REPOST: Biotechnology: The start-up engine

A company composed of biotech elites, Third Rock Ventures took risks as they ventured the industry of biotechnology. Find out how the Boston-based company gained success in this article from Nature.com.

Bioengineer Mikhail Shapiro got a rude shock one day when he arrived for work at Third Rock Ventures, then a brand-new venture-capital firm headed by a handful of biotech elites. Only three weeks into his internship, Shapiro found a notice on the door: “Closed for business.” Inside, 'For sale' signs hung on desks, equipment, everything — even the office's giant gumball machine. The company had folded, a note explained, because it could not raise enough money.

Kevin Starr (right) and Mark Levin founded one of the hottest venture-capital firms in biotechnology.
Image Source: www.nature.com

Kevin Starr, a partner at Third Rock, still beams with pride over that 2007 prank, which he and his confederates had filmed to capture Shapiro's reaction. “You could tell Mikhail was thinking, 'I knew that was going to happen to these guys!'” he recalls.

Few would fault Shapiro, now a professor at the California Institute of Technology in Pasadena, for his credulity. By 2007, the technology bubble of the early 2000s had burst, and investors were baulking at the long timelines and high failure rates involved in getting biotechnology products to the market. People laughed, says Starr, when he and Third Rock's other founders told them that the company wanted to raise US$378 million to create an investment fund to build biotech companies from scratch. “They advised us to aim for about a tenth of that.”

But Third Rock, based in Boston, Massachusetts, did raise its initial fund, and it has not slowed down since. The company has brought in $1.3 billion and invested in more than 30 young companies, many based on cutting-edge research in fields such as cancer epigenetics, gene therapy and medical diagnostics (see 'Due diligence').

Image Source: www.nature.com

Products are only just starting to trickle out into clinical testing, but this year brought several signs that the firm has bet well. In January, Third Rock sold off Lotus Tissue Repair — a tissue-engineering company with an experimental therapy for a devastating rare disease that weakens skin. The deal could garner a 20-fold return for Third Rock if Lotus meets certain milestones. In March, Third Rock's third round of funding — $516 million to launch up to 16 more companies — had so many aspiring investors that the firm had to turn some away. And this summer, two of Third Rock's companies went public, their share prices soaring the moment they hit the market. As Nature went to press, a third firm — cancer diagnostics company Foundation Medicine in Cambridge, Massachusetts — was preparing to follow suit.

“For a long time, people said investing in these early-stage companies was not a great idea,” says Robert Langer, a bioengineer at the Massachusetts Institute of Technology (MIT) in Cambridge who has spun off dozens of companies from his research (see Nature 458, 22–24; 2009). “Third Rock has taken that risk and I think it's paying off.”

Laid-back biotech

Since 2007, Third Rock has expanded its offices on Boston's trendy Newbury Street — a neighbourhood filled with high-end boutiques and cafes. On a flaming day this summer, Starr sits in his office arrayed in silver jewellery, camouflage shorts and a green T-shirt that reads “Beach Punk 1982”. A standard business shirt bides its time on a hanger behind the door.

Starr's laid-back style has found lots of attention in the business press, and it serves as a reminder that he does not have to be here. In 2003, he left a post as chief operating officer of Millennium Pharmaceuticals, a Cambridge-based biotech powerhouse that had just launched the blockbuster cancer drug Velcade (bortezomib). Millennium founder Mark Levin retired some time after Starr, and the two did the usual things that young retirees with plenty of money do — travelling the world and producing independent films and Broadway shows. In 2006, Starr says, during an annual pilgrimage to the golf courses and blackjack tables of Las Vegas, Nevada, Levin turned to him and said, “Hey Kev, why don't we just go do something again?”

Venture capital has a pivotal role in transforming science into medical advances, supporting companies during the long, lean, research-intensive years before they have any hope of turning a profit. In the United States, biotech soaks up billions of dollars in venture capital each year, second only to the software industry. In the mid-2000s, infusions into fledgling companies made up just a tiny fraction of that investment. Most of the money was going to established companies, often with products already in clinical testing. But the pharmaceutical industry was tightening internal research budgets and looking to small biotechnology firms for new medicines.

Amid that changing landscape, Starr and Levin saw an opportunity. There would be demand for innovative biotechnology companies, yet few venture capitalists were in a position to fill it. Through a series of meetings at Starbucks, Levin and Starr assembled a skeleton crew of biotech nobility and mapped out their ideal venture-capital firm.

Standing out

Levin, Starr and Bob Tepper, former head of research and development at Millennium, wanted to do things differently from typical venture capitalists, who sift through ideas and business proposals from external researchers, help to set up a company and then hand over control to a newly recruited executive team. Starr says that he and his co-founders wanted to recreate some of the magic they had felt at Millennium, carrying over its 'anything is possible' mantra. They would hire only the best people, even if that meant interviewing candidates for months. And, rather than relying on proposals from the outside, they would focus on the hottest science, mostly investing in companies conceived by Third Rock's team. “Last year we saw 982 outside plans,” says Starr. “We invested in zero.”

All venture capitalists need to understand the science behind their investments, but Shapiro, who has since worked with other venture-capital firms, says that Third Rock is unique in how far its members personally immerse themselves in the details. “It's a bunch of nerds,” he says. “You're in a commercial setting, but the rigour of the science was as high as it was at MIT or Caltech.” Of the more than 40 employees now at Third Rock, only Levin, a chemical engineer by training, had worked in venture capital before. The rest had trained in the trenches as scientists, physicians and biotech business leaders. “They have decades of real, hands-on experience,” says Michelle Dipp, a venture capitalist at the Longwood Fund in Boston. “It's an incredibly talented team.”

Third Rock also takes its time handing over the reins of its companies to outside executives; it often waits 18 months or longer. That is important for luring top talent, says Langer. “A lot of good chief executives are not willing to take the risk with a new company,” he says. “With Third Rock, rather than getting the company when it's a newborn baby, a new executive is getting a pretty active 2-year-old.”

Finding newborns to raise means exploring promising ideas, something that Third Rock spends about one-third of its time doing. Those that pass muster get up to $2 million and must go through a rigorous and lengthy screening process that employees refer to as the 'Third Rock Ultra Killer Kriteria' (TRUKK). Independent labs must be able to replicate key findings and find no warning signs of toxicity for drug candidates.

A San Diego, CA-based business development manager, Janique Goff is a supporter of environment-friendly technologies and projects. She has been promoting companies involved in biotechnology for several years now. More links to related articles can be found on this Facebook page.

REPOST: The Surprisingly Large Energy Footprint of the Digital Economy

Depending on usage, smartphones and other digital devices can consume more energy than other electronic appliances in the average home. Bryan Walsh of Time exposes the mechanics of large energy consumption. This article plus annotations on the details of energy consumption and production can be viewed in full at Time.com.

A server room at a data center. One data center can use enough electricity to power 180,000 homes
Image source: Time.com

Which uses more electricity: the iPhone in your pocket, or the refrigerator humming in your kitchen? Hard as it might be to believe, the answer is probably the iPhone. As you can read in a post on a new report by Mark Mills — the CEO of the Digital Power Group, a tech- and investment-advisory firm — a medium-size refrigerator that qualifies for the Environmental Protection Agency’s Energy Star rating will use about 322 kW-h a year. The average iPhone, according to Mills’ calculations, uses about 361 kW-h a year once the wireless connections, data usage and battery charging are tallied up. And the iPhone — even the latest iteration — doesn’t even keep your beer cold. (Hat tip to the Breakthrough Institute for noting the report first.)

As our lives migrate to the digital cloud — and as more and more wireless devices of all sorts become part of our lives — the electrons will follow. And that shift underscores how challenging it will be to reduce electricity use and carbon emissions even as we become more efficient.

Here’s an example: the New Republic recently ran a story arguing that the greenest building in New York City — the Bank of America Tower, which earned the Leadership in Energy and Environmental Design’s (LEED) highest Platinum rating — was actually one of the city’s biggest energy hogs. Author Sam Roudman argued that all the skyscraper’s environmentally friendly add-ons — the waterless urinals, the daylight dimming controls, the rainwater harvesting — were outweighed by the fact that the building used “more energy per square foot than any comparably sized office building in Manhattan,” consuming more than twice as much energy per square foot as the 80-year-old (though recently renovated) Empire State Building.

Why did an ultra-green tower need so much electricity? The major culprit was the building’s trading floors, full of fields of energy-thirsty workstations with five computers to a desk:

Assuming no one turns these computers off, in a year one of these desks uses roughly the energy it takes a 25-mile-per-gallon car engine to travel more than 4,500 miles. The servers supporting all those desks also require enormous energy, as do the systems that heat, cool and light the massive trading floors beyond normal business hours. These spaces take up nearly a third of the Bank of America Tower’s 2.2 million total square feet, yet the building’s developer and architect had no control over how much energy would be required to keep them operational.

I think — and others agree — that the TNR article was unfair. There’s lots of silliness in the LEED ratings system — see this Treehugger post for evidence — but it’s not the Bank of America building itself that’s responsible for that massive carbon footprint. It’s what’s being done inside the building, as those hardworking computers suck electricity 24 hours a day, seven days a week. The fact that a skyscraper with so many cutting-edge, energy-efficient features can still use so much energy because it needs to play a full-time role in the cloud underscores just how electricity-intensive the digital economy can be.

That’s because the cloud uses energy differently than other sectors of the economy. Lighting, heating, cooling, transportation — these are all power uses that have rough limits. As your air conditioner or lightbulb becomes more efficient, you might decide to then use them more often — in energy efficiency, that is what’s known as the rebound effect. But you can only heat your home so much, or drive so far before you reach a period of clearly diminishing returns. Just because my Chevy Volt can get 100 miles per gallon doesn’t mean I’m going to drive back and forth to Washington each day. So it stands to reason that as these appliances become more efficient, we can potentially limit and even reduce energy consumption without losing value — which is indeed what’s happened in recent years in the U.S. and other developed nations.

But the ICT system derives its value from the fact that it’s on all the time. From computer trading floors or massive data centers to your own iPhone, there is no break time, no off period. (I can’t be the only person who keeps his iPhone on at night for emergency calls because I no longer have a home phone.) That means a constant demand for reliable electricity. According to Mills, efficiency improvements in the global ICT system began to slow around 2005, even as global data traffic began to spike thanks to the emergence of wireless broadband for smartphones and tablets. As anyone who has ever tried to husband the battery of a dying smartphone knows, transmitting wireless data — whether via 3G or wi-fi — adds significantly to power use. As the cloud grows bigger and bigger, and we put more and more of our devices on wireless networks, we’ll need more and more electricity. How much? Mills calculates that it takes more electricity to stream a high-definition movie over a wireless network than it would have taken to manufacture and ship a DVD of that same movie.

Look at our smartphones: as they become more powerful, they also use more power. Slate’s Farhad Manjoo called this the “smartphone conundrum” in a piece earlier this year:

Over the next few years, at least until someone develops better battery technology, we’re going to have to choose between smartphone performance and battery life. Don’t worry — phones will keep getting faster. Chip designers will still manage to increase the speed of their chips while conserving a device’s power. The annual doubling in phone performance we’ve seen recently isn’t sustainable, though. Our phones are either going to drain their batteries at ever increasing rates while continuing to get faster — or they’re going to maintain their current, not-great-but-acceptable battery life while sacrificing huge increases in speed. It won’t be possible to do both.

And that’s just our phones. What’s unique about the ICT system is that companies keep introducing entirely new product lines. In 1995, you might have had a desktop computer and perhaps a game system. In 2000, maybe you had a laptop and a basic cell phone. By 2009, you had a laptop and a wireless-connected smartphone. Today you may well have a laptop, a smartphone, a tablet and a streaming device for your digital TV. The even more connected might be wearing a Fitbit tracker, writing notes with a wi-fi-enabled Livescribe pen and tracking their runs with a GPS watch. And there will certainly be more to come, as the best minds of our generation design new devices for us to buy. In a piece yesterday, Manjoo reviewed the Pebble, the first — but almost certainly not the last — major “smartwatch.” At a moment when young people are buying fewer cars and living in smaller spaces — reducing energy needs for transportation and heating/cooling — they’re buying more and more connected devices. Of course the electricity bill is going to go up.

None of this is to argue that energy efficiency isn’t important in the ICT sector. Just as the Bank of America Tower’s green features keep its gigantic electricity demand from ballooning even more, efficient smartphones and laptops can slow the growth of the cloud’s carbon footprint. But grow it will. Energy efficiency has never been a big part of the sales strategy for digital devices, probably because electricity is still cheap in the U.S. and it’s something we pay for in bulk at the end of the month. Compare the feeling of paying your utility bill to the irritation of forking out $3.50 a gallon to fill up your car. The costs of electricity are hidden in our society.

That includes the environmental costs. The full title of Mills’ report is The Cloud Begins With Coal: Big Data, Big Networks, Big Infrastructure and Big Power, and it’s sponsored by the National Mining Association and the American Coalition for Clean Coal Electricity. Unsurprisingly, the report argues that coal — still the single biggest source of electricity in the U.S. — essentially powers our wonderful cloud. (And it is wonderful! The cloud generates a lot of value for all the electricity it uses.) Coal is hardly the only source of electricity that can keep the ICT system going — cleaner natural gas is already gaining, nuclear provides carbon-free base-load power, and renewables are growing fast. Certain aspects of the ICT system will also help reduce energy use, as smart grids and smart meters promote conservation. But users of the wireless cloud are likely to grow from 42.8 million people in 2008 to nearly 1 billion in 2014 — and that’s just the beginning, as smartphones spread from the developed to the developing world. We already have a gigantic digital cloud, and it’s only going to get bigger. What we need is a cleaner one.

*A note on the calculations on smartphone energy use. This comes from an email by Max Luke, a policy associate at the Breakthrough Institute, which posted on Mills’ study:

Last year the average iPhone customer used 1.58 GB of data a month, which times 12 is 19 GB per year. The most recent data put out by a ATKearney for mobile industry association GSMA (p. 69) says that each GB requires 19 kW. That means the average iPhone uses (19kw X 19 GB) 361 kwh of electricity per year. In addition, ATKearney calculates each connection at 23.4 kWh. That brings the total to 384.4 kWh. The electricity used annually to charge the iPhone is 3.5 kWh, raising the total to 388 kWh per year. EPA’s Energy Star shows refrigerators with efficiency as low as 322 kWh annually.

Breakthrough ran the numbers on the iPhone specifically—the Mills’ endnotes (see page 44 in the report) refer to smartphones and tablets more generally—but Luke notes that Mills confirmed the calculations.

As I noted in the update at the top of the post, these estimates are at the very high end—other researchers have argue that power use by smartphones is much lower. And the Mills study itself has come in for strong criticism from other experts, as this MSN post notes:

Gernot Heiser, a professor at the University of New South Wales in Sydney and co-author of a 2010 study on power consumption in smartphones, echoed Koomey’s sentiments that Mills’ work was flawed.

Writing to MSN News, Heiser said Mills’ work “seems blatantly wrong.” He said Mills overestimates the amount of power used by a modern smartphone, in this case a Galaxy S III, by more than four times.

“I’d have to have a quick look to see how they arrive at this figure, but it certainly looks like baloney to me,” Heiser said.

Gang Zhou, an associate professor of computer science at the College of Williams and Mary, was less direct in attacking Mills’ claims, but nonetheless said his measurements for the power consumption of smartphones was at least “one or two magnitude” higher than they should be. Nonetheless, Zhou said the subject of data center electricity usage is an important issue and it “should raise concern.”

Still, I think the takeaway from this isn’t about the energy use of individual brands or even whole classes of devices. The point is that as our always-on digital economy grows more extensive—and it will—we need to be more aware of the energy demands that will follow. The study from CEET in Melbourne that I noted in the update at the top of the post assumes much lower power consumption by individual devices than Mills’ work, but it still raises the alarm about the growing energy demand from cloud services.

As I write above, the nature of a smartphone or a tablet makes it hard to realize how much energy it may be using—especially given the fact that the electricity is often produced at plants far away from our outlets. At a gas station, for instance, the immediate cost and the smell of petrol is a potent reminder that we’re consuming energy. The digital economy is built on the sensation of seamlessness—but it still comes with a utility bill.

Janique Goff believes that technology still plays an important role in saving the environment, despite pitfalls it needs to overcome before it could be called “green.” Get updates on her environmental advocacies here.