Biotech Dealmaking Is Tough, But AgBio Deals Prove Even Tougher

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not unfolded according to those expectations, said Tim Zurliene, global trait management & licensing lead for Bayer CropScience. Monsanto, for example, last week revised its financial outlook for the second half of fiscal 2016, citing low commodity prices, generic competition to its glyphosate herbicide, and corporate restructuring costs. Monsanto’s restructuring, announced last fall, is shuttering research and development locations in RTP; Middleton, WI; and Mystic, CT.

Pricing represents another challenge for agbio companies. While drug developers can recoup their investments through high drug prices, agbio companies don’t have the same pricing power. For example, corn prices are hovering around $3.50 per bushel, which puts the commodity’s price at roughly the cost of production, Tomso said. The low prices, in turn, pressure companies to meet growth objectives. One way to meet those objectives is through consolidation, he explained.

Prospects for striking a deal with one of the Big Six are diminishing as merger activity and layoffs sweep the sector. Last month, ChemChina reached a deal to acquire Switzerland-based Syngenta, a company that operates its biotechnologies headquarters from RTP. That deal followed the December announcement of a merger between Midland, MI-based Dow, and DuPont. German giant BASF, which also has RTP plant science operations, last month announced it would slice its biotechnology workforce of 700 in half. While BASF will hold on to its RTP site and others in North America and Europe, the company is closing field testing sites in Hawaii, India, and Puerto Rico.

BASF may not yet be finished making changes. The company is preparing a counteroffer for DuPont, Bloomberg reported, citing unidentified sources. DuPont would fill a gap for BASF, which has no seeds business. The industry cuts and consolidations make it tougher for agbio startups looking for an alliance with a larger company. “When you only have six potential customers, now down to five or four, that’s an extraordinary limitation,” Benfrey said.

Small agbio companies can still reach the market without aligning with a larger partner. For example, BioResource International, a Durham agbio company that developed animal-feed enzymes, sells its products globally without any partnership or financing from a Big Ag company. Before Benfrey co-founded Hi Fidelity, he was an executive at Durham-based GrassRoots Biotechnology, a gene expression company. Benfrey said GrassRoots management decided to avoid outside funding, in part because of the challenge finding investors knowledgeable about agricultural technology. He added that GrassRoots also did not initially plan on alliances with any of the Big Six, though the company later partnered with Monsanto, which ultimately acquired the startup in 2013.

Like any startup, a company’s objective should be becoming a sustainable business rather than seeking an exit through a deal with a large company, Tomso said. He views the current industry retrenching as a window for smaller companies. Big companies are turning their focus to their core products, which reduces their ability to develop new ones. Those pullbacks can leave gaps that smaller companies can fill—as long as their products meet a market need and are sufficiently different from what Big Ag offers.

“If you’re disruptive, there’s opportunity,” Tomso said.

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