Innovative places for innovation

To succeed start-up companies need a supportive network. Hermann Hauthal looks at the experiences of some German companies’ that have found that network by locating on an industrial park

Even in times of seemingly unlimited venture capital, chemistry-related start-up companies in Germany were set up with more reticence and on better foundations than many software or biotech companies. Instead of the risky equation ’idea+venture capital = new company’, chemistry company founders have more realistic market evaluations, future-proof technology platforms, and networked thinking, even before founding a start-up company.

That is why there are now healthy, innovative, medium-sized companies, whose roots go back to the dot.com boom. In addition to the publicly funded companies emerging from universities and research centres, business parks and large site management companies have also developed start-up initiatives to accelerate innovation.

Nevertheless, the collapse of the Neuer Markt (stock market for new technologies) and the retreat of venture capital over the last few years have blocked the route to market for many new products and services.

An example of an early, well-grounded company is HTE, a high throughput experimentation company based in Heidelberg. Remarkably, HTE is a public limited company but maintains close ties with the city. As Heidelberg’s mayor Raban von der Malsburg explains: ’HTE is an excellent example of establishing newly-founded and future-oriented companies, which ideally complement the Heidelberg Technology Park.’

Dirk Demuth, managing director of HTE, also emphasises the value of the ’goal-oriented and pragmatic support’ he received from Heidelberg’s commercial development department. He says it has been extremely helpful and important, as it ’allowed the company to focus its resources on the main tasks and limit the effort going into compliance with bureaucratic rules and restrictions to the minimum of what’s really necessary’.

The starting point for HTE was some ideas from Ferdi Sch?th’s research group at Frankfurt university. The group considered whether it might be possible to apply high-throughput screening, as it is used in the development of new pharmaceutical and agrochemical compounds, for inorganic chemistry. Using the principles of combinatorial chemistry, it should then be possible to find new catalysts more rationally and 100- to 1000-fold faster.

After the researchers had managed to convince chemical giant BASF of the concept’s viability, seven scientists from Frankfurt university, BASF and Degussa founded HTE as a private, independent company in March 1999. In July that year, it started a major research project in chemical catalysis, commissioned by BASF.

As the founders anticipated, HTE can develop chemical systems for its customers both faster and more cost-effectively than was previously possible. As a special service, the company offers rapid response projects with a typical running time of under nine months.

Initially, the Heidelberg company dealt exclusively with research projects, but since 2002 it has also marketed high-throughput system technology and the associated software, allowing customers to perform their own high-throughput research.

In 2003, a consortium involving Landesbank Baden-W?rttemberg, BASF Venture Capital and 3i made an investment to push ahead HTE’s in-house projects, specifically in environmental catalysis. Since then, its over 60 employees also do research and development on their own catalysts and technologies, such as for cleaning up diesel fumes. In addition, HTE manages a project, funded by the federal research ministry (BMBF), which aims to develop improved diesel catalysts.

Demuth says this mix of different funding sources is an advantage. ’Through this network, HTE experiences further international enrichment and obtains access to additional potential customers.’

Instraction, which currently has 20 employees, has been established at BASF’s site at Ludwigshafen since 1997. It develops patentable, cost-efficient separation processes mainly for generic pharmaceutical agents.

Financial planning before start-up and financing afterwards was supported by the Rhineland-Palatinate state’s business and innovation centre, and its investment bank supported the product development and market launch. The local bank, Stadtsparkasse Ludwigshafen, also contributed via its venture capital affiliate. This is not a complete list of the investors but shows how complex it can be to finance a start-up company.

Looking for a suitable location, Instraction’s managing director Klaus Gottschall chose BASF at Ludwigshafen over Heidelberg. ’The location at the BASF site, compared with the original idea of locating the company at Heidelberg, has proven very advantageous for a chemistry and process technology company like Instraction. By immediately moving into purpose-equipped laboratory space and benefiting from the BASF infrastructure, we saved a lot of time in the beginning.’

The idea for the company came in part from the insight that conventional chromatography phases are of limited use for universal application in production scale separation processes. Also, the concept of transferring biopolymers’ binding mechanisms to robust synthetic polymer phases to establish a new kind of affinity chromatography was attractive.

At the heart of the new ’polymer instruction’ technology - developed on the basis of molecular recognition - are binding and recognition processes that are essential for substance detection (sensors, indicators) and separation (chromatography). To produce suitable binding sites, the known non-covalent interactions are combined so that a chromatographic phase forms that binds the target or byproduct.

Market development is most advanced for chromatographic procedures, including applications in fermentation processes. New activities include enzyme-analogous catalysis, where the binding to a protein surrogate will be followed by a chemical conversion.

Process development for technical chromatography will reach production scale later this year. Instraction is currently looking for partners for enzyme-analogous catalysis and sensors, and drug discovery and delivery.

Within Degussa, Creavis Technologies & Innovation develops new speciality chemical business areas (see Chemistry World, February 2004, p34). It identifies promising R&D projects by analysing global markets and technologies. It then assesses these opportunities for their technical feasibility, taking into account Degussa’s core competencies.

Project houses within Creavis play a central role. Here researchers from different business units work together for three years. If a project is successful, either the appropriate business unit or an internal start-up will take care of market introduction and production.

Antje Gerber, project leader with internal start-up Degussa Homogeneous Catalysis (DHC), thinks it ’was so successful because its predecessor, the catalysis project house, had created an excellent technological basis’.

According to the business plan, DHC should be incorporated into one of the existing business areas by the middle of 2007. Until then, Creavis is responsible for this company as well as for Degussa’s other internal start-ups.

Since April 2004, Pemeas has been operating at the Frankfurt-H?chst industrial park. The new company continues the fuel cell activities of the former Hoechst group and Celanese and can build on 10 years experience and extensive knowledge secured in 110 groups of patents.

Pemeas produces a fuel cell known as the PEM (polymer electrolyte membrane) cell, whose central component is the membrane electrode assembly (MEA). Pemeas makes the only commercially available high temperature MEA, which enables PEM fuel cells to run at temperatures between 120?C and 200?C. The chemical basis for the membrane is polybenzimidazole, which Pemeas obtains exclusively from the only producer, Celanese (Rock Hill, South Carolina, US). At Pemeas’ two sites, the Frankfurt-H?chst industrial park and Murray Hill, New Jersey, US, there are around 40 employees working in research, production and marketing.

The company is financed by a consortium including, via an equity-lease model, Infraserv H?chst, the company that runs the H?chst industrial park. Infraserv will not hold the shares indefinitely, but may sell them on or back to the company’s founders.

Pemeas is the first start-up to use Infraserv H?chst’s equity-lease model. As Infraserv takes shares in the company, this helps Permeas reduce funding requirements, it saves two to three years worth of rent for buildings and laboratories, and provides access to a dynamic and professional business environment, including infrastructure and various services.

Pemeas’ director Horst-Tore Land thinks that for a ’technology oriented and innovative company’ such as his the location is crucial. ’We need reliable and professional support. And it is an advantage to have the most important precursors and the logistics in our neighbourhood’. This is why the Frankfurt-H?chst industrial park is ideal.

A chemical company at the same site produces the precursors required for the membrane production. Specialists from another company at the industrial park take care of safety and environmental issues, and Infraserv’s logistics company ’supports us with punctual and reliable deliveries to our customers. Moreover, the site management helps us with many technical, legal, and political questions,’ he says.

Pemeas expects rapid growth in turnover, with profitability likely to come from MEAs for applications like mobile phones and laptops, which are being prepared for launch in 2006.

After winning the Red Herring Top 100 innovators award 2004, in January this year Pemeas received the 25th Innovation award of the German industry, a high-profile prize awarded under the patronage of the federal labour and economy ministry.

Bayer Industry Services (BIS) runs a start-up initiative, providing support for young entrepreneurs, at four locations - Leverkusen, Dormagen, Krefeld-Uerdingen, and Brunsb?ttel - collectively known as the Bayer Chemistry Park. Among the beneficiaries is PFL Fine Chemicals, whose founders, Petra and Frank Ludley, are investigating and producing building blocks for pharmaceutical agent synthesis.

The first step in their partnership with BIS was intensive individual counselling, during which experts scrutinised the potential of their business ideas. The counsellors also help young entrepreneurs obtain permissions, check funding models, and establish contacts with support agencies, financial institutions and investors.

Following this start-up phase, companies based at the Bayer Chemistry Park find themselves embedded in the infrastructure of a global corporation. Because of these synergies, more than 35 production and service companies (including Bayer spinouts) have so far become Chemistry Park partners.

Apart from chemistry know-how, BIS offers the companies industrial land, laboratories, office space, analytical and environmental services, raw materials, energy supply, logistics, waste disposal, marketing support, and even skilled personnel via Bayer Jobactive. Also, PFL Fine Chemicals gets products made on demand on site.

Supporting the new chemistry park partners makes sense for BIS, as successful start-ups will be tomorrow’s business partners. Moreover, the companies ensure the use of the infrastructure is balanced and efficient. They are part of a network from which everybody benefits.

Convertex Chemie, founded by Uwe Steffan at the Bitterfeld-Wolfen chemistry park in 1998, performs research and synthesis on demand for chemical, agrochemical, fine chemical and pharmaceutical companies. With nine employees, the company limits its synthesis to milligram to kilogram amounts and achieves a turnover of more than €500 000 (?345 000) per year.

In comparison with larger companies supplying specialised chemicals, Convertex’s strengths include shorter response times for research commissions and a more attractive cost structure for synthesising small quantities.

Convertex’s director, Uwe Steffan, says: ’The chemistry park has made the foundation of a chemical company, particularly a small one, much easier. The necessary infrastructure, experience and counsel is there, and contacts with the authorities are also relatively simple and professional in most cases.’ Thus, he says, ’founders don’t wear themselves out in marginal conflicts, and they can concentrate on building their business’. Steffan, who also considered other locations, thinks the cooperation with neighbouring companies is important. This way, he can compensate for gaps in his equipment and optimise work procedures in a cost-efficient way. ’The sites in eastern Germany, acting from necessity, have become pioneers in this approach.’

At the start-up stage, Convertex was supported by the BMBF’s Futour programme, without any help from banks. The only additional support was the usual state bonus for investments.

Convertex is expanding cautiously, aiming at 20 employees. However, Steffan with his ’growing chemical company which has left its foundation stage behind’ is increasingly wondering where to find a competent finance partner. The usual financial institutions and banks, he says, ’are often out of their depth, technically’.

c-Lecta has positioned itself at the interface between naturally occurring enzyme resources and adapted or optimised enzyme products. Based at Bio City in Leipzig, it is an example of a university spin-out company.

The company’s aim is to develop and optimise enzyme characteristics. Using enzyme engineering technologies, researchers at c-Lecta introduced random mutations into the enzyme RNase T1 and screened the resulting library of mutant proteins for a variant that cleaves RNA after adenosine instead of guanosine. They discovered a suitable variant, whose selectivity for adenosine is over 100 times higher than in the wild type enzyme. The new enzyme, known as RNase TA, is now available from Jena Bioscience.

For this project, c-Lecta developed a novel screening technology, which can screen enzyme libraries with more than 100 variants in less than an hour. This results in enormous time and cost savings, compared with commercially available high-throughput methods (a maximum of 100 000 variants per day), along with the procedure’s enhanced flexibility for different classes of enzymes with different properties.

Thomas Greiner-St?ffele and Marc Struhalla founded c-Lecta in April 2004 with funding from project-specific grants from the BMBF and from Leipzig’s innovation and technology transfer funds. In addition to the seven employees, there are also PhD students and undergraduates from Leipzig university’s protein engineering junior research group conducting their research projects at the boundary between academic and industrial research.

According to Greiner-St?ffele, the company’s scientific director, the next milestones will be ’securing industry cooperation and a further product in the market for enzyme tools’. The company hopes to break even in 2007.

Apart from the enterpreneurship, ability and creativity of their founders, start-up companies also need local and regional assistance, and/or the support of a strong industrial partner. As it is rare that a single financial institution is prepared to provide the full funding, consortia are a tried and tested solution. In these, in addition to the capital providers, expertise related to the business area should be represented.

Although there are very different models for start-ups, some basic elements remain essential: the business idea must be sound, the technology platform future-proof, the market opportunities must be realistically evaluated, and the financing must be solid. For a start-up company to succeed and grow, a network must be established linking it with scientific research and suppliers, services and customers. Industry and chemistry parks with their well developed infrastructure can open up opportunities.

Hermann G Hauthal is a freelance writer specialising in the chemical industry.

Translated by Michael Gross