Why Clean Tech Is Taking Biotech's Shine

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

By Connie Johnson Hambley

• View Slide Show

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.