[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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[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 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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Under cloudless blue skies in Livonia, MI, many of those at the forefront of electrification of vehicles gathered on Monday to celebrate the opening of A123 Systems’ lithium ion battery manufacturing plant. From political leaders to business executives and scientists, an array of notable speakers highlighted new and important progress on advanced batteries and vehicle electrification in the United States—even as they acknowledged how much more work needs to be done.

A123Systems CEO Dave Vieau welcomed the attendees to the largest lithium ion battery plant in North America. Then we heard from executives from BAE Systems, Navistar, Shanghai Automotive, AES Energy Storage, and General Motors, as well as federal, state, and local political leaders. All of them are intensely focused on advancing the electrification of vehicles. The resounding theme was the importance of public/private partnerships to further American innovation, followed by implementation and manufacturing of those innovations by U.S. companies.

Here are some observations from the day:

—U.S. Senator Carl Levin (D-MI): Manufacturing is critically important to our economy…it is worth fighting for. We are competing not just with other companies, but with other countries and governments. We must create partnerships between an active government and a committed private sector.

—U.S. Congressman Sander Levin (D-MI and Carl Levin’s older brother): Battery manufacturing is vital to America’s competitiveness. Other countries are no longer content to just compete, they want to lead. In America, we are debating whether we should have these private/public partnerships; other countries are not debating this question, they are acting. We somehow lost the notion that it was important to build it in America. We help invent advanced technologies, we must devote ourselves to becoming the leader in their implementation and manufacture.

—U.S. Secretary of Energy Steven Chu: Under no circumstances should the United States cede manufacturing. He called for a new industrial revolution, reiterating the importance of public/private partnerships in making that happen and freeing the United States from its dependence on foreign oil.

—President Barack Obama: He teleconferenced into the assembly to congratulate A123 on the important milestone of opening its factory in Michigan. He trumpeted the birth of an entire new industry in America and reminded the attendees that in 2008 only 2 percent of lithium ion batteries were manufactured in the United States. By 2015, he said, that figure should be 40 percent.

—Admiral Dennis Blair, former Director of National Intelligence: Advanced batteries are important to national security. Lithium ion batteries and the electrification of vehicles is the only practical way to end the country’s dependence on foreign oil.

—Michigan Governor Jennifer Granholm, U.S. Senator Debbie Stabenow (D-MI), and U.S. Congressman John Dingell (D-MI) also provided remarks. It was clear to me that Michigan leaders are working in a coordinated fashion on many levels to advance their state as a manufacturing center for clean technology, and that A123 is a leading part of this charge. I realize that Michigan is under siege, but I wonder just how much more could be accomplished throughout the United States if local, state, and national leaders and representatives in other states, including Massachusetts, worked so closely together to further public/private partnerships.

[Editor's note: A123Systems and Xconomy are clients of the author.]

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Government leaders in Europe and North America are seeking to formulate enlightened, effective policies to create the necessary ecosystems and help their corporations respond to threats of loss of markets at home and abroad. The need to better commercialize public and private investments in R & D is well understood, but does not always happen as hoped for and mandated in well-intentioned protocols.

Hope is not a strategy.

At the inaugural meeting of the National Advisory Council on Innovation and Entrepreneurship yesterday, U.S. Commerce Secretary Gary Locke said the U.S. Innovation Engine is not working as well as it should, and that is not acceptable…particularly since governments around the world are putting more of their muscle behind their drive for innovation.

Innovation = Invention + Commercialization

One reason that hopeful protocols fail to deliver the needed results is that Innovation is difficult, and requires teamwork. The inventors of breakthrough ideas are rarely well equipped to lead their inventions from the cool comfort of the laboratory to the cruel crucible of the marketplace. Inventors need to team up with gritty, market savvy, workaholic entrepreneurs to reduce their ideas to practice, quantify the value proposition, earn beachhead customers, become an accepted standard, and finally, to achieve total global domination of their chosen market niche.

The Lisbon Strategy in its various forms envisions top-notch inventors achieving innovation by commercializing their ideas. How will they be more easily connected to passionate entrepreneurs, and where will the entrepreneurs come from?

The challenge is palpable for both global and local corporations, as well as government-funded laboratories. The pace of change and the need for rapid innovation has never been greater. Today the CEOs of the top companies in the so-called mature Western economies have few tools (and little time) to help them re-engineer their organizations to be more innovative. They lie awake at night worrying that faster, more innovative, lower-cost competitors are springing up every day, eager to take big bites from their cash cows and star performers.

Indeed, according to an annual study by the Boston Consulting Group, the top 100 companies outside Europe and North America are truly globally ambitious. They have many advantages:

—flexible, talented, hard working, non-union work forces

—flexible labor policies

—modern industrial plants and equipment

—equally modern and flexible supply chains

—access to global capital

—access to international markets, while their home markets may be hard for competitors to enter

In the face of increasing global competition, more and more major companies are coming to understand the value of corporate venturing, which generally aims to give large mature organizations some of the agility of their smaller competitors. Such venturing works both to improve a corporation’s standing in its existing markets and to break into new markets.

Today’s major corporations pursue different organizational strategies to achieve incremental and radical innovation. Incremental innovation is usually managed inside the Business Units, using their knowledge of evolving customer needs, manufacturing flexibility, and short-term budgets. Radical innovation is best done by a team of trusted corporate veterans, protected from “NIH” and reporting directly to the CEO. Buying products from startups is one way to achieve innovation and shorten time to market.

Large Western corporations have many advantages when competing, IF they have the will and clockspeed to use them.

Charles Darwin’s conclusions about evolution also hold for business: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” Innovation programs such as corporate venturing can help companies evolve in the face of a rapidly changing world, and not just survive, but thrive. The role of governments is to provide a level playing field with policies that support, rather than penalize, success in the highly competitive global markets.

Special thanks to my colleagues, and friends, Dave Weber and Carter Williams, for their help and advice on this article.

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Recently I had the opportunity to participate in a series of meetings in Washington, DC, together with an impressive array of business leaders and investors. The group that held the meetings is called the Progressive Business Leaders Network, and it focuses on a select set of issues that are critical to driving U.S. competitiveness. PBLN’s efforts toward energy independence and education are of particular interest to me.

I have spent most of the past 10 years bringing U.S. tech companies and their products into Asian markets. I have had the opportunity to do business in all of the major economies there, including Japan, China, Korea, and India, and have experienced firsthand what many now identify as the new center of the world economy. The people I have had the good fortune to meet in Asia are bright, creative, and full of enthusiasm for the promising future ahead. They are also driven.

Last year, my family and I returned to the U.S. from Singapore. Having lived amid the incredible pace of infrastructure expansion across Asia, including China’s efforts on energy, it seemed natural that acceleration in the U.S. would soon follow. The legislators discussing progress toward American energy independence at the DC conference, however, were passionate about the need for this energy overhaul, but not so optimistic about the outcome.

Congressman Ed Markey recounted a scene from his own recent trip to China, where he saw rows of newly manufactured wind turbine blades lined up outside of a factory. He likened the blades to the threat posed by the Soviet missiles that the U.S. faced in Cuba so many years ago.

This imagery is useful for its attention-grabbing dramatization. And, since most of us respond more readily to visuals, it may well be an effective analogy.

But, unlike Soviet missiles in Cuba, China’s efforts are inwardly focused and did not originate as an offensive threat. To the extent that we in the U.S. are not equally focused inward, this nearly closed window of opportunity to take advantage of the next great manufacturing trend is a threat of our own making.

Why does China now dominate the world’s wind turbine and solar manufacturing?

Because…

it has an economy that is growing at breakneck speed and has an insatiable need for more energy…

its leaders realize that these industries provide high-skill manufacturing jobs urgently needed to support a rapidly expanding middle class…

energy independence is important for a nation that has a relatively insular history…

the country’s ubiquitous coal-fired power plants produce so much pollution that every citizen in the major cities of China feels the burning effects in their throats and eyes whenever they step outdoors.

China sees the near-term benefits that clean energy technology provides for its citizens and is proceeding rapidly to implement an organized plan to take advantage of this opportunity. Unlike the situation in many circles within the U.S., in China clean energy is not an academic discussion.

The byproduct of this cleantech manufacturing boom, and a nice bonus for China, is that the country gains economies of scale, improving both the quality of its products and its knowledge base. This ensures that China will be a formidable global competitor in this space going forward.

The industries associated with clean energy—including energy components and systems manufacturing, and not just installation—are those that we have every means to develop in the U.S, and for most of the same motivations as China.

Ed Markey mentioned how consistently sharp and focused the Chinese leaders whom he met with were on the specifics of their country’s energy plan. In contrast, the lack of unity and driving concern around a common plan in the U.S. means that these high value chain industries are powerful new opportunities that we are apparently willing to forego.

We do not need a showdown on the high seas to counter this threat. The conflict is all on our home turf.

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On March 29 MIT arranged a round table seminar entitled “The Future of Manufacturing Innovation—Advanced Technologies.” The seminar focused on technological advances that could spur manufacturing in the U.S.

MIT president Susan Hockfield opened the afternoon by reflecting on the status of the U.S. as a manufacturing nation. “Many Americans tend to believe that hardly anything is made in the U.S. anymore, and that all manufacturing has moved to China or other countries with low wages,” she said. ”But by reinventing manufacturing capabilities and processes, the U.S. could create 17 to 20 million new jobs.”

Is this realistic? Can Western countries with high-paid jobs really compete with countries like China and India where the cost of labor is lower?

“Yes. Just look at Germany and Japan,” Hockfield said.

Coming from Sweden with a background in engineering, and having covered European industry for many years for publications such as VerkstadsForum, Verkstäderna, and Automation, I believe that Hockfield may be right, but that the United States has much to do in order stay competitive. Just look at the figures: in 2009 the U.S had a trade deficit of almost $227 billion with China alone, according to the U.S. Census Bureau’s foreign trade statistics. Over the last three years, 10 percent of the U.S. manufacturing workforce was laid off, MIT political scientist Suzanne Berger pointed out at the seminar.

While I don’t mean to sound like a preachy outsider, a number of practices that I’ve observed from my time covering European manufacturers, particularly in my native Scandinavia, could be useful as the United States seeks to rebuild or reinforce its own manufacturing infrastructure.

Consistent information handling during a product’s entire lifecycle is an often underestimated but vital component if we want to keep manufacturing profitable. Being able to master small batch production, even of complex and high-tech goods, in order to meet individual customers needs, is another key to staying competitive.  This is easier said than done. America is adapted to economies of scale, a tradition dating back to the days of Henry Ford. Certainly the U.S. has a huge home market, but this has probably delayed the adoption of small, efficient batch manufacturing essential in smaller countries and markets, such as the Nordic ones.

Once that is mastered, customization becomes, if not easy, at least more achievable. Customization, in turn, demands consistent information, with software solutions holding and updating product data correctly, through the product’s entire life cycle. Systems that can do this must … Next Page »

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IT executives from some of San Diego’s better-known employers, including Amylin Pharmaceuticals, Sony Electronics, and Broadcom are banding together to find new ways to retain local IT jobs and to counter the effects of foreign outsourcing.

The formation of a new regional business group, the San Diego-based Industry Council for Competitiveness and Globalization (ICCG), comes as the Washington D.C.-based Alliance for American Manufacturing released a study that claims the U.S. lost 2.4 million jobs to China from 2001 to 2008.

The Alliance, an advocacy and lobbying organization formed in 2007 by the U.S. steel industry and its labor union, says California accounts for almost 370,000 of the job losses—including high-tech and IT jobs in data processing, computer programming, and technical support. The alliance contends that the 370,000 lost jobs represents about 2.2 percent of California’s workforce. On its website, the alliance says Massachusetts lost 72,800 jobs (or 2.2 percent of its statewide workforce) and the state of Washington lost 44,000 jobs (or 1.4 percent of its workforce) over the same period.

Alliance spokesman David Roscow tells me the group issued the report as part of its continuing effort to focus the attention of U.S. policymakers on China’s trade subsidies, currency policies, and other practices that have adverse effects on the U.S. economy, and amount to “cheating,” according to the Alliance.

The formation of the new business group in San Diego also comes as many local technology and life sciences companies—especially the biotech startups—are turning to … Next Page »

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“The easy answer is, ‘Of course it will,’” said panel moderator Jesse Berst, the head of Redmond, WA-based research and consulting firm GlobalSmartEnergy. He was referring to the title of last night’s event in downtown Seattle organized by the MIT Enterprise Forum: “Will Green Return the Green?”

It’s a reasonable question, especially here in Washington state, where things have been fairly quiet on the cleantech and energy front as of late. Despite the presence of such companies as EnerG2, Verdiem, Optimum Energy, Powerit, Bio Architecture Lab, Areva T&D, Avista, and Imperium Renewables, much has been made of the region’s lack of competitiveness with other parts of the country like Silicon Valley and New England—not to mention global competitors like China. (I’m using a broad definition of “green” tech here to include both alternative energy and sustainability.)

To discuss business and policy leaders’ concerns around financing opportunities, regulations, resources, and hot areas in the green sector, the MIT Enterprise Forum (together with a team of volunteers led by Seattle law firm Graham & Dunn) convened a distinguished panel:

—Berst (the moderator), a global authority on smart grid technologies and economics, and an Xconomist.

—Patricia Irving, CEO and founder of Richland, WA-based InnovaTek, which develops technologies for sustainable energy and environmental safety.

—Rogers Weed, director of the Department of Commerce, Washington state (and a former Microsoft vice president).

—Roger Woodworth, vice president for sustainable energy solutions at Avista, the Spokane, WA-based energy and utilities company.

—Bradley Zenger, managing director at Pivotal Investments, an early-stage cleantech venture investing firm in Portland, OR.

(By the way, all of the panelists are involved with the Cleantech Open, which is gearing up for its 2010 business plan competition.)

Berst kicked things off by saying that dozens of smart grid companies around the world have been raising $50-100 million or more, and many will be going public in the next 12 to 18 months. In terms of Washington state, he said, “We’ve got some real challenges here around creating a real cleantech cluster. The one thing you can’t fake is proximity. We have a lot of islands of innovation scattered 150 miles apart.” He also talked about the entrepreneurial culture of the region: “We don’t have a lot of people with the urgent desire to crush” competitors in Silicon Valley, Boston, New York, and so forth, he said.

Irving, whose company makes fuel cells and other technologies for partners like Boeing, summed up the mindset of consumers in the Northwest. “We love to be green, but we’re not willing to take the risk that’s necessary to shift our paradigms,” she said. “Part of the challenge is we haven’t been willing to stand up. Sacrifices need to be made.”

Weed, who has been on the job for 10 months since being appointed by Gov. Christine Gregoire, said cleantech is one of Washington’s top three opportunities for growth. But the state faces two key challenges, he said. One is the budget situation. “The state is struggling to make … Next Page »

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[Updated and corrected, May 9, 2011--see below] We just came back from spending a week with 95 MIT students in Silicon Valley drinking from the West Coast Fire Hose of Entrepreneurship. Our theme was “East meets West: The Unification Study Tour.” For us, the theme worked well. But some of those out west, as well as some back in the east and in the press, preferred to pursue a competitive approach, which I find not only unattractive and destructive but also incorrect.

Most people love a competition with winners and losers where we can track them as they race along. We certainly love our rivalries: Red Sox vs. Yankees, Celtics vs. Lakers, and Patriots vs. Colts (oops—scratch that last one now). Some rappers had their own version of East Coast vs. West Coast. But these sorts of rivalries are not exactly how it works—especially with regard to innovation.

In 1980, Bob Metcalfe (esteemed MIT graduate & co-inventor of the Ethernet) came up with his now-famous Metcalfe’s Law. The essence of his insight is that the value of the network to each user is exponentially related to the number of nodes on the network. So rather than there being a zero-sum game with “competing” innovation ecosystems, in many aspects the opposite is in fact the case, especially in the new digital “flat world.” That is, the success of one area should enhance the success of another.

At MIT, we train our students to be great entrepreneurs globally, not just in Massachusetts. In fact, according to the widely cited report on the economic impact of entrepreneurship at MIT, written by MIT Sloan School of Management professor Ed Roberts and Charles Eesley, MIT alumni start 850-950 companies annually. Of those companies, an estimated 26-28 percent will be started in Massachusetts this year. In addition, an estimated 26-28 percent will be started in California. The punchline of this story is that these are not two competing ecosystems, but really one large, connected-at-the-source entrepreneurial ecosystem.

[Editor's note, May 9, 2011--Due to author error, the original version of the above paragraph stated that MIT alumni start 200-400 companies annually. The figure was changed to 850-950 companies, accurately reflecting the figures in the report by Roberts and Eesley.]

Rather than spend our time and efforts arguing about winners and losers, or us vs. them, we at the MIT Entrepreneurship Center are focused on leveraging Metcalfe’s law through our second principle of operation: “collaboration.” We will spend our time and efforts to build connective tissue between East and West…and other areas, too. There are very interesting things happening outside Route 128 and Silicon Valley that we could all learn from and gain from by working together. So next time someone starts talking about Silicon Valley vs. Route 128 or Boston, ask them to “stop the noize!” We can all gain by a mindset of working together. Let’s spread the love around and innovation will flourish…and then we all win. Leave the score keeping to the sports page.

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Yesterday, I participated in a very exciting event that culminated with the announcement by Massachusetts Governor Deval Patrick of an important funding program—a $1 million annual business plan competition called MassChallenge.

The essence of this announcement is to match the next generation of young aspiring entrepreneurs with numerous sources of capital, most likely local venture capitalists. The Governor has committed the State to match dollars committed by private sector investors to the top entrepreneurs who survive the MassChallenge screening process.

During the course of the events yesterday, my good friend Andy Ory (CEO of Acme Packet) and I moderated a panel stocked with local success stories: Desh Deshpande, Paul Sagan of Akamai, Bob Hower of Advanced Technology Ventures, Scott Savitz of Shoebuy.com, and Brian Shin of VisibleMeasures. We explored what was and was not working in the region as we try to build great venture-backed companies.

One consistent theme that the panel identified was the lack of broad-based mentorship to help this next generation of great entrepreneurs get started. So here is the commitment that Andy and I made to the audience: we will recruit 12 great successful CEOs to work with 12 VCs to mentor 12 promising young entrepreneurs to launch 12 new companies over the next 12 months. (Admittedly, I stated to the audience that it would be 20 companies in the first year, but upon reflection the alliteration of “12″ worked much better).

Office Hours: So what I will pursue over the next few months with Andy Ory is to see if we can establish “office hours”—that is, can we get a dozen successful CEOs in town to commit to open up their calendars and Rolodexes to a dozen promising entrepreneurs. Ideally these CEOs would serve as non-executive chairpersons and possibly provide some initial capital, but more importantly, they would provide guidance and advice. VCs get paid to see new opportunities, so it should be reasonably straight forward for me to line up the investors (maybe I will lean on the board of New England Venture Capital Association, which I happen to chair). And working with organizations such as MassChallenge, as well as our own deal flow, we should be able to identify a dozen great opportunities that merit funding.

I will keep you posted on our progress.

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Massachusetts bested many of its rival states in research and development funding and maintaining a healthy supply of college graduates, but the Bay State is falling behind in several key areas of its innovation economy, according to a new index released today by the quasi-public nonprofit Massachusetts Technology Collaborative (MTC).

The annual report, dubbed the 2008 Index of the Massachusetts Innovation Economy, compared the commonwealth with nine other U.S. states with leading high technology and life sciences sectors such as California and Minnesota. The John Adams Innovation Institute, the research arm of the MTC, based its scores on 20 innovation indicators with data from 2003 through 2007—so we’ll have to wait until next year to see how the economic meltdown impacted the state in 2008.

The index has the attention of some of the top executives and investors in Massachusetts, setting it apart from many of the national indexes compiled outside the state without local input. In fact, this year’s index includes insights from seven figures well known to many Xconomy readers, including Bob Higgins, founder and general partner of Lexington, MA-based Highland Capital Partners and Henri Termeer, the CEO of biotech heavyweight Genzyme (NASDAQ:GENZ), headquartered in Cambridge, MA.

I reached venture capitalist Higgins after he finished teaching a class on entrepreneurship in life sciences at Harvard Business School this week. Without talking about specific findings in the innovation index, he shared some of his thoughts about the state’s economy, focusing on the fortunes of individual firms.

“I think the best measure of the health of the innovation economy is the success of companies,” Higgins says. “That is a tough measurement tool in the current environment, but I think it’s the right one. In other words, how many companies have been successfully sold, how many companies have become successful public companies—and how does that compare to other regions.”

Indeed, the index has some data on M&A and initial public offerings. We at Xconomy have already covered some of the most recent reports on those topics—including our story about the IPO drought in Massachusetts and nationally last year—but there were some new findings in the MTC’s index about sector growth and the health of the state’s workforce.

Here are some of the highlights and low marks culled from the MTC’s 62-page report:

—Sales skyrocketed for Massachusetts’ biotech and medical devices firms from $18 billion in 2003 to … Next Page »

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[Updated Feb. 18 with newly confirmed panelist Linden Rhoads of UW TechTransfer:]
Cleantech and renewable energy are rare examples of fast-growing areas of investment and entrepreneurial activity—but the Northwest is behind the curve in these emerging arenas compared to Silicon Valley, New England, and some other parts of the country. The Northwest, however, is developing nearly unrivaled expertise in key areas like the intersection of cleantech and information technology. Whether it’s energy efficiency, green buildings, or smart-grid infrastructure, the tools and technologies coming out of this sector will go a long way toward determining our region’s growth and competitiveness. Xconomy Seattle has recently reported on several efforts to build regional leadership in cleantech, such as a Washington state-appointed task force and a national R&D network.

So what are the most promising areas of commercialization in cleantech and computing, and how big are the opportunities? Are other areas of the energy economy (e.g., biofuels, solar) also poised for growth that the region can take advantage of? What kinds of companies are VCs and investors looking to fund? And what should business and policy leaders in the Northwest do to allocate resources, maximize competitive advantages, and accelerate economic growth?

We will pose these questions, and more, to some of the world’s leading authorities at an upcoming Xconomy Forum on The Rise of Cleantech in the Northwest. This evening panel discussion and networking event will take place from 6 to 8:30 pm on March 26, at the law firm K&L Gates in downtown Seattle. The event is sponsored by Climate Solutions, an environmental nonprofit, and will bring leaders in energy, technology, finance, and policy together with C-level executives, venture capitalists, angel investors, entrepreneurs, and other leaders in the innovation community.

Now, a bit about our distinguished panelists:

—Michael Butler, chairman and CEO of Seattle-based Cascadia Capital, brings a wealth of experience in cleantech finance and investment banking. Most recently, he spoke with Xconomy about the need for the Northwest to get organized around its strengths in alternative energy and software, and the importance of public- and private-sector partnerships.

—Jesse Berst, managing director of Redmond, WA-based Global Smart Energy, will speak about why the U.S. needs a smart energy grid, what it will take to achieve that goal, and how the Northwest—and the nation—will fare in the emerging “electricity economy.”

—Jeremy Jaech, CEO of Seattle-based Verdiem, will talk about the convergence of energy innovation and information technology in the current economic climate. The co-founder of Aldus and Visio will discuss business opportunities in software-meets-cleantech, as well as the competitive strengths of the Northwest and how they can be maximized.

—Mark Aggar, director of environmental technology strategy at Microsoft, will talk about sustainable computing and the role of big companies in advancing green IT, power management, and environmental policy.

—Linden Rhoads, vice provost, UW TechTransfer, will discuss the role of research, startups, and venture capital in the cleantech revolution. She recently spoke with Xconomy about VCs and tech transfer.

The event will begin with registration at 6 pm, with the panel to follow 30 minutes later, and plenty of time left at the end for networking. You can find details about how to register here. We hope you will join us, and look forward to seeing you there.

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Here are seven key questions and answers about the electricity economy and smart-grid technology.

1. What is “electronomics” and where does it fit in today’s energy world?

One of the best ways to understand the new electric smart grid of the 21st century is by applying electronomics, which helps you analyze the rapidly emerging electricity economy. Electronomics means jobs, progress and prosperity; but it also spells huge financial opportunities and brand new companies and industries that will be created on a vast scale, a scale we haven’t seen in the United States for many decades or more.

Electronomics is also one of the key underpinnings for the stimulus package currently being shaped and fashioned in Washington DC. There are lots of stimulus ideas that create jobs for a year or two and that refurbish aging infrastructure. That’s really important. We need new bridges and roads and highways.

But the smart grid infrastructure that we’re talking about is much more lasting in its impact. It is the development of a new infrastructure that will permit new forms of commerce to take place. It is akin to the transcontinental railroad, the phone system, the interstate highway system and the Internet in the way that it will help enhance new fortunes and spawn new Googles and Microsofts.

Building out this grid will also allow us to remain competitive in a world that is rapidly moving from a petroleum economy to an electricity economy. Right now, we’re falling behind. Many of the most exciting and aggressive smart grid initiatives are coming from overseas. Much of the Middle East is using its oil money to create a state‐of‐the‐art smart grid along with sustainable cities. Europe spends 10x what we do on smart grid research. And China is leading the world in high‐voltage transmission and next‐generation grid efforts. If we want to keep pace, we have to master Electronomics and really dig in here.

2. What is the current state of the U.S. electric infrastructure?

The electric infrastructure in the United States has been called the most complex machine on earth, and with good reason. There are so many moving parts. For starters, the system has 14,000 transmission substations and 4,500 large substations for distribution. And, just as importantly, there are over 3,000 entities—each with a competing agenda—that own a piece of this national electric infrastructure. Actually, it’s not a truly cohesive infrastructure at all. Many countries around the world have one national electric grid. We don’t. Ours is fragmented, to say the least, and this makes it hard to implement technical and political “repairs.”

In addition to being fragmented, our electric infrastructure today is aging, outmoded, underfunded and overstressed. Basically, we’re talking about a 19th century system from the days of Edison and Westinghouse that uses 20th century equipment in an effort to keep up with a 21st century economy. This is the digital age and our electric grid is using electro‐mechanics from the 1960s and 70s rather than microprocessors. Approximately 70 percent of the transformers and transmission lines are 25 years old; and 60 percent of the circuit breakers are 30 or more years old.

We are paying the price for this. Congestion within our current electric infrastructure costs ratepayers $2 billion a year, and commercial ventures are losing more than $100 billion to outages. That’s not all, though. We’re simply not investing in our electric infrastructure. In fact, when it comes to our electric grid, we have an embarrassingly low R&D rate—about 1/20th the average of all U.S. industries.

No wonder that communities with decaying electric infrastructure lose jobs that shift to places with low‐cost, high‐quality power; and no wonder that our country is losing clean‐technology jobs to other nations around the world. The regulators are well intentioned, but they are out of touch. They are still rewarding utilities for installing instantly obsolete equipment, and they are still allowing utilities to sell more power at a time when we need to use less. This is a demand issue—not a supply issue.

The bottom line is that the electric system, as it’s currently configured, is out of sync. Wholesale power transactions jumped more than 300 percent between 2000 and 2005; near misses in terms of outages skyrocketed by 1,000 percent between 1997 and 2002; and there’s no way we can release the pressure by using alternative energy like solar and wind because they require intermittent bursts of power that today’s infrastructure just isn’t capable of providing.

3. What should / could the U.S. electric infrastructure look like if we really focused our energy and resources?

Infrastructure has always been the key to prosperity in the United States—whether it’s been the transcontinental railroad, the interstate highway system, rural electricity, or the telephone or Internet network. And building a smart electricity grid for the 21st century is no different. What we need to aim for is pretty clear. Our goal should be one vast, interconnected, intelligent system that is … Next Page »

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[Updated Jan. 28, with information on Intellectual Ventures' patents (see below)]
If its volume of new patents is any indication, Microsoft is going to be just fine. The Redmond, WA, software firm blew away the rest of Washington state in terms of the number of patents it was granted last year. That’s according to IFI Patent Intelligence, based in Wilmington, DE, which recently released a national survey of patent grants for 2008. Xconomy obtained the figures for Washington state, as well as Massachusetts and California. (See the list of Washington’s top 25 patent winners below.)

Patent awards are, of course, just one measure of an organization’s competitiveness and inventiveness. It’s hard to draw definitive conclusions about a company’s ability to innovate based on its number of patents, say—imagine trying to compare a biotech company with an electronics firm, or a young software startup with an established powerhouse. But it’s still a key measure of an organization’s investment in its intellectual property.

Microsoft’s tally (2,030) is greater than the rest of Washington’s top 25 combined. It was good enough for fourth place nationally, behind IBM (4,186), Samsung (3,515), and Canon (2,114), and ahead of Intel (1,776). In Washington state, Sharp Laboratories and the University of Washington were a distant second and third, respectively.

A few other notables. Boeing is fairly low on the list (16th), in part because the figures only count patents awarded to each organization’s operations in Washington; patents awarded to offices or operations outside the state are not included in this list. Amazon ranks pretty low as well (12th), and Bellevue-based Intellectual Ventures, the invention company, is in 8th place, listed as “Searete.” Lastly, there was a seemingly random tie for 5th place between forestry firm Weyerhaeuser (which just closed two of its Washington mills this week) and biotech company ZymoGenetics (which just bought back the rights to its lead cancer drug candidate today).

Without further ado, here’s Washington state’s top 25 patent winners in 2008:

1. Microsoft — 2,030
2. Sharp Laboratories of America — 144
3. University of Washington — 47
4. Battelle Memorial Institute — 33
5. (tie)
Weyerhaeuser — 28
ZymoGenetics — 28 … Next Page »

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Massachusetts is home to perhaps the world’s greatest concentration of top colleges and universities, many of them rich in the science and engineering education that forms the backbone of our high-tech economy. But one rap the Bay State has taken is that many graduates leave for jobs on the West Coast and other places rather than stay here, where they might join or even form companies and fuel economic growth.

One of the best ways to get students to stay in Massachusetts after graduation is to better connect them with ideas and job opportunities, local business proponents argue. One of the best ways for them to do that is to join industry associations or attend events where they can meet entrepreneurs, venture capitalists, and company executives. There’s a catch, though: joining those organizations and attending those events often costs money—more than many students can afford.

These problems just got easier for students in the Boston area to handle. Today, Flybridge Capital Partners is announcing Stay in MA, a scholarship program that provides up to $100 per student per event for students to attend the events of business and technology organizations in the state. Funds can also be used to cover the costs of joining trade associations and other organizations. The program, initially funded with $5,000 from Flybridge, is open to both undergraduate and graduate students at any university or college. It has the initial backing—sure to grow—of six other companies and groups. Xconomy, which has since September been offering steep student discounts to all our events, is proud to be a charter participant in the program—and starting today all of our events are eligible for Stay in MA scholarships. Other charter participants include: the Massachusetts Network Communications Council, the Massachusetts Innovation & Technology Exchange (MITX), the New England Clean Energy Council, SEMNE (Search Engine Marketing New England), and TiE Boston.

“We’ve just been reading about the tragedy in Massachusetts of all this fantastic talent graduating out of the state, and that is the talent we need to fuel our innovation economy,” says Flybridge general partner Jeff Bussgang. “And one of the claims is that students don’t know where to plug into the business community.

“In this job environment in particular, no one’s going to get a job at a small company by sending out a blind resume,” Bussgang continues. “A student has to be in the mix, they have to be at the networking events, they have to show up.” But with tickets running $50, $100, and up, “it’s a real barrier” to attendance, especially if a student wants to attend several events a year, he says. The purpose of the new program, of course, is to eliminate or greatly reduce that barrier. “It’s about sending the signal to the student community, that the Massachusetts…business community really welcomes them, really wants them.”

To apply, students fill out a simple form, providing basic details such as their contact information, the name of the event, and a few sentences about why they’d like to attend. If accepted, Flybridge will buy them the ticket they seek.

One of the leading voices on the need to encourage students to stay in the Bay State is Boston Globe columnist Scott Kirsner—and Flybridge says his commentary played a role in its decision to launch the program. You can find one of his personal blogs on the subject here.

Bussgang also says that while Flybridge is putting up $5,000 to start, he hopes other firms step forth to contribute. “We’ll see how that plays out.” Hopefully the pot will grow—and quickly.

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In a report released Tuesday, the Information Technology and Innovation Foundation (ITIF) and the Ewing Marion Kauffman Foundation named Massachusetts the nation’s leading state when it comes to the structural economic factors that make the state’s businesses competitive in the “New Economy”—defined as global, entrepreneurial, knowledge-based, rooted in information technologies, and innovation-driven.

Massachusetts hung onto its #1 ranking from the foundations’ 2007 report, with a score of 97 on an index aggregating some 29 measures, from the educational attainment of the workforce to the quantity of exports, the amount of job churn, the penetration of broadband Internet access, venture capital activity, and the number of patents issued to local inventors.

Washington state, meanwhile, climbed from the number-four spot in 2007 to the second-place spot in this year’s report, with a score of 81.9. Maryland (80), Delaware (79.3), and New Jersey (77) were close behind.

The top-ranked states, according to an announcement from the Kauffman foundation, are rich in “knowledge jobs” requiring at least a two-year degree. They all show above-average levels of entrepreneurship, have large numbers of citizens who use the Internet, and benefit from large numbers of skilled immigrants, both from other states and from other countries.

Massachusetts’ New England neighbors Connecticut, Rhode Island, New Hampshire, and Vermont fared well in the rankings, placing 6th, 11th, 13th, and 19th, respectively. Washington’s neighbor Oregon came in 15th. The five lowest-ranking states were, in reverse order, Mississippi, West Virgina, Arkansas, Alabama, and Wyoming.

“To succeed in the New Economy, states face a new imperative to boost the competitiveness of their economies—not just relative to each other, but to other nations,” Robert Atkinson, president of ITIF and primary author of the report, said in the announcement. “If they are going to meet the economic challenges of the future, states will need to overhaul their familiar approaches to economic development.”

Of course, having picked Boston as our first home city and Seattle as our second, we here at Xconomy could have predicted the study’s results. But California, home to our third bureau in San Diego, may have some catching up to do. It dropped from 5th place in the 2007 report to 8th place this year, with a score of 75.

Here’s the complete rundown:

* Rounded to nearest integer.

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The nascent New England Biotech Association, an umbrella group comprised of trade associations from all six New England states, held its first board meeting yesterday, the Boston Globe reports. The group is chaired by Paula Newton, President of the New Hampshire Bio/Medical Council. According to its website, “NEBA is committed to ensuring the region remains a global leader in biotechnology and the life sciences.”

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Heartland Robotics, the two-month-old industrial robotics startup MIT computer science guru Rod Brooks envisions as an engine for revitalizing the American workforce, has ramped up its own workforce while making some key changes at the top, Xconomy has learned. Founding CEO Ken Zolot has departed and will no longer be involved in company operations. Meanwhile, the company has hired veteran technology company executive Patrick Sobalvarro, who founded surveillance video analysis software company IntelliVid, as President.

“I’m running the development team, and he’s running everything else I guess is the way to describe it,” founder, chairman and CTO Brooks told me yesterday when speaking of Sobalvarro. No one holds the CEO title, at least for the time being: “Title, schmitle,” Brooks quips. “We’re a team.”

Xconomy got the inside scoop on Heartland’s creation from Brooks and Zolot (both Xconomists) back in early September. So it was something of a surprise when Zolot informed me this week he had stepped down. Neither he nor Brooks, both of whom are true professionals, would comment on whether there was any split between them. Zolot merely said he felt he had done his job by helping get the company off the ground. Meanwhile, about all Brooks would say was: “Ken wanted to move on.”

As far as the rest of Heartland’s progress goes, Brooks was pretty tight-lipped—but did shares a few details. The company, headquartered on Massachusetts Avenue in the heart of Cambridge’s Central Square, only had one or two employees when we spoke in September—and they were telecommuters. As of October 20 (the day that Sobalvarro started), that has changed, says Brooks. “The office got real on the 20th, and people have been filing in the door ever since. Today there are nine of us there,” says Brooks. “We’re working hard, and things are going well.” There are even a couple of robots to be seen, as employees get various systems up and running.

For his part, Sobalvarro is a veteran executive who got his undergraduate, master’s, and PhD degrees in computer science from MIT, where he met Brooks. “I’ve known Patrick for a long, long time,” says Brooks. “He was at the AI Lab [MIT's Artificial Intelligence Laboratory] way back in the early 80s.” In fact, Sobalvarro temporarily dropped out of MIT as an undergraduate to work as a research staff member in the AI Lab, when Brooks was there as a post-doc. A few years later, he joined Lucid, a Silicon Valley startup Brooks co-founded with some Stanford folks. The work he did for Lucid gave him enough money to return to MIT.

Since that time Sobalvarro has held management roles at a host of technology companies, including Digital Equipment and Sun Microsystems, as well as several startups. He also worked at Boston Consulting Group and served as a senior principal at Flagship Ventures before founding (in 2002) IntelliVid, which was sold to Tyco International for an undisclosed sum in July. Sobalvarro was working at Tyco until joining Heartland.

And he sounds pumped. “I worked for Tyco for about three months, and when … Next Page »

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Last week, I was honored to give a keynote speech in Dublin, Ireland, at an international symposium marking the launch of the nation’s ambitious new R&D program in energy by its NSF equivalent, the Science Foundation of Ireland (SFI). The Symposium on Science and Engineering Underpinning Sustainable Energies and Energy-Efficiency was an excellent opportunity to reflect on what I think is one of the key elements to successful regional economic prosperity—the development of a vibrant innovation ecosystem.

With my colleague, Ken Morse (Managing Director of the MIT Entrepreneurship Center and an Xconomist), we have been involved first hand in the successful and unsuccessful development of over a dozen such ecosystems, and we have seen what has worked and what has not worked—with often-surprising results. Ireland provided an exciting clean slate platform to apply the framework for success and get feedback for refining the frameworks (based on the initial feedback, our ideas are clearly resonating). For if we are to succeed in optimal fashion in energy innovation, it is essential that we develop regional innovation clusters. Towards this end, we should make use of historical lessons to accelerate our success—and the good news in this regard is that there are some relatively simple leverage points that can be deployed which will have significant impact.

Like many Americans, especially in Boston, I have roots in Ireland. Distant as they are, Ireland has always held some magic for me. That magic was further catalyzed 19 years ago, when I visited with an American basketball team and we traveled that beautiful country playing games and then drinking Guinness from Cork to Galway to Dublin to Donegal to Belfast and a number of places in between. I don’t remember the scores of any of the games, but no one on our trip can forget the legendary memories we took back, which were later written up in a Sports Illustrated article that I keep framed on my wall at home. [Editor's note: that article was written by his teammate, backup shooting guard Bob "Danger" Buderi, founder of Xconomy.] The parade through Donegal with the mayor and the town’s children was one of the most priceless moments of our lives.

The people and the land exceeded the expectations we had—and yet all of this was in the context of an economic situation that we could not fathom at the time. There was little economic vitality, and we met a number of people who had been without work for over a decade and had little hope left on that front.

Last week, I returned to see the “Irish Economic Miracle” first hand. It is truly amazing and a shining inspiration for others throughout the world. I know, because I have been asked about it in places such as the United Arab Emirates, Denmark, Pakistan, Sweden, and Saudi Arabia. Leaders in those countries thirst to have a similar scenario in their lands and want to know how Ireland was so successful.

Well, now the question I posed at the aforementioned speech in Ireland is, “How do you keep it up and keep the economic renaissance moving forward as the global economy undergoes a metamorphosis of galactic proportions?”

The answer, and it doesn’t just hold true for Ireland, is energy innovation. There is no bigger challenge than to help transform our energy position—no bigger responsibility and no bigger opportunity.

So what I offer now is my perspective, based on our deep experience, on how regions can seize this opportunity, and more specifically how organizations like Science Foundation of Ireland can become leaders and full participants in the transformation of the world’s largest industry.

First, by providing leading-edge science, engineering, and mathematics research, SFI and other similar government agencies will help to produce the innovation needed, thereby putting their nations front and center as a role model for others.

But to understand how to most effectively achieve this, I believe it is essential to take a systems view to provide a broader context for the role of research and invention—hopefully in order to alter the traditional mindset so organizations such as SFI can be more effective going forward.

For example, using SFI as our test case, I would like to start with the first line of the organization’s objectives: “Science Foundation Ireland supports science, engineering and mathematics research with consequences in Ireland.” I will focus on three key words in this statement “research with consequences.” Trying to connect with my distant Irish roots, I could not help but have this translated to Gaelic—”taighde le torthai”—which means “research bearing fruits.”

It is these fruits that I will focus on, because to the degree that SFI can ensure that the research breakthroughs developed in Ireland are put to effective use, the organization will gain relevance.

So it is “torthai,” or consequences, that we seek. That being the case, a closer definition of consequences is merited.

At MIT, we love equations. They are simple and crystal clear. So, in that vein, let me take a minute to drill down on what consequences really are and how they relate to the research done at SFI.

Consequences are what we refer to as innovation. Innovation is something that generates value. For example, innovation helps companies make more money; it can materially reduce greenhouse gases; and it can materially enhance energy security for countries through greater independence.

As Ed Roberts, a professor at MIT’s Sloan School of Management and chair of the MIT Entrepreneurship Center, so aptly described it in a simple equation: … Next Page »

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