The News & Observer
October 16, 2001

Breaking new ground / Farming-related biotech startups find a place in the sun
Author: David Ranii, Staff Writer

At the same time that many of the Triangle's technology companies have fallen on hard times, a new crop of biotech companies with links to the state's rich agricultural heritage are taking root.

These agricultural biotechnology startups aim to thrive in a region that has proven to be fertile ground for three behemoths of the agribusiness industry: Aventis CropScience, BASF and Syngenta. The three have a major presence in Research Triangle Park. Aventis, which is being acquired by Bayer, has 600 workers; BASF has 420; and Syngenta Biotechnology, formerly Novartis, has 265.

The startups and giants combined add up to the greatest concentration of agribusiness companies anywhere, according to industry executives. Agribusiness is a broad term that includes agrochemicals -- herbicides, insecticides, fungicides and seeds; and, more recently, agricultural biotechnology, which encompasses genetically modified plants.

This is not to say that agbio companies are cropping up like kudzu in the Triangle. On the contrary, in recent years a modest number, a half-dozen or so, have sprouted. But in an industry dominated by a handful of giants, this startup activity appears to be unprecedented.

"I think the RTP area may be getting more than its fair share of agbio companies," said venture capitalist Dennis Dougherty of Intersouth Partners in Durham.

The new companies include Paradigm Genetics, which went public last year; Athenix, which last month raised $8 million in venture capital to develop genetically modified crops; Cropsolution, which boasts that it offers a better way to discover new agrochemicals; AgraSoL, which sells a natural fungus used by the pulp and paper industry; Insect Biotechnology, which is awaiting regulatory approval for an all-natural insecticide; and Sun Dance Genetics, which is breeding insect-resistant corn.

The first agribusiness giant to begin operations in the Triangle was a predecessor of Syngenta, Ciba-Geigy, which set up shop here in 1983. The advantages that Ciba-Geigy saw then still exist today, said Stephen Evola, president of Syngenta Biotechnology in RTP. They include: three excellent research universities from which to draw talent; a reasonable cost of doing business; an attractive place to live; and a rich agricultural past.

"It's a better environment for doing agricultural work than being in a big city," Evola said. Syngenta also has performed field trials on state farmland and has a breeding facility for seeds in Winterville.

The presence of other agribusiness companies, especially the giants, also feeds on itself. "A lot of the people you want to do business with are ... in the area," said Mike Koziel, Athenix's chief executive.

The new companies have the same goal as their established brethren: profiting from products that improve agriculture by boosting crop yields, food quality and the productivity of farmland. Rather than compete against the giants, however, many startups aim to work alongside them in one way or another, such as forming strategic partnerships or licensing their products to them.

"There is an opportunity for small, very focused companies to create innovations," said Scott Johnson, a director at Aventis CropScience's bioscience unit in RTP. "The big guys, like Aventis, are much better on the development and marketing side than we are."

More important to the region's economy than the number of companies is their growth potential. The role model is Paradigm Genetics. The 4-year-old business, based in RTP, is a publicly traded company with 240 employees. Its strategic partners, Bayer and Monsanto, are relying on the company's expertise in functional genomics to help them develop new products. Paradigm's market cap, or the total value of its outstanding stock, is more than $175 million.

"The good thing that Paradigm did locally is that it convinced local investors they could make money on this," said John Ryals, Paradigm's president and chief executive officer. Venture capitalists, he said, profited handsomely from their investments in Paradigm.

Paradigm was formed in September 1997 by Ryals and other executives who had worked at Novartis. That made it the first of several local startups with ties to Novartis and its successor and predecessor companies -- Syngenta and Ciba-Geigy.

Two Athenix founders previously worked at Syngenta/Novartis/Ciba-Geigy, including Koziel, who led the Ciba-Geigy team in RTP that in 1995 produced the world's first genetically modified corn. Eric Ward, chief executive of Cropsolution, is former co-president of Novartis Agribusiness Biotechnology Research in RTP. Scott Uknes, president and co-founder, was at Novartis before becoming a founder and vice president of business strategy at Paradigm. AgraSoL, meanwhile, received funding from Novartis' venture-capital fund and acquired technology from Novartis. In addition, two of the company's founders are Novartis alumni.

"We take pride in the fact that we have excellent scientists with good ideas and who are able to sell their ideas to the venture capitalists," said Syngenta's Evola. "It means we have quality people ... and are attracting a certain entrepreneurial personality." Syngenta is adding a $3 million, 25,000-square-foot building to its complex along Cornwallis Drive in Research Triangle Park, where it has an acre's worth of experimental crops under greenhouse glass.

Agribusiness startups are a relatively recent phenomenon.

The advent of new technologies, combined with the popularity of genetically modified crops, has convinced venture capitalists that throwing millions into agribusiness startups could yield lucrative returns. About 28.3 million acres of U.S. farmland -- and 39.2 million acres worldwide -- have been planted with genetically modified crops, according to an industry report by Deutsche Bank. Neither controversy about the environmental impact of genetically modified crops nor outright resistance to such crops in Western Europe and elsewhere has deterred investors.

The consolidation that is rapidly shrinking the industry also has created new opportunities for startups. "As the big boys get fewer and bigger, the niche markets get bigger," said Dean Bushey, a manager of genomics technology at Aventis.

Consolidation has already had an effect on the Triangle. In addition to the mergers and acquisitions that created Syngenta, Aventis CropScience is in the process of being acquired by Germany's Bayer for about $6.5 billion. And BASF acquired American Cyanamid last year.

"What used to be the top 20 is now the top 10," said Ward of Cropsolution.

Copyright 2001 by The News & Observer Pub. Co.

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