Funding for clean technology startups has increased substantially in recent years, with 323 U.S. companies raising a total of $4.3 billion in 2011, according to the recently released MoneyTree Report. In the San Diego area, the same report shows that four cleantech startups raised $78 million last year, including $15 million that went to SG Biofuels in the fourth quarter.

But sometimes it’s not enough to be green. Many cleantech startups face a basic challenge in competing against existing products that might not be as environmentally friendly, but are nevertheless well-established—even commoditized—in their respective markets.

In San Diego, sustainable design architect (and Xconomist) Robert Noble has led the development of clean manufacturing methods and technologies for manufacturing a green replacement for medium density fiberboard (MDF) structural panels—a standard material used in building construction and other industries. Noble says the proprietary process makes panels from any kind of fibrous, cellulosic material, such as recycled paper, cardboard, wood chips, corn stalks, and even cow manure. The big difference is that the replacement product, which Noble calls 3-D Engineered Molded Fiber (3DEMF), requires no petroleum-based glues or addititves, or vapor-emitting chemicals.

Ecor samples

Now Noble Environmental Technologies, a company he founded in 2005, is overseeing installation of a 3DEMF factory, showroom, and design lab in downtown San Diego to manufacture the company’s Ecor brand panels. “The tide has turned for sustainable materials,” says Jim Torti, the company’s chief operating officer.

After personally funding the company through 2009, Noble says he now has about 15 individual and institutional investors, and he’s in the process of raising another $4 million to help equip the 10,000-square foot factory and to provide some cash flow. Noble adds that he has no plans to seek venture capital. He says the time required to build large-scale manufacturing and their primary market—the building industry—”doesn’t easily fit the venture capital model for a quick exit,” which is an issue for many cleantech businesses.

Torti and Noble say they wanted to establish the company’s first production plant in an urban, mixed-use setting—an apartment building is across the street—to demonstrate … Next Page »

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…or really just one great one: Xconomy needs your help. We’re busy cranking out terrific tech and life sciences journalism and putting on stellar events across the six cities in our network, and we’re looking for a kick-ass marketing coordinator to help us get the word out about all of it.

Full details are here, but in a nutshell: This is a full-time position in our Cambridge, MA, headquarters, ideal for somebody who is happiest when juggling a bunch of diverse projects. We need a person who enjoys figuring stuff out as s/he goes along, and has just enough of the old OCD to pull it off without too many embarrassing typos. Some main areas of focus will include marketing our events, managing our social media efforts, and marketing reprints and premium products.

If doing all that in an extremely collegial, slightly wacky startup environment sounds like your idea of a good time we want to hear from you at jobs@xconomy.com.

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It’s that outlook time of year, and Mark Heesen, president of the National Venture Capital Association (NVCA), was in San Diego earlier this week, talking about the 2012 outlook for venture capital. Today he’ll make a similar presentation to the New Jersey Technology Council. Next week,  John Taylor, the NVCA’s director of research is set to talk in Florida about the 2012 outlook.

Heesen began his presentation in San Diego by saying, “Be prepared for a roller coaster ride here, because that’s where we’ve been for the past year—and that’s where we’re going.”

In a conversation with Xconomy yesterday, Heesen talked about some of the broader trends he’s charting throughout the United States. Here are some of the takeaways from our talk, and from Heesen’s presentation in San Diego:

—The VC industry continues to contract. Venture capital investments in U.S. startups peaked in 2000, when VCs sank $99 billion into emerging companies of all kinds. There were 1,022 venture capital firms at that time, and they were collectively managing $220 billion worth of invested capital. In 2010, VCs invested more than $20 billion into startups of all kinds. The number of VCs had plunged by almost 55 percent—to 462 VC firms with $177 million under management.

—VCs are raising more capital from their limited partners, but it isn’t enough to sustain current investment levels. In 2011, U.S. venture firms raised a total of $18 billion. That was up significantly from the $14 billion that VCs raised in 2010—but it falls $10 billion short of covering the $28 billion that VC firms invested in 2011. As a result, Heesen says he expects venture investments in U.S. technology and life sciences companies to decline in 2012.

—A handful of VC firms accounted for … Next Page »

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If you were in the business of supplying heating oil in the Northeast, do you think it would be useful to know if a big winter snowstorm is likely to arrive with sub-zero temperatures in Massachusetts next month? How would fire chiefs in the brushy backcountry of Southern California react if they knew the odds of intense Santa Ana winds would increase dramatically in four weeks?

For all of meteorology’s satellite imaging and computer modeling, John “JP” Plavan and Stephen Bennett say it’s just about impossible to use current weather forecasting models to make more than general predictions about the weather more than two weeks in advance. That might be enough time for fuel oil suppliers to get a few extra shipments into local dealers, they say, but it’s not sufficient to make decisions at the highest levels of a big corporation or government agency.

But what if a weather forecasting model could “estimate” the likelihood of extreme weather events 30 or 40 days in advance? Would it be helpful, for example, to know if the odds a major winter storm would hit a particular region had increased from 33 percent to, say, 66 percent?

This, in a nutshell, is the promise of the innovation under construction at EarthRisk Technologies, a San Diego company that Plavan and Bennett founded less than two years ago. “If you’re Home Depot, you certainly want to have snow shovels in stock if you’re anticipating a big snowstorm,” says Bennett, a career meteorologist who helped create the company’s predictive analytics technology with scientists at U.C. San Diego’s Scripps Institution of Oceanography. Likewise, if you’re the Federal Emergency Management Agency, you’d certainly want to get a 30-day advance warning of the next Hurricane Katrina.

“We fancy ourselves as a software company, not as a weather company,” says Plavan, an investor serving as the company’s founding chairman and CEO. “We provide information that helps our clients make decisions of value.”

Bennett, who is EarthRisk’s chief science and products officer, says the highest value for the company and its customers lies in determining the likelihood of extreme weather—heat waves, cold snaps, and the kinds of storms that trigger destructive events like tornadoes, hurricanes, and flooding. “Extreme events are the ones that have the highest impact,” Bennett says. “The places where the opportunities are to be seized, and the risks managed, are at the extremes.”

JP Plavan

Plavan compares the startup’s predictive analytics to counting cards in Blackjack, a technique used by some gamblers to optimize their bets and to guide how they play each hand. “The odds change, depending on the cards already played,” Plavan says. Instead of six decks of cards in the dealer’s shoe, however, EarthRisk calculates the odds for extreme weather events based on correlations between existing weather patterns and historical patterns in a database that encompasses more than 60 years of detailed global weather data.

“The research question that Scripps Oceanography helped us answer is whether there are certain things that the atmosphere does that loads the dice, so to speak, in the way things play out,” Bennett says. “The data patterns have become so complex that it’s too much for a meteorologist—for one brain—to digest.”

Their focus on the statistical risks of extreme weather events also represents a fundamentally different approach from the long-range forecasts now issued by the U.S. Climate Prediction Center, which relies on … Next Page »

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—Venture capitalists invested $269 million in 23 deals in the San Diego area during the last three months of 2011, according to the MoneyTree Report from the National Venture Capital Association, PwC, and Thomson Reuters. That was almost a 20 percent gain in dollars, but a 28 percent slide in deal count from MoneyTree data for the fourth quarter of 2010. For the full year of 2011, the MoneyTree VC survey said $829 million was invested in 104 deals in San Diego, a 5 percent decline in dollars and a 17 percent slide in deals from the $871.7 million sunk into 126 San Diego deals in 2010.

—What should students study now to be prepared for the workplace 10 years from now? We asked that question of 22 Xconomists, including San Diego Xconomists Ramesh Rao, Duane Roth, Drew Senyei, Larry Bock, and Robert Noble. We’ve compiled all 22 answers in an Xconomy special report on education, which you can find here.

—San Diego Gas & Electric hosted a grand opening of its new Energy Innovation Center, which is designed to serve as an energy innovation showcase and education facility, and to meet the U.S. Green Building Council’s requirements for a platinum LEED (Leadership in Energy & Environmental Design) certificate. The center includes a full commercial “food service demonstration kitchen” where San Diego chefs can test their recipes on energy efficient appliances and restaurant owners can learn about the advantages of new and more energy efficient equipment. Utility officials said Commercial kitchens are particularly energy intensive.

—San Diego-based Tealium raised $1.1 million in Series A financing from private investors, and plans to use the funding to expand development of the tag management technology the company created to help enterprise customers manage their online marketing. Tealium said the investors include Limelight Networks CEO Jeff Lunsford, former Visual Sciences CEO Jim MacIntyre, Collective CEO Joe Apprendi, EyeWonder CEO John Vincent, and eValue Group CEO Thomas Falk.

—After previewing their plans last year, the X Prize Foundation and San Diego-based Qualcomm Foundation officially unveiled the Qualcomm “Tricorder” X Prize, a competition offering $10 million to the team that can develop new wireless diagnostics technology. The winning entry must be able to accurately diagnose a set of 15 diseases across 30 consumers in three days, capturing real time, critical health metrics such as blood pressure, respiratory rate, and temperature, and providing information in a consumer-friendly way.

—Qualcomm’s leadership has been talking for several years about the anticipated competition between its ARM-based semiconductors and the CPUs developed for desktop computing in the expanding market for smart devices. Now some of those skirmishes are beginning. Illinois-based Motorola Mobility (NYSE: MMI)  said recently it would use Intel’s (NASDAQ: INTC) latest low-power x86 Atom processor in a number of future Motorola products, marking Intel’s opening move into the smartphone market. A Motorola spokeswoman told me by email, “We will continue to use multiple chip set vendors.” Qualcomm (NASDAQ: QCOM) already has hundreds of mobile devices using its Snapdragon processor, and has been working with manufacturers on hundreds more.

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Money pumped into San Diego’s regional economy by venture capital firms hit an eight-year low in 2011, with a total of $829 million invested in 104 startups throughout the year, according to the MoneyTree VC survey being released today. The 2011 deal count was the lowest seen in San Diego since 1997.

The 2011 numbers represent a 5 percent decline in dollars and a 17 percent decline in deals in comparison with the previous year, when VCs put a total of $871.7 million in 126 startups, according to the MoneyTree Report from PricewaterhouseCoopers, the National Venture Capital Association (NVCA) and Thomson Reuters.

The decline in San Diego’s venture activity ran counter to the nationwide trend in 2011, in which $28.5 billion was invested in 3,673 deals—and ranks as the third-highest total in the past decade. The U.S. numbers represent a 22 percent increase over the $23.6 billion in 2010 VC funding and a 4 percent rise over the previous year’s deal count, according to the MoneyTree analysis.

The overall U.S. trend depicted in the MoneyTree Report generally agrees with the rise in venture activity nationwide that CB Insights charted last week in its 2011 findings. CB Insights, the New York financial analysis firm, said the $30.6 billion VCs invested in 3,051 deals throughout 2011 was a 10-year high in terms of both dollars and deals. (The two sets of numbers don’t line up exactly because the firms use different methods to collect their venture data, and count dollars and deals in different ways.)

In the fourth quarter of 2011, the MoneyTree Report shows that venture capitalists invested $269 million in 23 deals in the San Diego area, with life sciences startups in diagnostics, drugs, and devices accounting for roughly two-thirds of the transactions. It represented a … Next Page »

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Web startups, venture firms, life sciences companies, and a biofuels developer rounded out the deals news this week.

—Cambridge, MA-based Flagship Ventures announced it had closed a $270 million fund, surpassing the $250 million it had originally targeted for its fourth fund.

—Extreme Reach, a Needham, MA-based startup developing cloud storage technology for delivering video ads to TV and Web publishers, said it closed a $9 million credit line from TD Bank. The startup also acquired commercial talent rights management and payment firm Spotlight Business Affairs, in a deal that enables Extreme Reach’s ad distribution system to be in compliance with existing talent and rights agreements.

—Massachusetts regained the number two spot for venture funding and deals in the fourth quarter of 2011, with $959 million invested in 93 transactions, according to a report from the data firm CB Insights. Nationally, venture dollars and deals had their strongest showing in a decade, at $30.6 billion invested in 3,051 deals.

—Cambridge-based Constellation Pharmaceuticals inked a drug development deal with Roche’s Genentech unit that’s worth $95 million in an upfront payment and three years of research support. It’s also eligible for milestone payments and royalties on the products that could potentially result from the deal.

—Bedford, MA-based Joule Unlimited announced it had pulled in $70 million in financing from the aforementioned Flagship Ventures and other new and existing investors whose identities it did not reveal. The money will go to a New Mexico facility that Joule hopes will demonstrate its ability to scale its technology for producing fuels from sunlight and carbon dioxide.

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San Diego’s SG Biofuels, an agricultural biotech developing the Jatropha plant to produce biofuels, says today it has raised $17 million in a Series B round of financing led by Thomas, McNerney & Partners. San Diego-based Finistere Ventures also joined the round, along with existing investors, Carlsbad-based Life Technologies (NASDAQ: LIFE) and Flint Hills Resources, the Kansas refining and chemicals business owned by Koch Industries.

Thomas, McNerney partner Pratik Shah, who moved his office to San Diego from San Francisco last year, has joined SG Biofuels’ board, along with Jerry Caulder, Finistere’s managing director and the former CEO of Mycogen, an agricultural biotech founded in San Diego.

SG Biofuels says it will use the additional capital to expand its research and development, advance commercialization efforts, and scale global operations. The company says it is working with an airline industry consortium to plant 250,000 acres of Jatropha. The agricultural biotech has focused on improving the jatropha plant to optimize its productivity in various climate zones. The shrub’s golf ball-size seeds produce oil that can be processed into jet fuel, biodiesel, and other fuels.

In a statement from the company, SG Biofuels CEO Kirk Haney says, “The funding comes at a time when we’re experiencing significant commercial adoption of our hybrid Jatropha and will be instrumental as we continue to expand our global footprint.”

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Joule Unlimited, a biofuels startup located in Bedford, MA, announced today that it has pocketed $70 million in financing to put toward a facility underway in Hobbs, NM, that will demonstrate Joule’s process for converting sunlight and carbon dioxide into fuels such as diesel and ethanol.

The new money brings Joule’s funding total to more than $110 million, and comes from founding Joule investor Flagship Ventures, as well as new and existing investors whose identities were not disclosed. Joule will also use the new funding for its technology development and global expansion, according to the announcement. In April 2010, Joule raised $30 million in second-round funding from Flagship and other institutional investors.

The Hobbs, NM, site is expected to be up and running later this year, and is designed to demonstrate how Joule’s technology could scale up to thousands of acres for commercial production. Joule now has 11 patents, covering technology such as  an engineered bacterium that produces liquid hydrocarbon fuels from sunlight and carbon dioxide, and a method for producing ethanol at high volumes and high efficiencies.

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CEOs, investors, and board members frequently complain about ineffective board meetings. Steve Blank, Jeff Bussgang, Brad Feld, and Fred Wilson each have suggested board meetings could be improved by changing the format, process, or content.

Having good meetings starts by having the right people in the room (as discussed in the first installment of this series) and in having a good chair or facilitator for the discussion (as highlighted in the second). The board then can create the right agenda with a relatively simple, three-step process.

First, the chair and CEO should circulate the key questions and proposed agenda a week prior to the meeting, or even start collecting agenda items at the end of the prior board meeting. Most importantly, this helps everyone avoid wasting time creating dozens of slides that the board doesn’t value. It also allows time for reflection and input from other board members.

Some of the most effective CEOs and chairs I’ve seen call each board member in advance to get their input. Doing so also helps them build and maintain political clout with the board by encouraging board members to be heard, seeking their input, and avoiding nasty surprises at the meeting.

Second, in creating the agenda, the chair and CEO must reflect on what key questions are vital to the company’s success, as opposed to what are the most obvious. In the dozen years I have been on boards, I have seen too many stuck in the same routine. It’s easy—and a bit too comfortable—to review how sales were since the last board meeting, how many leads marketing generated, how the product has developed, and when the company might need more money.

All but the last question are like driving by looking in the rear-view mirror. Looking ahead to the next quarter’s sales or to the next release of the product at least focuses on the future, but only in the low-visibility fog of short-term goals. These are good questions, but more tactical than strategic. Of course companies need to address tactical questions, but too much attention there can lead to greatly missed opportunities.

Strategic discussions always start with tough questions that aren’t being asked. There are five areas for the board to have on its strategic checklist, with an optional sixth that should be reviewed at least twice per year (sometimes more frequently).

• Team. Does the company have the right people in the right roles? Are they the right ones for where it wants to be in six months or a year? Veteran entrepreneur and venture capitalist Bob Metcalfe once said that in big … Next Page »

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There was a whole lot of life sciences news over the past week. Here’s my roundup.

—Carlsbad-based Life Technologies (NASDAQ: LIFE) said it’s taking orders for a benchtop genome sequencer that can to decode an individual’s DNA within 24 hours and at a cost of roughly $1,000. The company priced its new Ion Proton Sequencer at $100,000 to $150,000, which also represents a dramatic reduction compared with the cost of existing DNA sequencers, and might even entice some practicing physicians to buy into the idea of personalized medicine. A cross-town rival, San Diego-based Illumina, also introduced an improved version of its gene-sequencing machine capable of same-day service, although Forbes’ Matthew Herper says Illumina’s HiSeq 2500 is priced at $740,000.

—A $1 million gift to the Tech Coast Angels from the family of slain TCA member and life sciences investor John G. Watson has enabled the angel group to establish a nonprofit foundation to support entrepreneurism in the San Diego region. A financial adviser, who awaits sentencing following his conviction two months ago, murdered Watson in his La Jolla town home. Watson’s sister, Gillian Ison, told the TCA, “John loved investing, innovation, and the entrepreneurial spirit that he discovered when he arrived in San Diego. We believe that a foundation supporting entrepreneurism is the best way to honor his memory and his life.”

—San Diego’s AnaptysBio said it has established strategic alliances with Novartis and an undisclosed pharmaceutical company. The company plans to use its proprietary technology to discover and develop new therapeutic antibodies with multiple cancer-related therapeutic targets. AnaptysBio said the two deals provide global rights to develop and commercialize a limited number of antibodies against each cancer target that AnaptysBio generates.

—In his BioBeat column, Luke previewed the five myths likely to make the rounds at this week’s JP Morgan Healthcare Conference in San Francisco. You could say that Luke inoculated readers from excessive optimism by writing, “Hope and hype are a couple essential ingredients in this business, and every year both are on display at this conference. Sometimes the wishful thinking can congeal into conventional wisdom.” Is that good, or what?

— Wylie Vale, a Salk Institute scientist, renowned expert on brain hormones, and founder of San Diego’s Neurocrine Biosciences (NASDAQ: NBIX), died on Jan. 3 while vacationing in … Next Page »

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

In both of my fields of distributed renewable energy infrastructure and environmental composites, I would throw a punch at corporations and/or public sector entities, agents, or elected officials who have an environmentally destructive agenda, yet make no real effort to alter that agenda—and to add insult to injury, lie about their activities in the interest of power or profits. “Greenwashing” is rampant in most industries and sectors and needs to be targeted. It is a particularly disingenuous form of false advertising.

Plundering our environment is a type of crime, and in most cases it is done, not out of ignorance, but out of a singular focus on profit above all else. This is unacceptable by any standard.

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Venture capital deals backed off just a tad during the last three months of 2011, but remained strong enough to carry VC activity during the year to a new high-water mark, according to data being released today by CB Insights, a financial data firm that maintains a venture capital database.

VCs invested $7.6 billion in 755 companies nationwide during the fourth quarter, bringing the total for 2011 back to pre-recession levels, with $30.6 billion invested in 3,051 deals. The New York firm says that marks a 10-year high for both dollars and number of deals.

In the regional breakdown, Massachusetts regained its No. 2 ranking, eclipsing venture activity in New York during the fourth quarter. CB Insights reports that a total of $959 million was invested in 93 Bay State deals. In New York, $568 million went into 73 deals, which ranked third in terms of both deals and dollars.

California maintained its usual poll position during the quarter, with the $3.8 billion invested statewide accounting for just over half of the nationwide total and the 300 deals representing 40 percent of the total U.S. number. There wasn’t a lot of variation in California’s deal count over the previous four quarters, but the capital invested during the quarter was 45 percent higher than the $2.6 billion that went into the Golden State during the same quarter of 2010.

In Washington State, venture activity remained well behind the big three, with $146 million invested in 24 deals during the quarter, prompting the wags at CB Insights to write, “We’ll bring back our ‘Sleeping in Seattle’ metaphor as Washington continued its … Next Page »

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

The FDA is the easy target for those of us who are in drug development. But what I am most mad about is the unwillingness of our industry to focus and invest in innovative, high-impact drugs instead of “me too” knockoffs. Thus, my “anger” is focused on institutions that myopically insist on investing in low-risk, copycat ideas that undermine the true strength of our industry over the long term.

Risk-taking and innovation in drug discovery are critical to our field. Aspiring merely to be fast followers instead of striving for innovation is putting our competitive advantage at risk. The entrepreneurial spirit has been key to America’s success in many industries, especially biotech, but there have been several recent events that are stifling innovation.

The downturn in the economy has obviously dampened the financing of new ideas. Changes to patent law arguably encourage long, drawn-out opposition hearings that could be detrimental to the smaller inventor. However, my key concern for our industry is the lack of new and innovative drugs, despite the stunning pace of scientific progress over the last several decades. Not enough companies are focused on innovation and not enough people in charge are taking the right level of risk to actually come up with a new idea that can have a substantial impact on human health. Innovation is the alpha and the omega of our industry and should always be cherished as a way to create valuable and meaningful high-impact drugs.

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Cambridge, MA-based Flagship Ventures announced today that it has closed its fourth fund, raising $270 million—significantly more than the $250 million the firm initially intended to secure. “We could have raised even more, but we decided to cut it off and get on with forming a portfolio,” says Noubar Afeyan, CEO and managing partner of Flagship Ventures.

Flagship was founded in 2000 and has since built a portfolio of more than 65 companies in the fields of biotech, medical technology, and sustainability. Afeyan believes the firm generated so much interest in its fourth fund because of recent successes from the $235 million fund it established in 2007. That portfolio includes Agios, for example, a Cambridge, MA-based company that established a $150 million development deal with Celgene last year.

Flagship’s approach to investing is distinctive in that about 25 of the companies in its portfolio come from its own innovation unit, VentureLabs. It’s not an incubator, Afeyan says, but rather a mechanism for transforming concepts into companies in completely new markets. “We explore opportunities in spaces where there are no companies whatsoever,” he says. Companies emanating from VentureLabs include Hypnion, BG Medicine, and Adnexus Therapeutics. Afeyan estimates that about 35 percent of the new fund’s portfolio will come from VentureLabs.

The new fund will also pursue some late-stage opportunities, though it will do so very selectively, Afeyan says. “Our approach is quite different from typical late-stage investing, where the company is totally de-risked and you have to pay a high value to join a syndicate of investors,” he says. Instead, he says, Flagship looks for value plays—companies that are capital-constrained but promising enough to be close to an exit.

One late-stage investment with a happy ending for Flagship was Accuri Cytometers, a Michigan maker of scientific instruments that was bought by New Jersey medical device giant Becton, Dickinson and Company in 2011 for $205 million. Afeyan says about 20 percent of Flagship’s last fund was dedicated to later-stage investments, and such opportunities will account for “that or more” in the new fund.

Overall, Afeyan says, the vast interest in this latest fund bodes well for companies in biotech, medical technology, and cleantech. “People are announcing all sorts of new funds now, but most are investing only in late-stage assets,” he says. “That’s important, but it won’t improve innovation. Ultimately, if you want a wellspring of innovation, you need people who are willing to take this type of early-stage risk. It’s good to see that dedication from our investors.”

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

Regulatory overkill. We spend so much time and resources in the USA due to regulations that, while well-intentioned when conceived, are set into law due to a crisis. They are driven by emotion and the desire to protect future occurrences or to punish a minority of wrongdoers. However, in hindsight, they are usually overly burdensome, lack risk/benefit analysis, and therefore stifle innovation. The real problem is that once they become law they are nearly impossible to roll back. I would love to see an approach that identifies the most stifling of these regulations in the USA and that requires the stakeholders (regulatory body, industry, and users) to draft a completely new and modern approach to regulation every 10 years. That could help ensure that innovation can thrive and that risks and benefits are balanced.

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

It takes a lot to get me riled-up—I’m overly rational, if anything. Outside of the bad behavior we were supposed to outgrow in kindergarten—dishonesty, disrespect, etc.—there are few professional issues of sufficient emotional magnitude. One of the most frustrating issues today is the FDA situation. While easy to say, “The FDA is at fault and needs to be reformed in order to speed the approval of new medicines,” that is a dramatic oversimplification of the problem. All parties in the ecosystem are at fault to some extent, and it will take concerted efforts and change by each in order to fix it.

For example, the FDA has absolutely been more/overly safety conscious in recent years, but I believe we all would act that way if faced with being hauled in front of Congress to justify the risk-benefit of a drug approval that positively impacts more than 99.99 percent  of the people who use it. Why should we, as a country, require or expect that medicines be as safe as clean water? At the core, sick people, whether with cardiovascular issues, autoimmune disease, or other afflictions, are taking a medicine in order to improve their condition, so while absolutely safe drugs would be wonderful, a level of risk is warranted based on the improvement in the disease. If we can cross that bridge and accept that medicines will have risks, then we have the tools to deal with the safety vs. speed of approval conundrum. We can shorten commercialization timelines while dramatically improving safety monitoring if we test for efficacy and major safety during development, while tracking long-tail safety issues in the commercial setting—perhaps the first 100,000 people prescribed a new product?

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What issues would you be willing to throw a punch over?"]

There are two.

The first is the state of the patent system, particularly as it affects computing hardware and software (broadly construed). Just about everything about the system is broken. In my view it is working strongly against real innovation. Major companies amass enormous portfolios of questionable patents that they can use to bludgeon one another (until they sign cross-licensing agreements, at which point only the little guys are left to be bludgeoned). Organizations that are not in the innovation business acquire portfolios that they assert for profit alone. I have absolutely nothing against the licensing of substantive innovations by those in the innovation business, whether by major companies or little guys . But much of what goes on today does not fall into this category, and something needs to change. I am not sufficiently expert to make appropriate detailed proposals, but I am sufficiently expert to smell a rat.

The second is our “blame the teachers and the teachers unions” approach to improving K-12 education. Yes, K-12 education is a mess, more of a mess in the U.S. than in most industrialized nations, and more of a mess in Washington than in almost all other technology states. (For some facts to support the latter assertion, see this.)

But blaming teachers and unions is a cheap way to avoid confronting the many real problems that plague our K-12 education system and are leading us rapidly down the road to an ever-more-stratified society of haves and have-nots, threatening the raw material upon which the innovation economy depends. Here, too, I don’t have an easy or quick solution—there isn’t one. But we are not going to make progress by sitting around playing the blame game.

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[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

The most important issue facing Aastrom and many other companies in biotechnology is the lack of adequate funding to support innovative new companies, technologies and therapies. The challenges in drug development, especially in the early stages, are only compounded by the current regulatory environment with a primary focus on risk reduction.

Unfortunately, with this combination there isn’t one punch we can throw to rapidly improve the situation. But, the current situation has to change if the United States is going to remain the global leader in the discovery, development, and commercialization of innovative new therapies in the next two decades. If we don’t improve the current conditions, we will continue on a path to increasing irrelevance in biomedical research and innovation, especially given the fact that other countries are rapidly recognizing the potential of our industry to improve human health and create jobs, and they are in many ways ahead of the U.S. in supporting these companies.

To address the problem in the U.S., NIH funding has to be re-directed to focus less on support for early-stage research and discovery and more on the critical translational phase of new product development. This period is often referred to as the “valley of death” in new product development in healthcare—the period between early preclinical promise and clinical proof of concept. In a risk-averse environment, funding for products at this stage is very limited, and many will not move forward even though they could represent important advances in patient care. We need to introduce more funding sources that are positioned to accept the inherent risks at this stage.

As we work to introduce new funding sources, the FDA should also consider opportunities to recalculate the risk/benefit equation for many products. Working more as a supportive partner with industry, the FDA can work to make faster decisions. To protect both patients and industry, the FDA can also introduce mechanisms to more rapidly respond to post-marketing issues related to approved products. In this way, the FDA can balance the benefits of bringing new therapies to market quickly with the risks associated with the decision and a plan to take action post-approval if necessary. The ability to review and approve new therapies with great speed and, equally importantly, the ability to “disapprove” and remove therapies from the market or alter the product indication post approval, could significantly improve the competitive position of the U.S. in biotechnology in the years ahead. Industry will have to accept the fact that FDA decisions might not mean approval forever. They will build a model where marketing can begin while additional data is collected to provide further confirmation that benefits outweigh risks.

Finally, venture capital investors need to return to their roots—funding truly innovative companies, technologies, and therapies at the early stages. They need to lose their recent aversion to risk—seemingly honed over the past decade. Importantly, they may be more willing to move in this direction if the FDA takes steps to establish a more receptive and less uncertain regulatory environment.

A reflection of the current funding environment: a partner with a prominent venture capital firm recently told me that his firm is only funding companies that have an already approved product (the historical province of private equity and growth capital firms) or very early-stage “science-based” companies. The level of regulatory uncertainty has reached critical levels. When very smart and successful venture capital firms cannot accept the level of regulatory uncertainty, the alarms have clearly sounded—and changes in Washington and within industry seem essential to address these problems successfully.

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[Updated 1:45 p.m. ET] Executive compensation held relatively steady in 2011 among privately-held life sciences companies, while their peers in the technology sector continued to see salary increases, according to the annual CompStudy survey produced by executive search firm J. Robert Scott and law firm WilmerHale in collaboration with Noam Wasserman, associate professor of business administration at Harvard Business School.

The survey analyzes year-to-year compensation changes across ten different executive positions in life sciences and technology. It includes compensation data from 575 technology firms and 225 life sciences companies from across the United States. While the technology sector continued to report moderate salary increases in 2011, momentum eased for the life sciences sector. “In life sciences, there was not a real slowdown through the economic downturn,” says Aaron Lapat, managing director with J. Robert Scott in Boston.

That may be changing. Lapat says executive compensation in the life sciences sector only increased by 1.45 percent over 2010. “There is something hitting the life sciences market that hit tech a few years ago,” Lapat says. Prior years saw annual changes in executive compensation for the life sciences sector of between 3 percent and 7 percent, he says. In 2011, non-founder CEOs in life sciences earned average base salaries of $304,000 according to the survey, up from $295,000 in 2010.

The technology sector, by contrast, seems to be finding its stride. The 2011 results … Next Page »

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