New Ag-Biotech Initiative Plants Seeds for Startups

Xconomy Raleigh-Durham — 

Agriculture is rarely the first thing that comes to mind when people talk about North Carolina’s Research Triangle Park. Medicine and technology have defined its 7,000 acres for most of its 55 years; anchor tenants such as GlaxoSmithKline (NYSE: GSK) and IBM (NYSE: IBM) still keep a steady Park presence. But lately, bioagriculture companies are making the biggest RTP capital investments.

The convergence of agriculture and life sciences—and the growing global demand for food that drives new biotechnology research—is spurring agbio expansion plans in the Park. Three of the “big six” agbio companies have major operations in RTP and they are spending hundreds of millions of dollars to build bigger labs and new greenhouses.

Meanwhile, investments in agbio startups remain rare. The National Venture Capital Association counts just 27 agbio companies nationwide that raised venture capital in the last five years. The North Carolina Biotechnology Center is trying to improve the support system for agbio startups with a recently launched public-private partnership called AgBio[sphere], which is intended to support agbio companies and recruit new companies to the region.

Agriculture is already North Carolina’s largest industry at $78 billion a year, according to state figures. But agbio companies comprise a small part of the state’s biotech ecosystem. Of the more than 600 North Carolina companies in the life sciences, just 80 are in agricultural biotechnology, according to the Biotech Center. Biotechnology is a relatively new addition to farming, explains Gwyn Riddick, the recently retired vice president of agricultural biotechnology at the Biotech Center. That’s why drug companies in the state far outnumber agbio companies.

“Genetically modified seeds are only 15 years old in the marketplace,” he says. “It’s really a very young industry compared to the medical industry.”

While the AgBio[sphere] name is new, the initiative continues work the Biotech Center has been doing in recent years. The state-funded nonprofit was founded in 1984 with a mission to support biotechnology in the state, but it had focused on pharma for most of its history. About five years ago, Riddick was charged with boosting the center’s agricultural reach.

Seeding startups

The Biotech Center’s ability to provide financial support to startups is limited. State belt tightening last year led North Carolina’s legislature to slash the Biotech Center’s $17 million budget by 25 percent, resulting in layoffs and program cuts. The legislature also eliminated funding for the Biofuels Center of North Carolina, a separate state entity that conducted biofuels research and awarded grant funding to biofuel projects.

The Biotech Center was able to keep funds for its loan and grant programs, but these programs were never meant to be an alternative to venture, or even angel funding. Instead, these programs help startups reach a point where they might attract funding.

That’s what happened to Advanced Animal Diagnostics (AAD), an RTP startup that has developed a diagnostic for early detection of infections that affect a cow’s health and the milk’s quality. The Biotech Center awarded AAD a $24,000 loan in 2007. In 2011, the startup was able to raise $4 million in a venture capital round that included investments from Intersouth Partners and Novartis Venture Funds.

“That $24,000 loan was really important to a fledgling little company with an entrepreneur trying to create something that had never been created before,” says Joy Parr Drach, CEO of AAD.

While AAD was able to turn the loan into a successful venture round, agbio companies as a class have not attracted much venture investment. The quarterly Moneytree reports released by PricewaterhouseCoopers and the National Venture Capital Association do not … Next Page »

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