It's simple: Alternative energy is where the venture capital is these days. Plus, the skill sets are similar, and researchers are making the jump
Nigel Beeley is a biopharma veteran. He spent 25 years in research at such biotechnology companies as Amylin Pharmaceuticals (AMLN), Arena Pharmaceuticals (ARNA), and Senomyx (SNMX). He had a hand in creating cancer and metabolic disease drugs Mylotarg, Symlin, Byetta, and Lorcaserin. But when he decided to start his own company based on pharmaceutical discoveries, he made a switch to a field many might find surprising: emerging alternative energy.
Beeley is not alone in looking beyond biopharmaceuticals for opportunities in clean tech, an industry comprised of companies focusing on alternative energy, recycling, conservation, and pollution reduction. Much of the growth in clean tech is being fueled by investors, inventors, and entrepreneurs with deep biopharma credentials, underscoring how tightly interwoven these seemingly disconnected industries are. The next great wave of innovation and investment is building just as the once booming biotechnology industry appears to be passing its peak.
Scientists such as Beeley are following the money. Venture capitalists are increasingly stepping up investment in alternative energy technologies at the same time that they deemphasize biopharma and other life-science companies. Scientific and management talent who used to be at the forefront of drug discovery and the biosciences are finding that their skills are in high demand in these new energy companies.
Venture funding in clean technologies surged to $2.5 billion last year, from $216 million in 2002, according to VentureSource, a division of Dow Jones Financial Services that researches venture capital. In the first half of 2008, venture capitalists poured $1.6 billion into clean tech, making it almost even with life-science investing. Indeed, biopharma investing dropped 40% in the first half of 2008 from 2007, a record year for the sector, according to Jessica Canning, director of global research for VentureSource. Additionally, four of the top deals for the second quarter were in clean tech. The National Venture Capital Assn. reports that VCs selected clean tech as the sector where they plan to focus and increase their investment in the future. Most bets are that clean tech investing will hit records this year.
Borrowing Pharma's Toolbox
The booming interest in clean tech is by no means an overnight sensation, tracing its roots to the energy crisis of the 1970s. Interest has deepened in recent years because of the rising cost and finite supply of oil. But it's also being fueled by a quest for U.S. energy independence and the desire to reduce carbon emissions—imperatives that remain whatever direction oil prices take, explains Ray Lane, managing partner at Kleiner Perkins Caufield & Byers. "Even if you take one away, you still have the other problem," he says.
So where does biopharma fit in? Today's burst of energy innovation stems from having the right scientific and discovery tools available and a shift in focus away from people when applying life-science knowledge, Lane and others say. Pharmaceutical companies have historically spent large percentages of their revenue on research and discovery, while traditional oil and gas companies have spent little. The vast majority of cell-based research, conducted for drug discovery, has focused on the cells of animals and has explored the agents—bacterial, microbial, viral, or genetic—that make those cells live, die, change, or multiply. Recently these gains have been applied to plants and other substances, such as shale, that form the backbone of alternative energy research. Traditional pharma research techniques have certainly improved, and some drug discoveries translate into alternative energy promise.
Beeley found much of his background applicable to his new company, EnrQi, pronounced "energy." He had long been fascinated with how plants convert light energy into chemical energy by photosynthesis, but his career remained focused on drug discovery. When colleagues found a protein receptor that changes when exposed to light, he immediately suspected a link to the search for alternative fuels. More research followed on the cascade of events leading to the conversion of carbon dioxide into stable, energy-containing molecules.
People with biopharma bona fides fit well in clean tech because they're willing to take a long-term approach to research and development, experts say. "The development of technology-intensive energy companies is often very similar to the development of biotechnology companies because both have a long gestation period, large capital requirements, and a high degree of technical risk," says Hemant Taneja, managing director at General Catalyst Partners and co-chairman of the New England Clean Energy Council. "Management teams from the biotech ecosystem are very well suited to scale early-stage clean tech companies."
For all the interest in clean tech, biopharma remains alive and well, says Flagship Ventures general partner Jim Matheson. "Innovation and investment in drug discovery and development are still happening at a healthy rate," Matheson says. Still, some biopharma companies are clearly having a harder time lining up funding. "Investors are using more caution," says Michael Pavia, entrepreneur in residence at Oxford Bioscience Partners. Venture capitalists are focusing on reduced risk and a clear path to making money. While it might not always be clear that a new drug therapy will be a big seller, newly produced gas or electricity has a ready-made market. The domestic natural gas market alone is estimated to be worth $150 billion.
Some biotech vets are casting about in clean tech because that's where the jobs are. As large pharmaceutical companies lay off workers, existing small biotech companies are not able to absorb the influx of available employees, and companies are not being created quickly enough to use all available talent. The perceived greater risk of working for a drug-discovery startup is losing its luster with some. "We are seeing top-notch bioscientists—in chemistry, bioinformatics, identification, and other areas—being faced with reestablishing themselves in a completely unique forum, and we have watched as they have chosen to move toward alternative energy and biofuel," says Mark O'Connor, CEO of Monadnock Research, which follows consulting trends.
Putting Together the Perfect Team
As increasing numbers of scientists and other professionals make the switch to clean tech, it's more than just a skill set that gets them the job, O'Connor adds. "You also have to have a clear understanding of the company's vision and the individual's passion and put the two together."
It was a quest for the perfect team that brought Robert Pfeiffer and Mark Finkelstein together at Luca Technologies, a startup funded by Kleiner Perkins, Oxford Bioscience, and chemical giant BASF (BASF.DE). Luca uses the tools of biotechnology and genomics to cultivate microorganisms that produce natural gas in farm-like "geobioreactors" by consuming hydrocarbons. Pfeiffer's background is in oil and gas, but he knew he needed bioscience muscle. "Oil and gas guys are hunters and gatherers," he says. "We know where to find the gas, not how to make it." Finkelstein, a self-proclaimed "bug guy" with credentials from research-based drugmaker Schering-Plough (SGP) and the National Renewable Energy Laboratory, was key to unlocking the "cell consortiums" that produce methane.
The past 20 years saw astonishing advances in biotech. Those advances are now fueling growth in clean tech.
See BusinessWeek.com's slide show for more on the growth of clean tech.