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Biotech Dealmaking Is Tough, But AgBio Deals Prove Even Tougher

Xconomy Raleigh-Durham — 

It’s a familiar story: a biotechnology company develops a promising product but falls short of sales projections. The company then cuts staff, realigns resources, and turns to startups to fill its depleted pipeline.

While this scenario does play out in pharmaceuticals, it also describes what is happening in agriculture. Big ag companies face pressures to develop agricultural innovations and deliver financial returns. Agbio startups vie to fill big ag product pipelines. But even though motives driving agbio deals are similar to those in pharma, agbio startups can face steeper challenges.

Startups in all sectors frequently cite the inability to access capital as a constraint on their ability to grow, but the challenge is more pronounced in agbio. Unlike in pharmaceuticals, where drug developers can pitch to a number of investment firms that focus on the industry, agbio boasts few investors knowledgeable about agricultural technologies, said Philip Benfrey, co-founder of Hi Fidelity Genetics. Benfrey, speaking with several other agbio industry representatives at a workshop held prior to the Council for Entrepreneurial Development’s (CED) annual Life Sciences Conference, said that he is trying to raise seed funding for his Durham, NC-based startup, which is bringing data analytics to plant breeding. But Benfrey sees few investors who know plant science. “When investors don’t feel comfortable about an area they generally don’t invest,” he said.

The North Carolina Biotechnology Center counts more than 80 agbio companies in the state, including major operations for five of the industry’s six biggest firms, but it’s hard to get a handle on agbio investments. In 2015, North Carolina companies raised $1.2 billion in equity financing across tech, cleantech, advanced manufacturing, and life sciences, according to CED’s annual Innovator’s Report. Though the $583.7 million raised by North Carolina life science companies in 2015 led all sectors, the report’s life sciences category makes no distinction between agbio and biotech. The top five life science investments were all pharma deals.

Some agbio companies have been able to raise venture dollars. AgBiome, a Research Triangle Park, NC-based startup focused on discovering and developing agricultural microbials, closed a $34.5 million Series B round last summer. Dan Tomso, the company’s chief scientific officer, said that investors are interested in agriculture but the knowledge gap holds them back from investing. He said AgBiome spoke with nearly 100 different investors before closing the round with a syndicate that includes the Bill & Melinda Gates Foundation, Monsanto Growth Ventures, and Syngenta Ventures.

Startups in drug development and agbio alike view partnerships with larger companies as a way to secure financing, as well as a path to the market. But just as pharma startups have more options for financing, they also have more options for partners. While consolidation has shrunk the ranks of Big Pharma, the pharmaceuticals sector still includes many mid-sized companies that are potential partners, including specialty pharmaceutical companies that focus on specific therapeutic areas.

Agricultural innovation is largely commercialized by the “Big Six” largest agbio and crop chemicals companies—BASF, Bayer, DuPont (NYSE: DD), Dow Chemical (NYSE: DOW), Monsanto (NYSE: MON), and Syngenta (NYSE: SYT). Most of the Big Six based their growth projections on the market in 2009 and 2010, but recent years have … Next Page »

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