized the thin Bob Metcalfe look-alike they thought they were seeing as the real, and newly svelte, Metcalfe)

Comment Catfight of the Half Year:
Sermo Strikes Back
I guess when you write a story about how a bunch of people are really ticked off about something (in this case, about some bloggers exposing a security loophole for Sermo, a popular Cambridge-based social networking site for physicians) it shouldn’t be too surprising that the story itself elicits some debate. But man, those doctors can get ornery! (And by doctors, I’m including the bloggers, too. Because I’m Switzerland, okay everybody?)
Runner Up:
What’s Wrong With Energy Investing? (And what’s wrong with making the simple observation that investing in alternative energy is a necessary, but wholly insufficient way to deal with the energy problem?)

Anticlimax of the Half Year:
Carl Icahn Shakes Up Biogen Idec
The activist investor burst on the scene in August. Biogen was up for sale by October. Pundits and bloggers (ourselves included) speculated about who would buy the pioneering Cambridge biotech, but in December, with no offers on the table, Biogen took itself off the block. Of course, you know the story ain’t over…
Runner Up
Genzyme Buys Bioenvision (a once-fiery shareholder revolt fizzles at the 11th, make that 13th hour)

Google IPO Impersonation of the Half Year:
VMware
Hopkinton, MA’s EMC sold just 10 percent of its Palo Alto-based VMware subsidiary in this offering, but what an offering it was. The stock (NYSE: VMW) debuted at $50—a 72 percent premium over its offering price—and soared to a high of $125.25 within a few months (it’s now down to a mere $86 and change).
Runner Up:
Athenahealth (NASDAQ: ATHN) (The Watertown, MA-based, provider of online billing and other business services for medical practices priced at $18 and debuted at $30.)
Also Ran:
EqualLogic (NASDAQ: DELL) (The Nashua, NH-based maker of network storage ditched a planned IPO in favor of a $1.4 billion cash sale to Dell Computer—evidently the largest all-cash acquisition of a venture-backed company in history.)

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Even though last week was a short one, there was so much wheeling and dealing that I wound up doing an extra roundup on Wednesday. But wait, there was more… Here are the deals that were announced since last we rounded up.

—Boston-based RNAi therapeutics startup Dicerna finalized its $13M Series A financing led by Oxford Bioscience Partners and Skyline Ventures.

—Cambridge, MA’s Verenium (NASDAQ: VRNM), a biofuel firm formed this summer by the merger of Cambridge’s Celunol and San Diego’s Diversa, filed a shelf registration statement covering the potential issuance of up to $150 million of stock, debt securities, or warrants.

—Point-of-care diagnostics maker Inverness Medical Innovations (AMEX: IMA) of Waltham, MA, priced a $738 million secondary public offering of stock. The deal was nearly double the size of what Inverness originally announced.

—Woburn, MA-based BioVex completed a Series E financing round, led by Triathlon Medical Ventures, and a venture debt transaction with Oxford Finance Corporation and Silicon Valley Bank. Combined, the two deals are worth $35 million.

—Sermo, a Cambridge, MA. startup that runs a physicians-only social network, partnered with Chicago’s ReachMD XM Satellite Radio, a medical broadcaster. Under the agreement (financial terms of which were not released), ReachMD listeners will be able to discuss the channel’s broadcasts on Sermo, and Sermo users will be able to access certain ReachMD segments directly from the site.

—Boston’s Backchannelmedia completed a $9.5 million seed funding round. The firm’s technology lets TV viewers tag or bookmark pop-up ads during shows, as Wade explained in a profile of Backchannelmedia on Friday.

—While observers wait to see if Pfizer (NYSE: PFE will make a grab for Biogen Idec or Genzyme, the pharmaceutical giant instead announced that it’s acquiring Wellesley, MA-based vaccine-maker Coley Pharmaceutical Group (NASDAQ: COLY) for $164 million.

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One of the most exciting things about launching Xconomy in such a vibrant tech community as Kendall Square has been the chance to watch our startup neighbors grow, up close and in real time. So when Sermo founder and CEO Daniel Palestrant invited me last week for a second visit to the company, which just over a year ago launched an eponymous online community for physicians and last month closed a $26.7 million Series C financing round, I was glad to make the block-and-a-half trip.

Palestrant and the rest of the team were gearing up for tomorrow morning’s long-anticipated (at least by me; other people probably have hobbies and a better sense of time) announcement that the company has closed its first deal granting a pharmaceutical firm access to Sermo and, by extension, the 30,000-plus physicians who are now its members. And it’s a big fish that Palestrant et al. have bagged: Pfizer, which is, depending on how you like to count, the biggest or second-biggest drug company in the world. Thanks to that fact, I think, things were even more frenetic in the quintessentially startupian basement office than they were when I visited back in July. (My apologies to the Sermo staff, who had already pulled up chairs for a long-overdue meeting when Palestrant, Sermo director of communications Greg Shenk, and I got done talking.)

Pfizer is not the first organization to pay for access to Sermo, where physicians, who get in for free, communicate with one another via posts, comments, and polls to, among other things, discuss treatments and trends and consult with one another on difficult cases. (Sermo already has deals with several investment firms and the American Medical Association, as well as an evaluation agreement with the FDA that does not involve any money changing hands.) But to me the Pfizer deal is the most interesting one to date, because I’m hard-pressed to imagine any relationship as fraught as the one that exists right now between doctors and the drug industry.

For his part, Palestrant says that Pharma involvement in Sermo is something that some community members began asking for about nine months ago, much to his surprise. “I always thought that industry was a real third rail for physicians,” he says. Certainly the sentiment on this is mixed among Sermo members; one idea seems to be it would be better to have drug companies involved in the community and clearly identified, rather than lurking behind anonymous usernames (as is possible, given that Sermo is open to any U.S. physician, and plenty of physicians work for drug companies).

And it’s no secret that Pharma is struggling with how to present itself to doctors and consumers. Sales reps—you know, the pathologically cheerful ex-cheerleader types who roam the halls of hospitals and doctors’ offices proffering free pens—have been a particular source of scorn for (in the view of many) wasting physicians’ time and contributing to drug-price bloat. Pfizer itself announced last November that it would lay off a fifth of its U.S. sales force. So it makes sense that the company would be keen to experiment with new ways to get its message to doctors, and that a ready-made community like Sermo would be an attractive place to start. (Just how attractive, in dollar terms, is unclear. Palestrant, who hasn’t revealed financial terms of any of Sermo’s client arrangements to date, would only say that that the 15-month, non-exclusive deal is “a significant partnership.”)

So what does Pfizer actually get for its undisclosed fee? Not equity in Sermo, Palestrant wants to make clear. Palestrant talks easily and eloquently about big ideas—in this case, the common ground between doctors and Pharma of information and expertise—but I’m the sort of person who needs to acquaint myself with a few of the trees before thinking about the forest. In previous conversations I’ve been able to coax some particulars out of him, but this time he didn’t pony up much about just how Pfizer and the Sermo community will interact. My sense is this doesn’t reflect any particular caginess on Palestrant’s part, but rather that it indicates just how experimental the relationship is at this stage.

Indeed, the agreement begins with a three- to six-month exploratory period in which, as I understand it, Pfizer will mostly just hang out within Sermo and try to strike up conversations with members about what they want and don’t want from the arrangement. There will be some ground rules, Palestrant says: of Pfizer employees, only those who are doctors can log in, they can only do so from their work computers, and they will be identified within Sermo as Pfizer employees, even if they had pre-existing accounts. And over the next few months an advisory board including both Pfizer representatives and Sermo members will develop a set of guidelines for pharmaceutical-industry participation in Sermo. What’s more, Pfizer will join in some of Sermo’s discussions with the FDA to try to define ways that the agency, industry, and healthcare providers can improve their communications.

(One concrete benefit of the partnership for Pfizer will be the right to post a certain number of “hotspots” within Sermo. The hotspots technology, which Sermo will launch next month, allows clients to introduce outside information into Sermo in a variety of well-marked forms, including guidelines, polls, and drug backgrounders.)

So, to recap, tomorrow morning a bunch of drug-industry representatives—members of a group that’s probably tied with insurance bureaucrats for second-most appearances on doctors’ lounge dart boards (surely lawyers top the list)—are going to slap on their virtual Pfizer badges and step inside a close-knit, incredibly self-protective community of doctors. I would love to be a fly on that wall but, though Sermo has previously granted journalists limited-time observer accounts, the company decided against it this time. Still, I’m thinking this is an experiment that potentially affects all of us, in that it’s an opportunity, in some small way, for better or worse, to change the complicated relationship between money and medical knowledge.

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I don’t know what you did this past weekend, but I spent a lot of mine watching the virtual fur fly in the comments section of my post from last week about Sermo, the password-protected social network for physicians run by the Kendall Square startup of the same name. That story had focused on Sermo users’ strikingly angry response to a pair of blogs that had publicized a weakness in Sermo’s system for authenticating would-be registrants as credentialed physicians. Clearly a healthy dose of that anger (from both sides) spilled over into the discussion here, and for the sake of everybody’s sanity I’m not going to rehash the debate over whether or not publicizing the security gap (which has since been patched) was the right move. But another issue emerged in our readers’ conversation that I think deserves some follow-up: The question of how much of the information about and generated by the site’s physician-users can be seen by Sermo’s clients, which include hedge fund managers, the American Medical Association, and the FDA.

The question arose when an Xconomy reader going by the name Edward posted a link to a set of slides that Sermo had used in a presentation to the FDA about how the agency might incorporate the doctors’ network in its medical-product safety efforts. Other readers, particularly one who goes by Andrew, noted some apparent discrepancies between the information disclosed in the client interface that the slides depicted and what’s allowed to be disclosed by Sermo’s privacy policy and terms of service. Some points were fine, but the big issues seemed to be that in some places the mock-up of the client view used individual physician’s real names, rather than aliases, and that it appeared to let clients monitor individual physicians’ activity on the site, in the sense that it showed how actively individual physicians were commenting, voting, and using a given tag.

I noticed, as did some Xconomy readers, that the client-view slides in question were clearly marked “Sample Information – Not Actual Data.” Still, I thought it was important to see if the privacy standards of the actual client interface that Sermo launched in April, called AlphaMD, jibes with what Sermo users expect. Hence yet another Sunday-evening e-mail to Sermo founder and CEO Daniel Palestrant.

On the question of whether clients can actually see real physician names, Palestrant wrote: “As you have identified, the views are fictional samples from a discussion document that was created prior to the launch of AlphaMD. Sermo has never, nor do we plan to, expose actual physician names on the site either to physicians or to clients. The actual version of AlphaMD that was launched does not and will not in the future expose actual physician names.”

Then there’s the question of whether clients’ ability to use aliases to track some of Sermo users’ activities within the site—which the real AlphaMD does allow, as does Sermo itself, for that matter—clashes with this language in the privacy policy: “When you participate in a www.sermo.com Forum…Your name or alias and IP address may be recorded for purposes of maintaining Your own account within the Forums and preventing abuses of the forum… This information is not used to monitor Your activity within a forum, nor is it used to identify You outside www.sermo.com in any way.”

To get at this point, I asked Palestrant, among other things, what Sermo meant by “monitoring” in this context. He replied, “We wanted to indicate that we would not in any way proactively oversee or moderate the activities of a physician on Sermo. But this is a ’social community’ and we fully expect that users will want to keep track of each other particularly as they determine whose views they trust and that it would be appropriate for us to provide the tools to do so. While we can understand how someone could take a broader definition of ‘monitor’ to mean that we would not let users of Sermo keep track of other users and activities, this was not our intent and we will clarify the language to eliminate any confusion.”

Palestrant forwarded me a screenshot from the live AlphaMD interface to further clarify things (click the image for more detail). And he outlined in plain language Sermo’s key dos and don’ts for information disclosure. “We do not let clients see profiles of individual physicians. We do not provide actual names of physicians to clients or publications without the explicit permission of a physician… We do allow clients to see user names but again without any translation into an actual name. For voting detail, we do not even allow clients to see the user names. In this case we replace user names with a generic physician 1, 2…n designation.”

Palestrant posted a similar set of answers and explanations within Sermo itself, and from the looks of the comments he’s getting there, users are remarkably satisfied. But it strikes me that as more and more social networks spring up that are, like Sermo/AlphaMD, dependent on balancing exclusivity and openness, anonymity and reputation—and as more and more of the information we rely upon is generated within such networks—we’re all going to have to think very carefully about what privacy means, and what it’s worth.

(By the way, there are some remarkable similarities between the questions raised by the Sermo/AlphaMD setup and those raised by an venture-capitalist-ranking site, www.thefunded.com, which only allows entrepreneurs to join and which generates both public and private information. See Xconomist Daphne Zohar’s interesting post on The Funded here.)

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When I saw over the weekend that two different blogs had posted on the apparent ease of hacking into Sermo, the password-protected social network for physicians, my first thought was: “Those docs are going to be pissed.” Sermo, after all, promises physicians a secure, closed environment where they can consult with their peers, and if there’s one thing I know about doctors, it’s that they take the peer part—that whole MD thing—awfully seriously. So I was thinking that the Cambridge, MA-based startup and its founder and CEO, Daniel Palestrant, must be getting inundated with feedback from angry physicians taking them to task for evidently leaving a door open to the riff-raff.

As is my track record with Sermo, I got things partly right. According to Palestrant, “all hell broke loose” when word of the blog entries—one including step-by-step instructions for gaining access to Sermo without having an actual MD, and one claiming to have done so without spelling out exactly how—reached the Sermo community. And from comment threads on Sermo (no I didn’t hack in; Sermo provided screenshots), and on the blogs themselves, it seems that many Sermo users are indeed angry—but at the bloggers, not Sermo.

A comment on Sermo, directed toward the authors of the how-to post, is typical in its sentiment, if not in its relatively mild language: “Why would you publish the method for subverting SERMO to the public? This forum is something I value. How dare you compromise that! Shame on you.” Another asks: “Can’t we meet at least one place as peers, without malpractice lawyers, MD wannabes, and certified dogooders horning in to tell us how we should be doing things?” (Elsewhere, journalists are also singled out as persona non grata. Ouch.)

A few of the Sermo comments defend the bloggers, mainly on the grounds that they’re benefiting the community by exposing an important security loophole, but by and large the contempt for them is eye-popping. One user suggests waging an advertiser boycott against Medgadget, an MD-authored blog on emerging medical technologies, which published the how-to post. Others offer thinly veiled suggestions that the post’s authors be reported to their state medical board and the Drug Enforcement Agency for outlining how non-physicians can “impersonate” a physician on Sermo, in part by obtaining a real doctor’s DEA prescribing number. (Medgadget defends itself in an open letter to Palestrant posted this morning.)

Palestrant swears, by the way, that none of Sermo’s employees are anonymously weighing in to tip the discussion in the company’s favor, a la Whole Foods or Constant Contact. And of the 10 to 20 calls he and his team have fielded so far, he says, “we haven’t had one physician who isn’t supportive of Sermo.” To Palestrant, the fact that many Sermo users have circled the wagons to protect the site is an indicator of the year-old online community’s vitality. “As a scientist,” he says, “one of the signs of life is seeing an organism defending itself.” My sense is that Palestrant is a lemons-to-lemonade sort of guy to begin with, and that he’s really enjoying the fact that, rather than blaming him, Sermo users are helping him squeeze the fruit.

As of yesterday, Palestrant says, Sermo had installed a patch (already in the works before all the drama, evidently) that should render Medgadget’s instructions for gaming Sermo’s physician-authentication system useless. Where the previous system required registrants to provide several publicly available pieces of information to prove that they’re licensed physicians, the new system requires some data that should be available only to the individuals. (Previously registered users will have to be re-authenticated the next time the log in, Palestrant says.) Still, Palestrant says, “there’s no such thing as bulletproof security”—and putting up more roadblocks for poseurs inevitably raises the barrier to entry for legitimate users.

At the risk of drawing fire from the “Sermaphrodites” (their term, not mine), I think all the focus on exposing and patching the security gap misses a key point: there are plenty of people with MDs who are also lawyers, pharma reps, industry consultants, and (heaven forfend!) journalists. Which begs the question of just how closed a closed community needs to be in order to function and thrive. And with Sermo looking to use the information generated by its community in more and more ways—including as the basis of a Wikipedia-like medical reference source and in partnerships with the AMA and FDA—I think it will become increasingly important to understand the influence of those legitimate users whose first priority is not patient care.

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