The clash between old and new economies

Posted: January 20, 2008
The clash between old and new economies
(Nanowerk News) The clash between the state's old and new world economies is palpable in the cavernous, timber-framed warehouse that houses Luna Innovation's nanotechnology division.
On the second floor, where merchants once stored half-ton barrels filled with tobacco, the Roanoke-based company is now conducting research on solar cells and carbon-based molecules.
The building's facade still bears the Old Belt Tobacco insignia, but its interior has been retrofitted with laboratories and electrical reactors designed to manufacture materials used in the development of pharmaceuticals.
"The place was so run-down when the city first showed it to us," said Steven Joslin, the division's director of manufacturing. At the time, Joslin added, the structure was vacant and rats were seen scrambling about.
Luna Innovations opened the division in Danville nearly four years ago to further research into the potentially lucrative field of nanomaterials.
Since then, the division, known as Luna nanoWorks, has become a prominent economic lure for the River City, spurring development along the area's once-derelict tobacco warehouse district.
The division has added dozens of high-paying research jobs to the region and is helping boost the city's appeal to other high-tech companies.
Its success as a business anchor could be of interest to Roanoke, where officials are also striving to bulk up the local economy by attracting technology companies.
But Luna's sustained growth in Danville also hinges on its ability to translate its research into revenue-generating products, an endeavor that is likely to require tens of millions of dollars in capital investment.
"In terms of being successful, we have a long way to go. But we've also come a long way," said Robert Lenk, vice president for Luna's medical products division.
"We're trying to stretch people's minds."
Microscopic materials
The main thrust of the Danville operation is to manufacture and research tiny carbon spheres, known as Trimetaspheres, for development into coatings, solar cells and medical tools.
Much of the material production takes place in laboratories on the Danville building's ground floor. Large electronic reactors extract carbon molecules from sooty rods of graphite, the same material used in pencil lead.
The result is a small vial with a thimble-full of the company's key technology: a soccer ball-shaped carbon sphere designed to encase various metals.
The molecules, developed by Virginia Tech, measure a little less than a billionth of a meter -- or a nanometer -- across and form a secure cage in which the company can place different metals to create a variety of distinct and potentially-marketable products.
Such carbon-based nanomaterials are typically valued for their strength and today are being used to make everything from automotive paints to golf balls. The industry is young but rapidly growing. It is expected to reach $1.5 trillion in size by 2015, according to the National Science Foundation in Arlington.
Luna, in particular, is banking on a new medical imaging technology as its first line of product-generating revenue.
The product, a contrast agent intended to improve disease-detection in patients receiving MRI scans, could be on the market in as early as two years depending on FDA approval, said Kent Murphy, founder and chief executive officer of Luna Innovations.
The nanoWorks division also plans to expand research into solar cell technology and is working on therapeutic applications for its carbon-based nanomaterials.
But such heavy investing into its products and innovation comes at a pivotal time for the company, which is on course to lose another $9 million in 2007 according to Luna's own projects. In 2006, it lost $9.4 million on revenues of $23.6 million, company filings indicate.
Currently, most of its revenue is generated through contract research -- fee-for-service contracts from government agencies and industrial clients looking for new problem-solving technologies. Luna is looking to reverse that trend by pumping investments into its product development side, which it has noted will improve margins.
To this end, significant investments are being poured into Danville, some through contract research but mostly from Luna's own company funds, Murphy said. A previous report in 2005 indicated that Luna had already sunk roughly $9 million into developing its disease-detection agent for MRIs.
At the time, the company said it would need another $15 million to $25 million to bring the medical agent to market. It also sought to raise another $6 million to $9 million through its initial public offering in 2006 for research in this area.
Murphy said he could not speak specifically about investments in the division because Luna is a publicly-traded company, but he noted that more than $6 million has already been spent in Danville since 2006 -- with more to come this year.
"Our objective is not to be in the material-selling business. It's to be in the pharmaceutical and solar cell business," Murphy said.
Road to technology row
Outside the nanoWorks building, Luna's intentions are already helping to alter the city's economy.
"I'd say it change the paradigm in Danville," said Jeremy Stratton, the city's economic development director. "It started rolling the ball down hill for companies that are looking to do the same thing here."
With a population of about 47,000, Danville is about half the size of Roanoke. Murphy said he first considered locating in the city about five years ago after reading about its high unemployment rate and dying textile industry that was laying off skilled workers, some with backgrounds in chemistry.
In hammering out a deal with the city, Luna received about $900,000 in incentives to bring more than $6.4 million in taxable capital investment and 54 jobs to the region by 2009. The division now has about 38 employees, up from two in 2004, Lenk said.
And while the company missed some benchmarks set by the incentive agreement -- most notably in 2006 when its job growth was slower than expected -- officials with the city say the company has surpassed expectations in terms of job quality.
Salaries offered by Luna in Danville range from $70,000 to $80,000 a year, double the figure set by the incentive package. It is also heavily recruiting scientists and engineers from across the country. Those jobs tend to have a multiplier effect on the local economy, Stratton said.
"You can count for every job created, that's at least two jobs. So if you have about what 38 now. They pull another 76 jobs in the area," he added.
Charles Gause, vice president of operations for Luna's nanoWorks division, said the company had originally planned to open a nanomaterial manufacturing facility in Danville with a high number of technicians, but has since shifted its focus to research.
"The market didn't develop as we'd like from the raw materials side, so we need to replace our revenue with contract research," Gause said. "So our average salary doubled the minimum."
The division has also helped raise the city's profile among others in the technology field and has led to a modest revival of the River City's tobacco warehouse district.
"We're getting a lot more looks from pharmaceutical, biotech and other types of companies that hire scientists and engineers," Stratton said.
Coming this year, another technical support company is expected to move in next door to the nanoWorks building, and loft condos are planned across the street from Luna in Danville.
But perhaps the largest expansion slated for the Danville's warehouse district is coming from Luna itself.
Murphy said the company plans to double its space by adding offices to the building next door. The city intends to spend $1.5 million to refurbish that space, which it will in turn lease to Luna and other companies.
Most of the expansion will be related to Luna's pharmaceutical work, but the company is also looking to expand its solar cell segment as well, Murphy added.
After all, company officials noted that Danville has some built in geographic advantages, such as its proximity to major universities and the Research Triangle Park in eastern North Carolina.
And the building itself, with its exposed red-brick walls, massive loft spaces and sense of history embedded in its wooden floorboards, is not a bad selling point for recruiting scientists to this former tobacco-trading stronghold. "It helps to be in a building with character," Lenk said.

Source: Roanokes Times (Christina Rogers)