Agricultural Biotechnology Notes
William O. Bullock, Jr., Institute for Biotechnology Information Research Triangle Park, NC
"NBIAP News Report." U.S. Department of Agriculture (November 1994)
The application of genetic engineering to agriculture continues to hold great commercial potential in the eyes of many. A recent report by BioScience Securities Inc. (BSI), an institutional research and investment banking company, tells of the coming of a commercial ag-biotech revolution, bringing with it the development of novel biopesticides, insect and disease resistant plants, herbicide tolerant crops and premium vegetables (Biotechnology Business News, August 12, 1994). Although some of these products are in late-stage development or already on the market, it is anticipated that a number of agricultural biotechnology firms will move firmly into the commercialization stage during the years 1994-1997.
One of the main thrusts of ag-biotech, according to the BSI report, should be the "formation of new technology-based agricultural business systems, which will be created through the integration of new proprietary biotechnology-derived products with the agribusiness and food processing infrastructure." The formation of this new business system will be driven by a heightened inclination of companies at all points along the commercial continuum (from gene cloners to food distributors) to vertically integrate to capture the value-added benefit created by the use of biotechnology. It is thought that this integration of agricultural biotechnology with downstream agribusiness companies will lead to successful technology-based firms that combine "established dominant market share positions downstream with leading-edge technology positions upstream." Although the story told in the BSI report is positive for the agricultural biotechnology community, it has not yet been heard on Wall Street.
In contrast to the over 289 biotechnology firms that currently exist, which have been formed to focus primarily or secondarily on drug or vaccine development, there are only 74 biotechnology firms that are similarly focused on the development of plant agricultural or food products. Of the 289 therapeutic biotechnology firms, 42 percent are public while only 39 percent remain private. In contrast, of the 74 food and plant ag-biotechnology firms, only 24 percent are public, while over 50 percent are private (Institute for Biotechnology Information, Research Triangle Park, NC, 1994). Of an approximate $465 million raised through IPO's and follow-on offerings by U.S. biotechnology firms between January and July 1994, none of it was raised by food or plant ag-biotechnology firms (Strategic Developments in Biotechnology, September, 1994).
The availability of capital for start-up ag-biotech firms through venture capitalists is no better, according to Ernst & Young's 1995 biotechnology report. Its annual venture capital survey reveals that only two percent of the total venture capital invested in biotechnology went to ag-biotech companies, and this includes animal agriculture. The increased difficulty in raising capital is apparent in the fact that ag-biotech firms have, on average, only enough cash on hand to survive 12 months, down from 38 months the previous year (calculated by comparing cash on-hand to monthly net burn rate)(Lee, K.B. and Burrill, G. S., Biotech 95: Reform, Restructure, Renewal - The Industry Annual Report. Ernst & Young, 1994). As a rule of thumb, firms are considered to be vulnerable if they have less than 24 months cash on-hand.
Given the potential size of the markets catered to by the agricultural biotechnology sector, the success of an early entry product such as Calgene's recombinant tomato may be the flame that thaws the freeze on Wall Street and ignites the beginning of the "agritechnology" era.
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