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.
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 include agbio investments. At Xconomy’s request, the NVCA calculated agbio investment data for the last five years. From 2009 through the third quarter of 2014, the NVCA, using data from Thomson Reuters, counts just 27 agbio companies that received venture funding. Those companies attracted a total of $203.2 million in venture capital over those five years. By comparison, venture investments in life sciences companies—drug and medical device developers—totaled $491 million in 74 deals in the third quarter of 2014 alone.
State agbio activity
Public-private partnerships aren’t new—government, universities, and industry joined together to form Research Triangle Park in 1959—but it’s an idea that’s finding new life in agbio efforts around the country.
The Indiana Food and Agriculture Innovation Initiative is rebranding with $1 million in new funding from business, government, and Purdue University. Now called AgriNovus Indiana, the initiative supports food and agriculture companies in the state and helps create new companies. An economic partnership has formed in Iowa focusing on the region between Des Moines, IA and Ames, home to Iowa State University. Dubbed the Cultivation Corridor, the initiative supports growth of agribusiness in the region. For example, DuPont Pioneer—one of the agbio big six—is investing $50 million in a multi-phase expansion at its Des Moines-area headquarters, following the award of $3.6 million in tax incentives.
In California, the Steinbeck Innovation Cluster is fostering agricultural technologies in the agriculture-rich Salinas Valley. The nonprofit organization was founded by John Hartnett, a partner at San Jose, CA venture capital firm SVG Partners and the former Salinas, CA Mayor, Dennis Donohue. Steinbeck pledges to offer a range of support for emerging agricultural technologies, including access to an innovation fund that provides financing to new companies. The financial support could fill a gap facing agbio startups in that region.
The Biotech Center’s AgBio[sphere] has no money to invest in companies, though the legislature this year added another $1 million to the Biotech Center’s budget earmarked for biodefense and agricultural projects. Riddick says AgBio[sphere] is financed with about $1.75 million, funds that include some public dollars as well as private donations. Companies seeking economic incentives can turn to the state’s Department of Commerce, which can offer tax breaks for companies that relocate to North Carolina or expand their operations in the state. But a company’s job creation target must reach into the hundreds in order to qualify for such incentives. Startups fall far short of that threshold, which was set with large, well established corporations in mind. Bayer CropScience and Syngenta (NYSE:SYT), for example, qualified for state and local incentives for their RTP expansions.
Big ag is key
Of the big six global agbio companies, RTP has headquarters for three. Bayer CropScience operates its Americas and global seed headquarters from the Park. BASF Plant Science, a subsidiary of German chemicals company BASF and Syngenta Biotechnology, the biotech division of Switzerland-based Syngenta, are also both headquartered in RTP. The largest of the big six, St. Louis, MO-based Monsanto (NYSE: MON), is partnering with enzymes giant Novozymes (NASDAQ OMX: NZYM) on agricultural microbials, an effort that includes plans for a new microbials R&D lab near RTP.
The concentration of large agbio companies in RTP today is largely the result of spinoffs and acquisitions; originally, they were agricultural divisions of larger chemical companies, says Preston Linn, who is now vice president of alliances at AAD and previously worked at the RTP site of chemicals company Union Carbide in the early 1980s. Bayer CropScience’s RTP location traces its legacy to the Union Carbide facility where Linn once worked. BASF had crop protection work in North Carolina prior to establishing its RTP R&D operations in 1999. The company relocated its global plant science headquarters to RTP in 2012. Syngenta’s North Carolina roots date to 1983, when a predecessor company, CIBA Geigy, opened RTP labs.
Riddick sees the large agriculture companies playing a role in spurring startup activity. Syngenta, for example, invests in early-stage companies through its Syngenta Ventures arm. Riddick adds that big agriculture companies are starting to mimic the investment trends of their big pharma neighbors—finding innovation via acquisition.
“They’re buying it from the smaller companies,” he says.