Turning a large firm’s unused technology into a business
Isobionics, a Dutch startup company, was established in 2008. Its activities focus on manufacturing natural ingredients for the flavor and fragrance industry. Their products are prepared with an innovative fermentation process, which results in high quality, natural products for customers in the food, beverage, flavor, and fragrance markets. The company’s technology was developed by DSM, a globally operating Dutch chemical company with annual net sales of 9.2 billion euro in 2014. The company has strong technical expertise in biotech and new materials.
The seed for Isobionics was planted in early 2007, when Toine Janssen met with Frank Schaap, a new business developer at Chemelot. Chemelot is an Open Campus for small companies in the chemical business, co-located at the Sittard-Geleen site of DSM in the Netherlands. The infrastructure and services comprise world-class laboratories and research facilities, development services and all-round expertise, from high-performance materials to industrial chemicals.[i] Toine Janssen, a former director at Philips, initially wanted to buy a plant in the Chemelot campus. Instead, Frank Schaap offered him an alternate business proposal: Why not picking up a research project at DSM that had been discontinued?
About a year before Frank and Toine met Rinus Broxterman and a colleague developed a way to produce natural substances—called isoprenoids—through a biotechnological fermentation process. Normally, producing isoprenoids is expensive and laborious, but Broxterman’s method produced better quality results, required fewer production steps, and was 50 percent less expensive.
Rinus decided to file his process with the Emerging Business Unit of the DSM Innovation Centre. The Emerging Business Unit is part of an Emerging Business Area (EBA), which was established to explore innovative fields outside the existing core technologies of DSM and to professionalize innovation within DSM. As 2006 came to a close, it was clear that the EBA was going to drop the proposal because the project did not fit into the DSM’s strategic scope. Jacques Joosten, senior R&D director, however, was convinced the proposal had potential and advised DSM researchers to look for other ways to valorize the technology. Following this advice, Rinus shared the news with Frank Schaap that he had an idea for a new startup. Understanding that an experienced business development manager is a key for success, Rinus and Frank started looking for external managers. By that time, Frank Schaap had met with Toine Janssen.
Once Toine realized that the business case had great potential, he decided to take on the challenge. He wrote a business plan, was looking for financial resources, and was forging an agreement with DSM. Reaching that agreement was not simple because DSM had no experience with this form of outbound open innovation. Furthermore, DSM researchers that had worked on the project were not happy with the project’s evolution. They felt that they had to sacrifice knowledge they had acquired over a long period of time. Thanks to his experience and management skills in a company such as Philips, Toine Janssen convinced DSM’s managers that this spinout had significant business potential. After signing a research and intellectual property contract to use the fermentation procedure in predefined areas, Isobionics was founded. Initially, the company employed four people. In addition to Toine Janssen and Rinus Broxterman, researcher Dr. Theo Soncke and project manager Dr. Marijn Rijckers were added to the team through service agreements with DSM. Isobionics immediately started joint research and development with the Plant Research International (PRI) institute at the Wageningen Agricultural University. They chose the Chemelot Campus as the location for their new business, just a few hundred meters from the DSM laboratories. This co-location allowed Isobionics and DSM researchers to communicate and interact frequently, which accelerated research and decision-making.
Toine successfully raised funding for his venture by filing for subsidies and attracting Limburg Ventures B.V. Limburg Ventures is an active regional venture capital investor in materials and life sciences in the Netherlands founded by DSM.
The first product Isobionics commercialized was Valencene, a sesquiterpene and one of the components of orange oil. Valencene can be used as a flavor ingredient and tastes like oranges. The majority of applications are found in flavors for the beverage industry, particularly citrus flavors. Although minor, Valencene can also be found in fragrances. Isobionics focused on selling to flavor and fragrance companies such as Givaudan, Symrise, and Firmenich, all of which supply flavors to multinationals such as P&G and Unilever.
The strategic decision to start by producing Valencene (and not another flavor) was made because it is a relatively small market compared to flavors such as vanilla and menthol, where Isobionics would certainly face head-to-head competition of large established companies such as BASF. Furthermore, this product could generate quick cash without major investments. Moreover, by producing Valencene, Isobionics achieved proof of principle and generated knowledge and insights needed for further steps. Isobionics patented the process of producing Valencene (Valencene-synthase), but the patent on the microorganism from which Valencene was formed was DSM’s property. Isobionics, however, had an exclusive licensing agreement with DSM for it in the domains of flavor and fragrances, pharmacy and agrochemicals.
Isobionics has been growing fast and by 2015 it was also investigating the market for nootkatone a flavor characteristically associated with grapefruits. Although the company was growing fast, Toine Janssen continued to use an asset-light model for the growth of his company. He relied to a maximum on skills and assets outside Isobionics. R&D was executed with a growing number of universities around the world, tapping in the best expertise available. The technical collaboration with DSM decreased over time as Isobionics became more knowledgeable on the specific technology for produce F&F using microorganisms. Production was outsourced: Isobionics worked through contract-manufacturing with two fermenters, one in Eastern Europe and one in India. The choice for the manufacturer is a function of their skiils and specific installations. Production included three stages: fermentation, distillation and packaging. A different type of company executed each of the stages. In this was, Isobionics could produce the flavors without investing in production capacity and without the fear that a contract manufacturer could ever become a competitor on the market. As Isobionics was growing fast, it has to distribute products effectively on a global scale. Here again, Isobionics relied on an external partner—DSM—who had already the logistic expertise and infrastructure to deliver products to B2B clients worldwide.
Isobionics next had the ambition to grow further in the valencene and nootkatone market and to start developing other flavors and flagrances that fit the size of the startup. Isobionics focuses on the markets that are small enough to avoid direct competition with established multinationals. The relationship with DSM changes over time but the chemical company remains important for the startup (see logistics for instance). Toine Janssen is also very positive about the Chemelot site. As the company continues to grow, it has to change the location of its offices, but Isobionics will look for a location on or close to Chemelot.
Figure 1: Isobionic’s Valencene development
- For more information about Chemelot, see http://www.chemelot.nl/default.aspx?taal=en. (accessed 22/10/2015)