Chemistry without Borders: Careers, Research ... - ACS Publications

Chapter 16

Chemistry without Borders: Careers, Research, and Entrepreneurship Downloaded from pubs.acs.org by CORNELL UNIV on 09/23/16. For personal use only.

From Chemistry Student to Chemical Entrepreneur and Public Company CEO Frank Jaksch* ChromaDex, Inc., 10005 Muirlands Boulevard, Suite G, Irvine, California 92618, United States *E-mail: [email protected].

Entrepreneurship involves matching a need with an innovation, and this concept is no different in the field of science and chemistry. Before we take a look at the world of chemical entrepreneurs, let us look at internet or computer scientists, who are often known more for their coding capabilities than their business expertise. Why is there a long list of insanely wealthy computer programmers, such as Bill Gates, Mark Zuckerberg, Pierre Omidyar, Sergey Brin, and Larry Page, just to name a few, that became incredibly successful entrepreneurs? Why don’t we see more science or chemistry entrepreneurs sharing similar success? What motivational difference exists in the world of computer science that drives entrepreneurship, and why is it seemingly so different than chemistry? Innovation and entrepreneurship in science and chemistry can have a real world impact on a wide range of very diverse global markets, including food, drug, agriculture, personal care, and energy, just to name a few. In 2014, ChromaDex, a natural products chemistry company, did business in over 40 countries, with over 28% of its total revenue coming from international customers. So how did a chemistry student from Valparaiso University make a decision to start a natural products chemistry company in 1999, as well as figure out how to not only survive, but prosper in a growing global market interested in natural products chemistry?

© 2016 American Chemical Society


Introduction: The Path to ChromaDex ChromaDex is a public company built on a natural products chemistry platform that utilizes business relationships with universities to track and license research-backed ingredient technologies (1). The company began in a spare bedroom of my house in 1999 and went public in 2008. I graduated from Valparaiso University in 1991 and did what every chemistry major was supposed to do - I got a job working in a laboratory. I pondered going on to get my PhD, but decided against it. My time at the quality control lab did not last long and after a year I decided that I needed to move on to something different. However, I knew that I still wanted to stay in the field of chemistry and use my education for something productive. I loved science and the chemistry side of things, but I did not want to work in a laboratory. What other options were there for someone with an undergraduate degree in chemistry? After all there are plenty of businesses that involve chemistry, surely there must be jobs outside of the lab that require chemistry. The decision was clear; I moved towards the business side of chemistry and landed a job in 1992 with the technical sales division of a growing analytical chemistry business. By 1993, my success in technical sales led to an opportunity to set up and run international subsidiaries for this growing analytical chemistry business. But yet again, this was still not enough, and something was still missing. Eventually, I left in 1999 to pursue what would become ChromaDex. I was 29 years old, which was the ideal time for starting a business because I had minimal obligations, family or financial, that positioned someone for taking this type of risk. However, before discussing entrepreneurship from a chemistry perspective, let us take a look at entrepreneurship in the computer programming industry.

Chemical Entrepreneurs versus Computer Scientists Despite the value of chemistry in some of the world’s largest industries, famous and successful entrepreneurs seem to congregate in the computer industries. The good news, however, is that the market seems to be changing. There is a massive boom currently happening in the biotech innovations market that is producing great changes and big companies. Many of these companies are often referred to as “unicorns”—companies valued at over $1 billion who have achieved success through fundraising. Theranos, a company started by Stanford drop-out Elizabeth Holmes, is revolutionizing the blood diagnostics market, expanding the scale of information that can be obtained from a single drop of blood. Even more surprising is the $10 billion price tag she has achieved by following the techy Silicon Valley computer model. Through this model, she has been able to not only start a small company with an innovative and disruptive technology, but also garner a very large valuation. Other chemistry-based companies such as Moderna Therapeutics and Calico (a Google Ventures investment) are following this same model. 138


Venture groups are also expressing an interest in biotech innovations. For example, Palo Alto Ventures is currently offering $1 million to any idea that can make significant progress in addressing issues related to aging through a prize called the Palo Alto Longevity Prize. The food industry is also beginning to make use of the Silicon Valley business model. Hampton Creek, a company founded by Joshua Tetrick, has found success with a non-egg-based mayonnaise marketed under the name Just Mayo. While the product itself may not be particularly interesting, the business platform of the company is progressive. Having been designed to revolutionize food products, the company uses chemistry and biology to find and create innovative products. All of these examples clearly demonstrate that innovation is happening in the industry.

What Needs To Be Done? From a chemistry perspective, what needs to be done to further fuel innovation? Success Brings Success Unlike a tech-related presentation that would have a full auditorium, chemistry lectures do not attract very much interest. We need to start by filling the seats of chemistry presentations and generating interest in the field. It is said that “success brings success”, and this is absolutely true; the more success that the chemistry industry has, the more the seats will begin to fill up and produce other success stories. Undergraduate Programs Need Updating According to a recent Wall Street Journal article, chemistry as a major is on the decline (2). While it used to be said that economics was a “dismal science”, it is now being suggested that chemistry is the new “dismal science”. Undergraduate programs are too rigid and leave little room for students to pursue side passions. This has been driving students away from the field. Of the one-third of new college students who pursue a major in STEM, only 1.2% of all freshmen will become chemists. Moreover, this number is still on the decline. Even more concerning is that universities are having a more difficult time trying to get chemists in the freshman classes. For those that do join, many subsequently transfer out of chemistry to pursue other programs. This is troubling for the industry. While this is a problem for the field as a whole, it also creates problems for those in the chemistry businesses, who are looking to hire chemists. As a result, it is clear that steps are needed to be taken to reinvigorate chemistry programs at the university level, not only to entice students into becoming chemists, but also to retain those who initially begin their studies in chemistry. How can this be done? 139


For one, professors need to recognize this trend and foster students that challenge the norm. This has not been commonplace in the chemistry world; however, there are a couple examples that have emerged: Emory University in Atlanta and Davidson College in North Carolina have been attempting to move beyond the traditional format and move on to a new style of chemistry based on interdisciplinary foundational courses and an array of electives. Davidson’s new curriculum, for example, requires students to take one course each in five foundational areas, and then allows the up-and-coming chemists to choose from a range of higher-level classes on subjects such as medicinal chemistry and immunology. Chemistry Needs Founders and Joiners In a recent article in Science, the concept of “founders and joiners” was discussed in relation to chemistry (3). There are two styles of entrepreneurs: the ones who will found a company, and the ones who take a risk by joining a company at an early stage. As a rule, “founders” are significantly more risk tolerant and have a stronger interest in management, whereas “joiners” are more interested in functional work activities, such as research and development. In a recent study, 4000 PhD’s were interviewed about their opinion on this topic. Forty-six percent expressed interest in joining a start-up as an employee, while 11% expected to one day start their own company. Incidentally, the article also cited that mandated entrepreneurship training is likely to be inefficient in fostering the “founders and joiners” relationship. Incubators Lower Barriers to Entrepreneurship Incubators are not new, but in recent times their popularity has been increasing. Historically, incubators have not been very successful, but the concept is beginning to turn a corner and they are starting to achieve results. Massachusetts Institute of Technology (MIT) has a life science incubator (LabCentral) where any scientist can rent a bench with others to pursue their own entrepreneurialiesdreams (4). In just six months after opening, the center had reached capacity. Last year alone, LabCentral tenants collectively raised $200 million. Similarly, Venture Development Center at the University of Massachusetts, Boston, had 104 applicants for a mere three open laboratory spaces. One of the reasons incubators are important has to do with visibility; scientists can see that there is place on campus where they can talk to somebody and try to find a way to take their interests and research and transfer them into a start-up. As a scientist entrepreneur, your time should be exclusively focused on what problem your business can solve and how you use science to address it. Without incubators, these scientists may not know where to start or how to take their ideas to market. The visibility angle is half the battle. How do we find more chemists that have an entrepreneurial spirit and are willing to take the necessary risks to make entrepreneurship happen? 140


The Real World Impact of Innovation and Entrepreneurship in Science and Chemistry Innovation is built upon investments and advances in science technology, engineering, and mathematics. Chemistry is associated with more than 96% of all the world’s manufactured goods, but without innovation this would not be possible. There are two closely related concepts in this field: “innovation” and “disruptive innovation”. It is “disruptive innovation” that will be the real game changer. Unicorns (as previously mentioned), by definition, are disrupters; if you’re not a disrupter, you have no chance of becoming a unicorn. Not every company has to be a Unicorn, but it is disruptive technology that is going to “shake up the ranks” and drive success. Furthermore, it is this disruptive success that will breed more success; if we want to get more people interested in chemistry, then we are going to need more disruptive technology.

“Build It and They Will Come” Is Not a Business Model One of the main problems experienced by the industry is that many great inventions never make it to commercialization. A scientist could have the greatest technology on the planet, but if it cannot be successfully commercialized, then it is basically dead. Moreover, the best technology is not always the winner. This is accurately illustrated by the early days of Apple and Microsoft. Apple was technologically superior, but Microsoft was more successful. In the words of Madeleine Jacobs (5), former Executive Director and CEO of the ACS: “Many scientists intrinsically understand that their discoveries might translate into important, highly profitable entrepreneurial enterprises. But making a discovery or patenting an invention is only the beginning of creating a company. Bringing the idea or invention to commercialization and creating a successful company requires a different set of skills and knowledge than carrying out basic research.” This goes to show the patenting process or the patent of an invention is only the beginning of creating a company. ChromaDex, as an example, has built its entire business model on this principle.

Commercializing Innovation Failed commercialization is a common problem with scientist founders who believe their technology is so good that it will sell itself. This is not a business model. Some will succeed with this, but the odds are heavily stacked against this approach. To set yourself up for success, you have to build a business plan and find a way to fund it. Moreover, you need to find the “joiners” (if you are a “founder”) because the “joiners” will be critical to your success. And when you go in search for “joiners”, you want to find people who will be committed to the company and will stay for a long time - you don’t want to train people and have them leave. 141


Another key issue is establishing a sales and marketing team. A common pitfall is that scientists do not often understand sales and marketing. However, there is a caveat to that: If you are a biotech company, you don’t need to focus as heavily on sales and marketing. Instead, it is more important to put your energy toward a developmental plan that will get the drug to market. If success comes, be prepared to grow. There have been stories where success actually killed the company, so it is possible to fail by succeeding. This must not be overlooked.

ChromaDex: An Overview The company was founded in 1999 by me, Frank Jaksch, and is headquartered in Irvine, California. Since then, ChromaDex has expanded to employ approximately 80 people and taken on two additional locations, with an analytical laboratory in Boulder, Colorado and a regulatory consulting office in Rockville, Maryland - both expansions are the result of acquisitions. The analytical laboratory was acquired in April 2003 from NaPro BioTherapeutics, while the regulatory consulting office acquired Spherix Consulting in December 2012. When founding the company in September 1999, standard procedures were followed - a business plan was established, and then the search for funding began. But then something interesting happened. When the hunt for venture capitalists and investment banks was just kicking off, the internet bubble was at its peak, and then three months later, it popped. Consequently, this left ChromaDex with no financing and the money came to a grinding halt. However, this was not just a problem for ChromaDex; the business of financing early stage companies or start-ups dried up entirely. Not anticipating any rapid improvement in the market, the only option was to take a slower approach, by boot-strapping or self-funding operations until the revenue and cash flow growth could sustain the company. This resulted in 9 years of personal funding and not receiving a salary for the first 6 years. ChromaDex continued to grow. Finally, in 2008, ChromaDex received its first outside significant funding at the same time the company went public. A Unique Business Model At ChromaDex, the chemistry component is not the most important aspect of the business. The company utilizes information flow that comes from the growing customer base. This comes primarily in the form of market intelligence derived from research activity at university and research institute customers. ChromaDex sells compounds out of its catalogue to research institutes and universities for early stage research. This serves as a great guide to identify potentially valuable intellectual property coming out of the research track at an early stage and then to overlay it with interest in the consumer product markets. This model puts ChromaDex in a unique position to cherry pick valuable intellectual property and then commercialize novel ingredient technology. 142

Essentially, ChromaDex allows researchers to spend millions of dollars developing technology and then the company licenses and develops a product that can be commercialized. This platform works due to the vast amount of technology coming out of the research track. Oftentimes, researchers don’t understand how to commercialize their product. This is where ChromaDex, in particular, has been very successful. Through a four step process - discover, acquire, develop, and commercialize, ChromaDex has been able to successfully commercialize technologies into multi-billion dollar markets.


International Markets International markets are difficult to avoid, even for startups. For ChromaDex, the international marketplace was essential and one of the first sources of revenue. In today’s world, any time you launch a viable product that meets a real need, you will inevitably be pulled into international business. It is very important to understand the risks of doing business internationally. International markets are very different from domestic ones and have many more considerations, such as understanding international sales and payments as well as distribution channels. Business relationships with international customers are very different from domestic customers. This can also be true with international vendors as well. In addition, the business risks associated with dealing with international customers and vendors are also very different. As a company, ChromaDex relied heavily on the international market. In 2014, 28% of customer accounts were international, 25% of sales were made on the international market, and 71% of the 25% of international sales were conducted through international distributors. Understanding the distribution track and knowing how to navigate it is incredibly important because sometimes products will not be sold directly to the customer. Incidentally, when looking at the sales numbers from 2001, the ratio of domestic to international sales was roughly the same because of ChromaDex’s early focus on international sales. Life as a Public Company CEO Why go public? There are right and wrong reasons. For one, it is a very efficient way of raising capital. Everyone is familiar with venture capital, but this is sometimes also referred to as “vulture capital”. This label is, in part, true. The earlier the stage of the company or technology is, the more the VC will take. “The longer you can stave off the wolves in going to raise money, the better you are going to be.” When ChromaDex went public and raised money, it chose a route called a reverse merger transaction, which some may not have considered as being the best decision, but ended up being successful as a cost-effective path. The success was due in large part to everyone at ChromaDex having done their homework. They made sure to have all the right people in the right places when the transaction went through. 143


Just three months after ChromaDex went public in 2008, the market crashed again. This time, however, ChromaDex was out in front of the crash, rather than behind it. Was it good to be a public company in a market that bad? No, but at the end of the day it did not make a difference because the funds had already been secured and there was enough cash in the bank to not only help the company weather the storm, but to help the company prosper during an incredibly difficult time in the world economy. Running a public company requires learning a completely new set of skills. Unlike running a privately held company, public companies have to deal with investors, bankers, lawyers, accountants, auditors and analysts, do a lot of public speaking, and conduct conference calls. None of these newly needed skills have anything to do with chemistry, and they are most certainly not skills that are taught in undergraduate chemistry classes. In reality, the end result is a “tale of two companies.” On one hand, there is ChromaDex the public company run by the CEO, and on the other there is the actual business itself. As a result, the two sides are run completely differently. Many of the ChromaDex employees have little knowledge of the public side of the company and are focused exclusively on the business aspects of it.

Conclusions There is a wealth of innovative and disruptive innovations that are being created in university research laboratories. However, failed commercialization can kill these technologies. As a result, companies like ChromaDex focus on licensing this type of intellectual property and commercializing it. The more success there is with commercialization, the more momentum that is built. Currently, the industry is moving so quickly that ChromaDex struggles to keep up with the new technology licensing opportunities that are in front of us. In the beginning, ChromaDex would use its unique business model to find and license out technology on its own, but following the company’s success, the tables have turned and it is now being sought after by scientists seeking a viable partner to commercialize their technology (6). Modernization of the chemistry curriculum is essential to incentivize chemistry students to stay in the field and to help them realize that there is more to chemistry than just working in a lab. There is a whole business side and entrepreneurial side to the industry. Moreover, both graduate and undergraduate chemistry faculties need to better identify students with entrepreneurial spirit and find ways of advising or mentoring them. It is important that any student with an entrepreneurial spirit has the support they need to be successful. Along this same line of thinking, incubator type programs can provide approachable or visible options for students and faculty. The bottom line is that we need more chemistry entrepreneurs. The more we have, the more we will create. There are a lot of great companies appearing - some with real disruptive technology - and now is the time to “throw some fuel on the fire.” 144

References 1.


2. 3. 4. 5. 6.

ChromaDex website; https://chromadex.com/About-Us/About-ChromaDex. html (accessed July 1, 2015). Korn, M. The Wall Street Journal (U.S. Edition) 2015 April12. Roach, M.; Sauermann, H. Science 2015, 348, 1200–1203. Gura, T. Science 2015, 348, 1196–1199. Jacobs, M. Chem. Eng. News 2011, 89, 32–48. ChromaDex CEO Frank Jaksch to Be Interviewed Today on Clear Channel Business Talk Radio DFW 1190AM; http://finance.yahoo.com/ news/chromadex-ceo-frank-jaksch-interviewed-151114724.html (accessed January 6, 2014).

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Chemistry without Borders: Careers, Research ... - ACS Publications

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