This really rings true to me.

Presidents Leebron and Butler sent out an email last night detailing the progress being made in the merger negotiations:

September 25, 2009

Dear members of the Rice and Baylor communities,

We are writing to update you on the status of merger discussions between Rice University and Baylor College of Medicine. Teams from Rice and Baylor have been meeting regularly since we signed a memorandum of understanding (MOU) last March to work through the myriad issues that such a major and complex proposition raises. We are pleased to report that substantive progress has been made, enough so that our respective boards have authorized us to extend the MOU to Jan. 31, 2010. We will work hard to bring our discussions to a successful conclusion over the next four months.

While we do not yet know what that conclusion will be, our work to date has confirmed that a merger could produce many academic and research benefits for both of our institutions and the people we serve. A joint academic committee led by Rice Vice Provost for Research Jim Coleman and Baylor Associate Dean of Research Adam Kuspa explored opportunities for potential synergies and the process that would be needed to capture them. The committees concluded that a merger could lead to a wide array of academic benefits, ranging from new undergraduate programs to significant integrated efforts that combine undergraduate and graduate education with interdisciplinary research. The committees recommended creating infrastructure, such as an office of coordination, to identify and implement these initiatives so that resources and resulting benefits are optimized. We are encouraged by these findings and will act on the recommendations should we reach agreement on a merger. We invite you to read the report at http://www.rice.edu/Academic_Committee_Report.pdf.

Three other joint committees on clinical, financial and legal issues also have made progress. We have agreed on many governance and organizational issues, but much more remains to be done to create the financial underpinnings needed for a successful union. We are in discussions with several parties about becoming the primary private adult clinical practice partner for Baylor, a critical component for success. We also are exploring multiple sources of funding that would help the merger achieve its full potential.

While we cannot at this point predict what the next four months will bring, we have learned that there is much to commend an ultimate merger. We thank you for your patience over the many months invested in the discussions so far, and we ask for your support as we attempt to bring them to a conclusion in the near future. Please know that we hold dear the best interests of both institutions, of our potential partners and of our community. We will report again as the discussions progress.

David W. Leebron
President
Rice University

William T. Butler, M.D.
Interim president and CEO
Baylor College of Medicine

I continue to support the merger and believe that it will help both institutions achieve their goals. The Houston Chronicle has more on the story.

This week I attended the Department of Defense’s Advanced Technology Applications for Combat Casualty Care (ATACCC) conference in St. Petersburg, Florida. I attended the conference on the invitation of a friend, and was curious to see how medical devices differed between civilian and military uses. I can say now that prior to the conference I didn’t appreciate the differences in the types of casualties experienced between combat and civilian environments. I assumed that human physiology was physiology and that gunshot wounds were gunshot wounds. The reality is that the prolific use of explosives in this war creates a disproportionate number of horrific burns and lost limbs compared to what we see stateside. Treating these injuries is exacerbated by the fact that sophisticated medical care isn’t immediately available on the front lines. Whereas the role of civilian EMTs is to stabilize a patient and then get the patient to a hospital, much more is required to treat wounded soldiers in combat because the transports back to medical care are so much longer.

That said, I also went to the conference with a deep bias against the military as a customer, particularly for medical device startups. My bias isn’t based in any dislike of the military or its mission, I have enormous respect for our men in uniform who protect our country and its freedoms. Rather, my bias is purely business-related. A critical variable in startups is time-to-market, and getting a sale out of the military bureaucracy is anathema to that. The sales cycle is highly politicized, long, and expensive. Lots of companies, however, make a business out of selling to government, so I was curious about the nature of the beast.

The obvious reason for pursuing the military as a customer is their deep pockets, and that was the response most startups gave me when I asked them about the military as a customer. Through SBIR grants, the military will fund your R&D budget and won’t take any equity or IP in return. That could be a pretty compelling argument to a cash-strapped startup, but it ignores the downsides of doing business with a single, powerful customer.

Why startups should avoid the military

I’ve already mentioned the painful sales cycle. Let’s take a look at a number of other reasons startups should avoid the military as a customer.

First, the military often doesn’t know what it wants, and provides conflicting opinions as a result. Dissent has its place when formulating a strategy, but eventually they have to reach some consensus on needs. Startups don’t have the resources to continually modify their designs in order to meet ever-shifting requirements.

This inability to make extensive design changes leads to a second drawback: making a product to sell to the military often requires compliance with expensive design/quality/organizational specifications that provide little value in the civilian market. They want to buy COTS (commercial-off-the-shelf) products, but the reality is that their unique requirements necessitate specialization.

One example of this dilemma is the incompatibility of the so-called “razor and blades” model with combat. It’s a common business model for medical device companies to pair a low-margin capital expense with a high margin disposable component. But this creates logistical problems. Disposable parts take up space. They are a mass that needs to be transported by air, by truck, and often on a soldier’s back. So it’s not uncommon that the design of a profit maximizing disposable is in conflict with a size-minimizing requirement.

Finally, I think a lot of companies that obtain SBIR funding quickly become enveloped in the grant funding cycle and become “R&D zombies.” The goal ceases to be commercialization and becomes obtaining the next round of funding. It’s not uncommon to see startups at ATACCC that have designed multiple iterations of their product, or have multiple product lines, yet haven’t sold a single unit.

Conclusion

So I attended ATACCC with a strong preconceived bias, and the event did nothing but strengthen my opinion that medical device startups should avoid seeking the military as a primary customer. The long sales cycle, shifting requirements, and seductive SBIR funding are poison to an early stage enterprise. Besides, as deep as the DoD’s pockets may be, the potential addressable civilian market for a medical device should be bigger anyway. If it’s not, then the company probably doesn’t have much of a chance anyway.

That said, my conclusion is unsatisfying. Finding new ways to preserve the lives of the men defending our country is a noble cause. The sobering images of burned men and lost limbs I saw at ATACCC brought that message home. There needs to be a better way of spurring innovation in combat casualty care.

In case you missed it, according to this blog post at the Chronicle, Peter Traber, BCM’s ousted president, appears to have landed the CEO position at a Mountain View-based biotech startup called TerraSep. This information couldn’t be confirmed by the Chronicle reporter. Unfortunately, not much about TerraSep is known–they don’t even have a website.

The results of my doctoral dissertation have been published in Nucleic Acids Research, at long last!

You’ve probably been wondering for months about the images in the right column of this blog. My doctoral dissertation described the effects of torsional stress on the structure of DNA. It is well known that DNA is slightly underwound inside the cell, but it’s not known why. I attacked this problem using some of the largest supercomputers in the country to simulate 19 underwound and overwound DNA helices in water. What I found is that even slight underwinding causes base pairs (the rungs of the DNA ladder) to flip out, away from the double helix. What’s more, this structural “failure” was more common in some DNA sequences than in others. This lead us to speculate that proteins might recognize specific DNA sequences because those sequences are more likely to fail when underwound. I hope I’ll live long enough to see if my hunch was right.

You can read more about it here and here.

If you want to see some cool movies of torqued DNA, click here (and scroll down to “DNA Twisting Animations”).

As I mentioned in another post, I was in Chicago this week for the annual conference of the Healthcare Information and Management Systems Society (HIMSS). I’ve been focussing on opportunities in healthcare IT (HIT) in my role at AlphaDev, and I thought this conference would be a great way to learn more about the role the Stimulus plan will play in HIT and to see all the competitors. I’d say the key take-aways from the conference were:

1. Although the press likes to report that $20 billion is being appropriated for incentivizing doctors to adopt electronic medical records (EMR), that’s a net number. The CBO actually plans to spend $36 billion and save $15.5 billion from their use.
2. Eligible doctors who can show meaningful use of a certified EMR in 2010 can expect to receive up to $44,000 over 5 years in reimbursements from Medicare, even more from Medicaid. The amount of the reimbursement declines each year, so doctors are incentivized to switch early. Of course, meaningful use and certified EMR aren’t yet defined, and won’t be until the end of this year. That means that 2010 is going to be a horse race.
3. I went to the conference being skeptical that the stimulus was sufficient to get doctors to switch. The doctors I know really, really don’t want to give up their paper records. But I left the conference believing that this was going to work. The doctors I talked to were resigned to the fact that this is going to happen. You’re just not going to find a better offer than this.
4. I also went to the conference with a list of a dozen competitors I wanted to see and came back with a list of two dozen. The competition in this space during 2010 is going to be fierce. The fisticuffs-in-the-waiting-room kind of fierce. But given the competition, I was surprised to find a substantial variance in pricing. Now that the government has defined the upper bounds of pricing for an EMR, I expect we’ll see these pricing gaps close up. 
5. Finally, given that there are 200,000 practices in the U.S. and that 75% of them have 10 or fewer doctors, I’m thinking the big players in the EMR space will look to gain market share by buying up the smaller players. So if you’re a smaller player looking for an exit, your primary focus should be market share.

Anyway, that’s the condensed version of the report I wrote up after the conference. I’d love to hear anybody’s comments as I’m still wrapping my head around this space.

I’m a little late posting this–I’ve been in Chicago for HIMSS this week. The important part is that BioCamp Houston 2009 was a success! We had about 40 attendees for our first BioCamp and they stayed all day. There were several great presentations that started some good discussions.

I’d like to thank our sponsors: DFJ Mercury, The Harrington Law Firm, and Osha Liang. Special thanks go out to Josh Tabin, Matthew Wettergreen, Ivette Sandoval, Nasos Dousis, and Bibhash Mukhopadhyay for helping to organize the event. Finally, I’d like to thank all of our speakers. Without them, it would have just been another afternoon at Valhalla.

All in all, I couldn’t be happier with the event. If you’d like to see pictures, check out the BioCamp Houston website.

Update: Silly me. I fell for an April Fool’s prank.

Here’s what I had previously written:

I just heard that President Leebron of Rice has made the announcement. I’m sitting in O’Hare airport blogging this on my iPhone, so I’ll post more when I get home. I’m very excited about the news, though. This is a terrific development for both institutions and for Houston.

Hat tip to Chris Miller.

Yeah, thanks Chris.

We’ve arranged for Valhalla, Rice’s grad student bar, to be opened at the conclusion of BioCamp on Saturday so that people can continue their discussions over beers. So be sure to stick around after the event from 4-6pm and enjoy a cold one!

The location of the kick-off happy hour for BioCamp has been changed to Saute Bistro, where it will coincide with the monthly Startup Houston Happy Hour. The party still starts at 6pm. Hope to see you all there!