Tag Archives: Syngenta

Battle of Titans: Monsanto and BASF Poised to Lock Horns Over Syngenta

Syngenta was the subject of breathless press coverage once again this week, with headlines about Monsanto’s takeover intentions capturing a significant portion of the coverage, and BASF’s newly revealed activities taking a close second. For those clients who are unaware of the ongoing posturing in the space, here’s a quick recap:

Monsanto has previously made multiple offers, over multiple years, to purchase Syngenta. These offers have carried varying valuations for Syngenta, with the most recent and seemingly serious proposal valuing Syngenta at $45 billion. Syngenta CEO Michael Mack has spoken up, calling the offers to date an undervaluation of the company, and that the anti-trust implications would be significant; additionally, Syngenta has posted promising growth figures recently, making it a poor time to consider offers. Meanwhile, Monsanto executives have been working in the background, claiming to have verbal support from various Syngenta shareholders. Very recently, BASF announced its intentions to block Monsanto’s efforts, stating that they had raised bridge funding for a potential takeover. Rather than take an active role, however, BASF intends to remain reactive and claims it will only advance its efforts in the event that Monsanto brings a formal proposal forward.

In light of these battling titans, Lux asks the question: What would the impact(s) on the agribusiness industry be if either titan is successful?

If Monsanto is successful in convincing Syngenta to accept its overtures, it will retain Syngenta’s chemicals businesses and divest the company’s seed businesses. Monsanto believes this will assuage concerns of anti-trust regulators, though it’s possible Monsanto will have to divest essentially all of its seed businesses and become a pure agrichemicals company to truly satisfy those demands. BASF will number among the would-be buyers for a portion of the seeds side. Based on comments in the press, Monsanto is likely to treat the transaction as a means to access Syngenta’s existing facilities and customer base, rather than its R&D pipeline. Current Syngenta R&D efforts may be shuttered in favor of ongoing Monsanto efforts.

Monsanto is likely to move its headquarters to Basel where Syngenta is already headquartered, thereby taking advantage of the more attractive corporate tax situation in Switzerland compared to the U.S., saving billions of dollars that it may well use to sweeten the deal for current Syngenta shareholders. Current dealers of Syngenta seeds and chemicals will lose out, likely to be forced to shift to Monsanto-branded products. Growers currently using Syngenta seeds may switch to other agrichemical providers rather than purchasing Monsanto products, a potential boon for the eventual purchaser of Syngenta’s current seeds business. Monsanto’s precision agriculture offerings will likely become more accessible to European growers (and will be marketed to them more aggressively), leading to an increased cost of production and increased yield for corn, soy, and wheat in Europe. Within five to eight years, European row crop farm incomes will be much more volatile. There will be little noticeable change for U.S. growers beyond the disappearance of the Syngenta brand from available options, and potential marketing pressure to switch to Monsanto-branded products.

BASF has said it will only make a formal offer as a defensive move in the event Monsanto follows through with a formal offer of its own. If BASF succeeds, it will be because it brought a more attractive offer to the table than Monsanto could. Anti-trust concerns would dominate the initial joining between these two as well, likely prompting sell-offs. As BASF has been much less vocal in the press about its intentions, it is harder to predict its strategy. Lux would expect BASF to focus on chemistry over seeds as well, perhaps making Syngenta’s seed business available for purchase. The potential tax implications are not so impressive in this case, and it is unlikely BASF would move its headquarters. The combined company would likely move quickly to dominate the European market, potentially at the expense of market share in the U.S. That could end up being a boon for Monsanto, which would likely intensify its focus on gaining U.S. market share. The long-term result of a BASF success would likely be increased regionality among the major agribusinesses.

In any event, if either attempt is successful, the result will be a even smaller group of leading companies in an already well-consolidated industry. Rather than the “Big Six” of agriculture to date, the new group will be the “Huge One and Big Four” going forward. A smaller number of major players can often stifle innovation in an industry, as it means fewer potential partners and licensees for startups trying to innovate. Either overtaking company should double down on open innovation to ensure that the long-term impacts of its actions don’t include a drought of novel ideas for agriculture.

The Seed Treatment Industry is Massive, but Lacks Future-Proofed Solution Diversity and Technology Enablers

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Seed treatments are a rapidly growing aspect of commercial agriculture. From seed disinfection to fungicidal and insecticidal treatments that protect growing seedlings, more and more seeds carry technology with them when planted. To identify opportunities and threats within the commercial seed treatment market, we analyzed the breadth of options available for a selection of major crops, specifically corn, soy, wheat, and vegetables. As part of the analysis, the chemical seed treatment offerings on the market today were also catalogued to identify and categorize the active ingredients behind each product, and the associated modes of action.

This analysis focused on insecticides, fungicides, and nematicides, although the offerings for nematicides were limited in vendor (Syngenta) and active count (three), so we focused more deeply on the former two. What is clear is that there is significant risk in the seed treatment industry: leading agrichemical suppliers have relatively broad portfolios of products, but those products rely on active ingredients with a small number of modes of action. There is a high risk of resistance emerging in both insects and fungi as a result, and regulatory changes pose threats to seed treatments, evident from the European ban on neonicotinoids. With neonicotinoids representing more than one third of the available active ingredients in these crops, European growers face the greatest challenge in protecting their seeds and will be most desperate for alternatives.

These risks demonstrate an unmet need for actives with novel modes of action. To respond to this, insecticide options (and insecticide developers) will need to diversify as regulatory pressures will play a role in neonicotinoids losing their market dominance, while emerging insect resistance will further reduce growers’ options for seed protection without new approaches. Polymer adhesives, plasticizers, and colorants need to be more refined as seed treatment development focuses on maximizing the activity of small molecule pesticides. In order to use ultra-low doses of these types of novel actives, carriers will be needed, while functional polymers, especially those which help the seed scavenge soil moisture or minimize water infiltration into the seed before germination, will need to continue their advancement.

There are numerous glaring opportunities for incumbents and new entrants alike, and a meaningful set of start-ups and SMEs who have already started down the path of development, for those looking to accelerate penetration through M&A or partnership. What is certain is that the need for new technology is pressing and this opportunity is not yet being fully addressed.

Biopesticide Developers: Growing Into Winners and Losers

Following our report in December 2013 analyzing the biopesticide market and potential future growth (client registration required), Lux has continued to monitor the space for promising technologies and developers. Using the Lux Innovation Grid (LIG) to rank companies, we depict those we’ve spoken to in the past year in the figure below. Companies are placed on this graph on the basis of technical value, business execution, overall maturity, and our own LuxTake.

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The picture that emerges is a crowded space with 17 smaller developers showing high potential and just five larger players exhibiting dominance. In line with our findings in our earlier report, many of these smaller developers offer a single solution. The cohort of “high potential” companies in this figure are those with technical value scores of three or greater, but low scores for business execution. From the LIG, industry trends emerge:

  • This is a high potential industry. The plethora of companies ranked in the upper half of this graph indicates a lot of ideas with high technical value. From new entrants like one-year-old EdenShield to those with new initial public offerings (IPOs) like Marrone BioInnovations, young companies and companies early in their corporate development journeys abound. As we showed here (client registration required), agribusiness heavyweights are pouring dollars into the field to the tune of more than $2.5 billion. For companies wanting to enter the fray, the sooner the better – we anticipate that most of these players will be established or acquired in the next three years.
  • Getting to dominance means getting to revenue. The key differentiator between the high potential and dominant companies in this space is getting to $10 million in revenue, regardless of the market segment the money is coming from. Stockton Agrimor is a great example of success here, and Terramera is poised to dominate in similar fashion – Stockton’s revenue of more than $50 million is mainly from biological pest control markets outside of agriculture, including home and institutional pest control. Marrone BioInnovation’s biological product for mussel fouling in water pipes is another example, with Marrone clearing $14 million in revenue last year.
  • Strong partnering separates the good from the great. The cluster of three companies in the far right of the graph share one attribute: strong strategic partnering. Grasslanz, TyraTech, and Stockton Agrimor have partnerships with strong R&D teams, Terminix, and Syngenta, respectively, all of which drive growth and distribution.

For clients with an eye on biopesticides, this graphic provides two key takeaways: the space is rich in high-potential ideas that are starting to generate millions in revenue poised for growth of 8.5% a year or more; and partnerships are providing the business support that will shift high potential companies into dominance in the next three years. For both reasons, clients should vet these players now to secure a position, or plan to stay on the sidelines.

The Innovation Gene-ie is Out of the Bottle; Let’s Wish for Better Genetic Tools and Rules

Biological and genetic technologies like DNA sequencing and synthesis are advancing rapidly, outpacing even Moore’s Law of semiconductor performance (as Rob Carlson has pointed out). Genetic technologies are now at a point where long-standing assumptions about a wide range of legal, ethical, and societal issues are being debated or even overturned:

  • Collective (bioethics) versus individual (grass-roots funding) rights. Several U.S. states voted on mandatory labeling of GMO foods as a consumer protection, but sloppy science and sloppier lawmaking led to their defeat (client registration required) at the ballot box – and a victory for ag biotech. At the same time, civil society advocates ETC Group tried to stop the Kickstarter crowdfunding campaign of Glowing Plant, a house plant genetically modified with a bioluminescent non-toxic protein.[1] ETC did convince crowd-funding site Kickstarter (client registration required) to prohibit future campaigns for genetic technologies, but – possibly eyeing GlowingPlant’s massively successful $484,000 campaign – Kickstarter competitor Indiegogo rolled out the welcome mat (ironically, ETC’s “kickstopper” campaign there raised just 10% of its goal). In both cases, popular sentiment sustained pro-genetic technology, even though the developers ranged in scale from global giant to garage startup – the latter putting ETC in the odd position of being the bully. Even if you wanted to stop it, could you? As startups and garage biotech groups like DIYBio and BioCurious disseminate access, know-how, and funding, they are sharing data electronically on how to make their own glowing pets and plants and snacks, circumventing antiquated restrictions and IP schemes.

Is it time for a Genetic Frontier Foundation?

To someone from the information technology (IT) world, these and other genetic technology (GT) issues will sound very familiar: open source, patent trolls, privacy, security, innovation – and the list goes on. The similarity is not coincidental: electronic and genetic data have both transitioned from a past when they were closely tied to a physical substrate, to a future where they are simply data – easily copied, changed, simulated, and transmitted. In IT, the non-profit Electronic Frontier Foundation (EFF) has played an indispensable role in representing citizens, entrepreneurs, and other smaller and newer players – but larger ones, as well, e.g. on Net Neutrality – in both updating and preserving technology-associated rights from regulatory overreach and unfair, uncompetitive practices.

The EFF addresses issues ranging across ownership of intellectual property, free speech and information transparency, ethics, and innovation – witness IP (Open Source, Fair Use, patent trolls) access (Rebroadcasting, Digital Rights Management, Broadcast Flag), privacy (Do Not Track, NSA spying), and many other topics. As such, the EFF offers a model for how the users and developers of genetic technologies might collaborate to address the issues they jointly face. Its website says:

When our freedoms in the networked world come under attack, the Electronic Frontier Foundation (EFF) is the first line of defense… New ideas challenge the status quo. That’s why people who make cool tools get so much heat from the old guard – and their lawyers.

Do genetic technologies need a similar body? Many GT organizations and laws do exist to address these and similar issues – like Genetic Alliance in personal genetic privacy, BioBricks Foundation in open-source gene IP, BioFAB in bioethics, and BIO in regulatory matters. Sometimes these groups are on the same side, but they can also be unaware of each other or even in opposition (when their economic interests diverge). And they are frankly not as aggressive or effective as the EFF has been. The legal, economic, and ethical aspects of genetic technology are deeply interwoven, and they share many of the same stakeholders, which is why it makes sense now to consider them together. Moreover, these issues are just beginning in genetic tech (whereas the EFF has stayed pretty busy with new IT issues throughout the nearly 25 years since its founding).

Just as the EFF was founded to reinforce or reform law, regulation, and policy around digital technologies, we now need a “Genetic Frontier Foundation” to ensure the same beneficial co-evolution of genetic technologies and the rules that govern their use in treating disease, increasing food supply – and yes, glowing house plants. Despite today’s outmoded regulatory, IP, and ethical environments, genetic technologies – and the number of people who know how to use or make them – have grown so far and so fast, it’s nearly magical. They will only accelerate, not slow or retreat back into the bottle. With coordinated advocacy, developers and users will continue to reap the benefits we all wish for.

 


[1] The same protein is used to make GloFish pets, which are approved by the U.S. Food & Drug Administration (which has jurisdiction over biotech animals), and found to be safe by the United States Department of Agriculture and United States Fish and Wildlife Service. They are banned in only one state, California. Notably, FDA considers GFP to be an “animal drug,” and GFP is in the middle of a notoriously complex patent pool (started by GE Healthcare), opening up further legal and regulatory questions around its ownership and use.

The boom in bio-based materials and chemicals is really a boom in synthetic biology

Venture capitalists (VCs) invested $3.1 billion in bio-based chemicals and materials developers since 2004. As many of those start-ups reach megaton scales and launch IPOs, Lux Research analysts sought to find which technologies venture investors favored. This week’s graphic comes from their just published report (client registration required), in which analysts tracked 177 venture transactions involving 79 companies operating in five technology categories – biocomposites, bioprocessing, thermochemical processes, crop modification, and algae. In short, they found:

Bioprocessing developers brewed up $1.89 billion in 96 deals. Bioprocessing developers – especially synthetic biology companies – landed more than half the total venture capital invested since 2004. Encompassing technologies like fermentation, phage display, natural breeding and synthetic biology, all bioprocessing platforms employ some sort of organism as a “factory” for creating products as diverse as sweeteners and catalyst supports. Intrinsically flexible, these platforms enable the likes of Amyris, Codexis, LS9, and Solazyme to produce multiple products from multiple feedstocks, thus ensuring a relatively low-cost route to high-value compounds and providing a hedge against feedstock and product price volatility.

Thermochemical technologies raked in $577.0 million in 31 deals. Thermochemical processing encompasses technologies like gasification (Enerkem), catalysis (Avantium, Inventure), and acid hydrolysis (HCL Cleantech, BlueFire) that sometimes convert biomass to an intermediate like sugars or syngas, and sometimes go all the way to an end product. (e.g. Virent’s paraxylene is used in Pepsi’s famed 100% bio-based PET bottle

Crop modification companies harvested $371.7 million in 28 deals. IPOs are less common fates for crop modification companies which, as you may have guessed, modify crops to be more amenable and economical for use in bio-based materials and chemicals. Instead, companies in this category, like Athenix and FuturaGene, usually end up being acquired by the likes of Syngenta, Monsanto, DowAgro, or Bayer CropScience.

Algae developers saw $190.5 million in 13 deals. Notably, that figure only encompasses start-ups developing algae strains, cultivation systems, and processing equipment for creating industrial chemicals. Representative developers include Bio Architecture Lab, a macroalgae developer, and Israel’s Rosetta Green, which had raised $1.5 million in venture funds, but more recently brought in almost $6 million in an IPO on the Tel Aviv TASE. Excluded from this category are companies primarily developing fuels (which we cover in our Alternative Fuels Intelligence service), and companies like Solazyme and Green Pacific Biologicals that use algae for fermentation (and, thus, are categorized in bioprocessing, above).

Biocomposites developers brought in $108.9 million in a mere nine transactions. This category includes bioplastic blends, some starch plastics, and bio-based foams, from the likes of Cereplast, EcoSynthetix, Ecovative Design, and Entropy Resins. Because of the relatively simple nature of these technologies, VCs often don’t see them as investment opportunities – forcing companies like SoyWorks and Biop Biopolymer to find other sources of funding.

Source: Lux Research report “Seeding Investment in the Next Crop of Bio-Based Materials and Chemicals.”