Seen at Sixteen

Spent half a day at mile 16 vantage point for the Boston Marathon, which is conveniently down the street from my house. Beautiful day to set up a folding chair in the sun, start on one of yesterday’s crossword puzzles and wait for the race to come to me.

First, the wheelchairs. Then the elite women. Then the elite men. All pretty inspiring. But the most inspiring is the next following couple of hours, when the remainder of the field, the vast majority of the 30,000 bib holders, trudge up the hill from Wellesley and the Charles River valley, crest with exhaustion, exhale, and start to trot down-hill towards the real “Newton Hills.”

Best sights at Sixteen:

The man with greying temples who stopped to carefully pet my dog. Must have been a hard hill for him, as he gave Popcorn the longest petting of the day.

The runners with broad bands of colored tape running up their legs and backs; informed by a runner standing nearby that the tape helped the muscles stretch.

People responding to their names, some on their shirts, some inked onto their arms or thighs. Most raised their arm and waved; some, grimly looking ahead, seemingly did not hear.

Amazing array of body types, from the lithe to the improbable. Very few with tattoos, I am sure tattoos were vastly unrepresented; something interesting about runners I suspect…

Shirts of all types, with schools and countries and running clubs and taverns and causes and diseases of all sorts being displayed, advertised, supported, stamped out.

Great empathy for a man roughly my age lumbering up the hill, so slowly you could easily read his shirt, which said in large letters: Just Do Not Suck.

But the best shirt must go to the man running with a guide next to him. Both had on the backs of their black shirts: The Voice inside of you that says you cannot do this is a Liar. He was past me onto the downhill until I realized he had no legs; his two metal blades sprung him downward towards Boston.

I was tempted to start calling out “You’re doing great, only 14 more miles to go” but my wife told me that was a sick joke and might not be taken well by the poor runners. She might have been right about that…..

Board Renewal: Some tips

Tell me about your company’s board of directors. Is it, in the words of one panelist, “male, pale and stale”?

An expert panel at the Tuesday breakfast meeting of the National Association of Corporate Directors/New England explored techniques for making sure your board was correct for your company.

As boards tend to “hire in their own image,” there is a certain stagnation in board membership. Further, in public boards at least, people don’t turn over very quickly; only 7% of directors stepped down last year. But board diversity, in every sense, is highly desirable and proven by studies to benefit companies. How do you achieve it?

You must depersonalize the addition and removal of directors. If you need to replace someone on your board, it is not because you don’t value them or their judgment; it is just that you need different skill sets to deal with the company’s business issues.

Another technique is a rigorous program of board self-evaluations; most boards now evaluate at the board and committee levels but only 10% of public companies do a 360° analysis of each individual director. Advising a director as to how he or she is performing is not only good for the company, but also is a wakeup call for the director to either improve or to self-select off the board.

The panel also debunked the idea that you cannot find qualified women, or qualified diverse candidates ethnically, racially, geographically. All you have to do is look; there is quite a supply.

Larger company boards, with a tendency to look for CEOs, must get out of that habit; there are very few CEOs who are not white males. CEOs are over-shopped and women and minorities of great skill are “under shopped” when it comes to board invitations. Since activist investors are hunting for weak boards of directors at all levels, not just the largest of companies, it is important for boards to find the right people with the right skill sets and the right chemistry.

Finally, what about age and term limits? You don’t want to lose institutional memory, but you need to have age diversity. One idea: look at the average age and tenure of your board, don’t apply an age/tenure screen on any given individual. One panelist called this an “age/length of service matrix.”

Whoops– sorry, Mr and Mrs Price

Did you ever stick your foot so deep in your mouth that it took major surgery to extract it?

After the Red Sox opening day game, at which our new Ace, David Price, and our new prime reliever, each gave up three run homers (Sox lost to the Orioles), my wife and I stopped into one of our favorite restaurants for a bite to eat and to let the crowds subside.  Seated next to another couple who clearly had attended the game, I mouthed off about how we spent a zillion dollars and nonetheless this guy Price had stunk up Fenway Park.

Later in the conversation, Laura noted the Southern accents and asked where the other couple were from.  Tennessee, we were told.  Just up for the game, we asked.  Oh yes, they replied; we always travel to see our son David pitch.

David Price’s mom Debbie was most cordial about it.  The dad?  Well he shook my hand but I do think he would have preferred to not have.


Where’s the Money for Drug Development?

Emerging life science companies always need money. Some seek non-dilutive money through research grants, government programs and the like. Others deal with angels and seed round and Round A investors.

Another source of possible funding, often over-looked, can be afforded through major drug and pharmaceutical companies. For example:

Johnson & Johnson has opened a facility in Cambridge (the geography is of course no surprise), which has a large investment fund, as well as access to incubator space (the space is at market rate).

Roche, similarly in Cambridge, has several programs; one is an investment arm but there are a couple of programs for fundamentally innovative technologies which are still primarily rooted in academia; they are willing, without equity claim, to support promising science on behalf of scientists still embedded in an academic setting.

The large and privately-held pharmaceutical company Boehringer Ingelheim has programs in Cambridge not only for investment but also for counselling companies and investors seeking to navigate working with larger pharmas.

Of course each company has its preferred technological targets, so approaches must be tailored. However, given the huge shift in emphasis away from drug development and internal innovation, to reliance on outside innovation, it is logical for these larger companies to nurture the external ecosystem. For example, at J&J in 2002 external drug development accounted for 20% of new products while in 2012 (last reporting year) it accounted for 50%; the statistics for the top ten pharmas are 16% and 33% respectively; at Roche 35% of all sales are based upon externally developed products.

About Ovaries

The science of in vitro fertilization (IVF) has not advanced much in the last 20 years, but a small public company is trying to change all that. A presentation by the CFO of OvaScience, to a Thursday morning meeting of the Boston Chapter of the Association for Corporate Growth, described innovative programs in place or in development to improve the surprisingly low success rate of such procedures.

First, some statistical orientation. World-wide, 40,000,000 women per year seek medical advice and treatment for fertility issues. Of those, something under 2,000,000 per year undergo IVF (2012 statistic). Surprisingly, only about 11% or 12% of that number is in North America; the largest gross market is in Europe, and the largest single market is in Japan.

Fertility falls off rapidly in the 30s, and is really low by the time a woman turns 40. The success of IVF in this population is generally in the upper 20% range, although Japan for a variety of reasons is in the 17% to 18% range (perhaps because women tend to work longer there and start families later).

OvaScience is operating in 6 countries (not the United States) utilizing technologies which work only by utilization of a woman’s own body. The currently operant procedure is to augment the health of an older woman’s egg cells by extracting mitochondria from cells in the ovarian wall (cortex) and injecting it into active eggs within the ovary itself; mitochondria is sometimes described as the “engine” which provides energy to a given cell.

Future therapies being explored include replanting young cells in their entity from the cortex into the center of the ovary, and growing eggs from the cortex entirely in vitro (outside the human body).

Why no operations in the United States? While there are some regulatory issues involving, inevitably, the FDA (which unlike other countries does not have a dedicated function to fertility), the largest reason is “religious objection.”

CEOs and Presidential Elections

Election years cause many CEOs to constrict their corporate plans.  It happens every Presidential election year.  It is most manifest among Republican CEOs.  It is not necessarily the most benign development for the health of the business.

This insight comes courtesy of Tom Sherwin, who ought to know; he is principal of CEO Resources, a firm devoted to coaching CEOs and with clients both in Massachusetts and nationally.  Is this generalization supportable, I had the temerity to ask over a pleasant lunch today?  Seems Tom’s office went back to check his own firm’s business level in election years.  Dips in his consulting business for his regular clients, reflecting corporate inaction, occurred during each Presidential election year; a spurt of activity followed, starting right after the election without regard to the prevailing party, including unleashing of long-discussed plans which were put on hold during the course of the election season.

Tom pointed out that he does not discuss politics with clients, it is not his business.  But the business dynamic is something he may counsel about, as it is predictable and seemingly not wholly dependent on the candidates or issues of the day.

Not often you learn something new and interesting and systemic at lunch.

Governance Tip: Do not steal from your Non-profit

No big surprises about what gets non-profits into trouble with the Massachusetts Attorney General: it is not a good idea to steal, or for the board to govern so laxly that others can steal.

At Tuesday’s Boston breakfast panel presented by the National Association of Corporate Directors-New England, board experts and a representative of the Massachusetts AG’s office (which supervises public non-profits) discussed good governance for non-profit entities.

One theme was how to structure the board of directors most effectively. The larger the organization, the more likely that a board of directors will assume a strategic role; in smaller non-profits (there are 23,000 non-profits in Massachusetts), it is not uncommon to find board members actually doing the day-to-day work. But as organizations get larger, board members must understand that they are there to guide, and not “to do.”

One audience member asked (likely in light of the Harvard Endowment) what the role of the board might be in balancing between the size of an endowment and operational needs. While boards generally establish a spend rate of between 4.5% and 5.5% as prudent, one panelist urged recognition that an endowment was also a rainy day fund for dire circumstances. The panel avoided directly engaging the issue of systematic reduction of allegedly excessive endowments in order to support ongoing operations and reduce charges, tuitions, etc.

How much to pay your CEO? There are resources available to understand the marketplace, from consultants to the Federal 990 reports which provide compensation information in detail (posted on the Massachusetts AG’s website). No need to overpay. However, how can you compensate skilled executives, now moving from the for-profit arena into larger non-profits, who may be willing to work for less money but who have retirement needs which cannot be met (in a non-profit) by such things as stock options? The compensation to senior non-profit executives becomes very sensitive in social service non-profits, the clients of which are poorer people for whom “retirement benefits” are an unobtainable concept.

There was general consensus that large boards are unwieldy, that boards should have a robust committee system to do much of the work, and that financial heavy hitters on non-profit boards need to be invested in the mission but should not expect to have undue influence in how monies are spent just by reason of the size of their checks. If real control of expenditures is sought by a large donor, a restricted gift should be considered; imposing the will of heavy hitters on the operation of an organization through board pressure is not prudent management.

Revenge of the Bloody Sock….

About a half hour ago the SEC announced it has sued an agency of the State of Rhode Island and the firm of Wells Fargo, as well as several individuals, for fraud in the offering of $50M of bonds by the State to in turn fund 38 Studios in its development of Curt Schillings’ promised video game.  Seems that no one remembered to mention that Schilling had made clear that they needed $75M to finish the project; perhaps the $25M shortfall was not deemed material?

The action reflects growing SEC focus on governmental offerings; first, an attack on the financial links between underwriters and political contributions and, lately, substantive focus on the offerings themselves.


In ancillary cases, two individuals have settled related claims for (unadmitted) aiding and abetting the fraud, a financial advisor to the State settled a claim of failure to document services, and action continues against the State, Wells Fargo and another individual.

As if the State of Rhode Island hasn’t been through enough on this….

How to Not Understand the SEC about Finders

This morning, Mary Jo White (Chair of the SEC) addressed a meeting of the SEC Advisory Committee on Small and Emerging Companies and checklisted certain areas of SEC activity.  In reference to the issue of whether “finders and other intermediaries” in small business capital raises should be regulated, which the Staff “continues to review,”  there was NO mention of the deregulation of finders and intermediaries in the M&A area.

This notwithstanding over a decade of heated debate, proposed legislation, and Bar Association recommendations to deregulate M&A finders and brokers, or subject them to a so-called “Broker Dealer Lite” regimen.

Maybe White assumed the M&A issue was subsumed in her list.  Maybe she did not think the M&A issue is particular to small and emerging companies (which btw is incorrect).  Maybe….

In the immortal words of somebody: “go figure.”

Patent, Trademark Protection in China? Maybe so…..

Mainland China’s historic reputation of riding rough-shod over intellectual property rights seems, at least as to matters of form, something of the past. In a presentation to the Boston Bar Association on February 18th, a team of intellectual property attorneys from Beijing presented highlights of new Chinese intellectual property legislation designed to protect trademarks and patents.

Interesting particularly is the level of civil litigation relative to the enforcement of trademarks. While the definition of “infringement” differs somewhat from American practice, numerous cases (particularly clashes between American companies and indigenous trademark holders) seem vigorous and far-reaching.

On the patent front, particularly focusing on patent protection for biologics and pharmaceuticals, it seems (as here in the United States) that the skill of the draftsman of the patent application is essential, particularly since certain items of intellectual property are not generally thought to be patentable under Chinese law: methods for diagnosis, therapeutic methods, new dosage regimes. There also are differences with American practice, including a certain inflexibility for the introduction of critical data arising after the patent application has been filed. Also interesting is the timeline for the patent process; upon filing, you have 36 months to request an examination (of course most filers opt for shorter periods), and the average processing time thereafter to reach a decision is 21.8 months. There is a procedure for reexamination of denials, with the average reexamination period 12.5 months. There is also a method for challenging an existing patent, and the average processing time for invalidation requests is 6.6 months.

Finally, there is an accelerated patent process available for applications containing at least one allowable U.S. claim, the so-called PPH (Patent Prosecution Highway).

It may be too early to tell the net practical effect of current Mainland China patent practices, but in terms of both governmental structure and the organization and activity of the private patent bar, there is reason to hope for a robust system of protection in the future.