Sequenom’s shares plunged nearly 70 percent in after-hours trading today after the San Diego biotech said it was postponing its launch of a Down syndrome test due to “mishandling” of R&D test data. The price of Sequenom (NASDAQ: SQNM) shares fell from $14.91 at the close to $4.69 at 7:36 p.m. ET.

Sequenom had planned to launch its genetic test, called SEQureDx, in June. In a statement released after the market closed, Sequenom described the delayed launch as a “temporary setback” and said the SEQureDx technology “is scientifically and technically sound.” SEQureDx is intended to test a pregnant mother’s blood sample.

But the company did not explain how research and development data for SEQureDx was mishandled. “All I can really say is that during a management review of the data we discovered inconsistencies, which led to the discovery of mishandling of data,” Sequenom spokesman Ian Clements said late today.

The disclosure prompted the board to form a special committee of independent directors to oversee an investigation “of the employees’ activity related to the test data and results.” Sequenom said the incident also has prompted a review of data supporting its Cystic Fibrosis, Fetalxy, and Rhesus D tests, which Clements said also is expected to push back the release of those tests. “We don’t currently believe that data is affected, but we don’t want to take any risks,” Clements said. As a result, those tests are now anticipated to begin launching in the third quarter of this year.

Sequenom said the questioned data has not changed its plans for using parallel RNA- and DNA-based methods to test for Down syndrome, and the company will endeavor to have a validated test completed by the end of this year.

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Focus groups are such a standard part of our market-driven culture that they’ve long since become the subject of parody. Decision-makers are seen as being afraid to act without consulting them; surely, no political party would pick a candidate, no legislator would introduce a big policy initiative, and no movie studio would green-light a big-budget film without focus-grouping it first.

But while they may be ridiculed, the truth is that business organizations—especially consumer product companies—still spend quite a bit of money on focus groups. Such ensembles are considered a crucial way to identify products people will buy and weed out bad ones before they’re brought to market.

The rise of the Internet, however, has created faster, cheaper alternatives to the classic eight-people-around-a-table-and-a-whiteboard scenario. Since 2000, Waltham, MA-based Invoke Solutions has been one of the companies running online surveys that, in effect, let market researchers assemble focus groups that are hundreds or thousands strong.

Until recently, Invoke’s surveys were still real-time affairs, conducted at scheduled times. Groups of researchers huddled in control rooms, administering questions, interacting with participants directly, and watching the data pour in. Last year, though, Invoke introduced a new “asynchronous” survey system called Engage that allows volunteers to participate in market studies at any time they choose. And in January, it enhanced the system with new reporting and analytics software that lets Invoke’s clients view and explore the results, via instant PowerPoint presentations and other types of visualizations, as they come in.

Invoke’s president and CEO Ben Cesare, who came by Xconomy’s office a couple of weeks ago, says the response to the new reporting software has been “thrilling.” Within 60 days after Invoke rolled out the Engage Analytics tool, 120 Fortune500 clients were already using it, says Cesare, who joined the company in 2005 and became CEO a year later. The veteran of Apple Computer, Psion, and Agile Software says he’s “not a research guy”—meaning he isn’t steeped in the strategies of giant market-research firms like TNS or Ipsos. But he says he does understand “innovation that works, capturing the information that matters. That’s what I really care about, and that’s what attracted me to Invoke.”

Cesare (pronounced like “Caesar”) argues companies need to embrace market research systematically, the same way they’ve embraced enterprise resource planning (ERP) or customer relationship management (CRM). In fact, he’s got his own three-letter term for what Invoke does—RDM, for research data management.

During his visit, Cesare gave me the basic download about the venture-funded, 55-employee company (which raised a $7 million round one year ago) and its latest accomplishments in the young discipline of RDM. But I started out asking him about the competition—the old fashioned focus group. A greatly abridged version of our conversation follows.

Xconomy: What’s wrong with focus groups?

Ben Cesare: The problem with focus groups is that they are time-consuming and expensive and they give you a small sample size. You could spend a month and a half flying around to six cities and talk to eight people in each city and then find that only three of those eight do all the talking. Are you going to make a call based on the opinions of 18 people? We’ll put you in front of 1,000 people over a week at a fraction of the cost, and all the answers will be believable. There’s no groupthink, no bias in the room. You’re not traveling.

X: So why do companies keep doing them?

BC: You know the old saying—nobody ever got fired for buying IBM. There’s a lot of safety in the same old stuff. People will say, “I have to do my focus group, I have to look those eight people right in the eye.” I submit the opposite. My point of view is that people will …Next Page »

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Creating a new diet soda, deodorant, or dish soap is a notoriously chancy business: consumers are unpredictable, and experience and intuition can only get a product designer so far. But what if you could apply the power of evolution to product development—subjecting various ideas to generation after generation of Darwinian competition, with consumers themselves as the agents of selection, picking which attributes of each product survive into the next generation?

This exact idea was one of the hottest trends in product development—in the year 2000. That was when a group of entrepreneurs and researchers from MIT, with backing from Cambridge, MA-based Flagship Ventures, founded a startup called Affinnova with the goal of applying a new form of mathematics called evolutionary algorithms to the traditionally expensive and time-consuming process of market-testing of new products. The company grabbed a few big clients such as Procter & Gamble, and even attracted imitators like Cambridge’s Icosystem. But eight years on, the field of evolutionary algorithms still hasn’t produced a smash-hit startup; after three rounds of venture financing totaling some $25 million, Affinova is only now approaching profitability.

But the company’s roughest years may be over. While Affinnova (pronounced ” AFF-i-NO-va”) doesn’t release actual sales figures, it says sales in the first half of 2008 were up by more than 60 percent compared to the first half of 2007. Its client base grew by one-third in the same period, and the company is in position to bring in $25 million in revenues next year, according to chief marketing officer Steve Lamoureux.

This growth can be attributed largely to changes made since the arrival of CEO Waleed Al-Atraqchi in 2005, Lamoureux says. (Al-Atraqchi replaced David Andonian, who went on to found Dace Ventures.) “Waleed is a turnaround guy,” he says. “There was an underlying asset that was being underleveraged in the business world. We were top-loaded with PhDs making advances in evolutionary algorithms, but we were putting fewer resources into making that technology understandable and adoptable. One of the things Waleed has done is to balance that out. We’ve taken the technology and made it really streamlined and sticky, and as a result we get a lot of repeat business.”

So, what exactly has Affinnova been doing to evolve its own strategy? Lamoureux and Al-Atraqchi filled me in about two of the company’s initiatives last week when I visited their offices in Waltham. The first, it turned out, was to stop helping companies come up with new product ideas, and start helping them pick between the ones they already had.

When I first became aware of Affinnova around 2002, the company was already a couple of years old, and had been focusing largely on helping designers dream up new product ideas that stood out from the crowd. In one example, the company’s Web-based software created thousands of variations on an old standby–the plastic water bottle—and asked participants in online focus groups to pick the ones with the most exciting combination of shapes, contours, and label colors. The process had the potential to arrive at radical combinations that no human designer would have bothered (or dared) to try, but that tested well with consumers anyway.

But Al-Atraqchi says that when he arrived at Affinnova, “I said, in a sense, let’s not confuse ideation with optimization. Most studies say that companies don’t lack for ideas. Which ones are the best, and what to do with them, are really the big issues, and that’s the problem we should try to solve.”

The company has found a niche, according to Lamoureux, by helping consumer manufacturers bringing out new products find the sweetest spot within a fairly narrow range of pre-determined options. Dannon, for example, came to Affinnova a few years ago for advice on the best way exploit the low-carb craze then sweeping the nation. The company knew it wanted to bring out a new brand of low-carb yogurt; the only question was how to package it. Should the label be teal, as Dannon’s experts thought, or some other color? Should the package hold 6 ounces of yogurt or 8? Should the product be called “Carb Control” or “Carb Smart” or “Carb Oh”?

Affinnova tested combinations of all of these options and more, and was able to determine not only which overall product concept was most appealing to consumers, but which elements were most important to their choices. The winner: a red package branded Carb Control, which went on to become one of the year’s top new food products, earning Dannon $75 million in its first year on shelves. A competing product, Yoplait Ultra, came out in a teal package and failed within a year.

Affinnova has refined its evolutionary process to the point that it can create competitive concepts even for products no one has heard of. As an exercise, Lamoureux paid a design firm to come up with three concepts for the packaging for a hypothetical new product—a cleaner for stainless steel kitchen appliances. The three designs ranged from bright and cheery (targeted at general consumers) to elegant and understated (targeted at older, more affluent consumers). In Affinnova’s tests on real consumers, participants gravitated to …Next Page »

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There’s endless debate about how to encourage more innovation inside technology companies. But in Waltham, MA, there’s a startup that says, in effect, don’t bother: innovation can be outsourced to a global community of freelancers.

InnoCentive was set up by Eli Lilly in 2001 as an experimental way to farm out some of the giant drugmaker’s biggest product development challenges by posting them on the Web and inviting people around the world to submit competing solutions, with a substantial monetary prize as the reward for the winner. Two years ago, Lilly spun out the company as an independent venture, and it has since diversified beyond the life sciences to a range of disciplines, such as computer science and cleantech. And today, the organization announced that it’s raised a new pile of venture money—$6.5 million altogether, which it will use to upgrade its platform and expand its network of “solvers,” people who submit solutions in hopes of winning awards that range from $10,000 to $1 million.

It works like this: Companies (called “seekers”) work with InnoCentive to craft a well-defined challenge and pick a dollar amount for the award. InnoCentive then alerts its network of solvers, and those who choose to engage in a particular challenge are given access to online project rooms containing proprietary details about the seeker’s project. At the end of the challenge period, the seeker evaluates the solutions and chooses one as the winner; InnoCentive then helps transfer the rights to the solution from the solver to the seeker’s organization.

It isn’t “crowdsourcing” in the typical Web 2.0 sense of throwing open a problem and soliciting thoughts and contributions from thousands of random Internet surfers. It would be more accurate to describe InnoCentive’s platform as a mechanism for soliciting RFPs (requests for proposals) from a much broader cross-section of experts than any company could reach through the traditional business consulting process. Companies like Procter & Gamble use Innocentive’s system to find new product ideas faster than they might on their own, and the model has even inspired imitators such as Ohio-based Planet Eureka, which launched last month.

The problems posted at InnoCentive range from grand challenges (one seeker is offering $1 million for a biomarker that can track the progress of amyotrophic lateral sclerosis, or Lou Gehrig’s Disease) to utterly practical, small-scale problems (the Rockefeller Foundation offered $20,000 for a design for a solar-powered wireless router for use in developing countries). To date, solvers have collected over $3 million in awards, according to InnoCentive.

The lead funder in the funding round, InnoCentive’s second, was Spencer Trask Ventures, a New York-based investment network that includes scores of high-net-worth individuals. Lilly also contributed to the round. On Monday I had a phone conversation with InnoCentive CEO Dwayne Spradlin about how the organization plans to use the funds—and about the effectiveness of the prize-based innovation model in general.

Xconomy: It would be great if you could talk a bit about InnoCentive’s current direction, how that has changed over the past few years, and how you plan to use the new cash infusion.

Dwayne Spradlin: The company has been around for about seven years. We were founded under Eli Lilly and spun out as a standalone company a few years ago by Spencer Trask. As you point out, the company is a fair bit different today from a few years ago. The last several years were really about proving the concept—that is, that open innovation could drive remarkable outcomes for organizations that are innovation-hungry and that need better, faster, cheaper product development and time to market.

Now it’s ready for prime time. In the past six months, we’ve added challenge categories including business and entrepreneurship, engineering and design, physical sciences, and mathematics and computer sciences. We’ve increased the number of tools we offer—we used to focus on deep research-type tools but now we also offer “ideation” tools that help large numbers of people brainstorm very quickly, and electronic RFPs so that clients can find business partners very quickly, and help managing intellectual property rights. So we’ve gone beyond the proof-of-concept stage to the stage of getting InnoCentive into the hands of as many organizations as possible. We and the investors in InnoCentive believe this is the time to expand.

The $6.5 million is earmarked for expansion in three areas: First, our sales and marketing footprint, really getting feet into the street to evangelize the product. Second, expanding our solver community, which is 140,000 strong, but we have about 5 billion …Next Page »

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