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BUSINESS & SEEDS: Monsanto’s biotech makeover takes root - Developing drought-resistant GE crops







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TITLE:  MONSANTO’S BIOTECH MAKEOVER TAKES ROOT

SOURCE: U.S. News & World Report, USA

AUTHOR: David LaGesse

URL:    http://www.usnews.com/usnews/biztech/articles/070819/27monsanto.htm

DATE:   19.08.2007

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MONSANTO’S BIOTECH MAKEOVER TAKES ROOT

It scores with corn and soybeans. Next up: battling drought

Rows of crops at a Monsanto test farm near Jerseyville, Ill., can read like passages from the Old Testament. These sick-looking plots of corn are beset by a plague of beetles, those by a plague of moths. And back in the corner of one field, deprived of moisture amid a midwestern heat wave, stands corn with stalks that are browning and leaves curling. The plants are suffering from the first signs of drought, the indiscriminate killer that has most vexed agriculture since its beginning.

Growing next to the wilting corn is Monsanto’s future: rows of corn that are equally parched but that stand taller and greener. They carry a gene, developed by Monsanto scientists, to help the corn weather a dry spell. It’s a trait that Monsanto executives are betting will drive the company forward another decade, if not longer.

Drought tolerance is a potential blockbuster, bringing benefit to farmers worldwide and riches to the company that successfully gets it to market. ”It has immense, global appeal,” Monsanto Chairman and CEO Hugh Grant says at the company’s St. Louis headquarters. ”It has the potential to reshape this company one more time.”

That’s saying a lot for Monsanto, which entirely remade itself during the past two decades. It has shifted from an industrial chemical company to one focused almost entirely on plant breeding, most notably in the science of transplanting genes from one species to another. When he joined the company in the early 1980s, says Chief Technology Officer Robert Fraley, ”we owned oil fields, turning the oil into plastics. Now we’re entirely about seeds and biotech.”

 

”Frankenfoods.”

The company weathered tough years in the transition. Monsanto had spun off its chemical business in the 1990s and was briefly owned by Pharmacia, a pharmaceutical company that wanted Monsanto’s drug-related lines. Pharmacia spun off Monsanto’s ag-related business in 2000. The new Monsanto struggled at first, losing two chief executives in three years and about $1.7 billion in 2002. Its stock tumbled more than 50 percent that year to about $7 a share. Having placed all its bets on biotech, Monsanto was stalled amid widespread controversy over its genetically altered soybeans and corn, derisively called ”Frankenfoods” by critics abroad and at home. The company was also seen as a corporate bully, trying to ram the new technology down the throats of farmers, a conservative lot who were hesitant to adopt radically new approaches. Suspicion of the company’s motives was fueled by its first successful genetically modified crop, a soybean that encouraged the use of a key chemical that Monsanto had maintained in its portfolio—the already hugely successful Roundup herbicide.

Then, in 2003, things began to turn around. The third CEO in three years was Grant, a longtime company man who brought a lilting Scottish accent to the corner office and a gentler approach to working with regulators and farmers. And farmers began to see significant benefits from planting Monsanto’s Roundup-ready soybeans. ”There was an inflection point five years ago,” Grant says.

Sales had already been rising for the soybeans, which made it easier for farmers to protect their crops from choking weeds, and the company eked out a small profit in 2003. This year, an astounding 91 percent of the 64 million acres planted with soybeans nationwide will carry that Roundup-ready gene. But what has sent Monsanto’s stock soaring, today at about 10 times its 2002 low, were gene-altered hybrids in the larger, faster-growing, ethanol-fueled corn market. Monsanto succeeded there with genes that also make corn tolerant of Roundup, as well as others that kill pests that feed on the plant’s roots and leaves. Some of the company’s best profits come from ”stacking” all three traits into one seed. In 2006, Monsanto’s profits reached nearly $700 million, and they’re on track to hit $1 billion this year.

 

Head start.

Now Monsanto is promising the ultimate goal in corn management: drought tolerance. Success isn’t guaranteed, despite the promising trials at Monsanto’s test fields near Jerseyville and elsewhere. Battling drought is more complex than the other traits introduced so far through genetics, such as pest and herbicide resistance. ”But either Monsanto is able to make it work, or nobody can make it work,” says Vincent Andrews, a stock analyst with Morgan Stanley. ”And barring Monsanto making mistakes, we just don’t see anyone catching up.”

Its perceived lead is partly a reflection of Monsanto’s early investment in biotech. The company poured billions during the 1980s and 1990s into research and buying seed companies. It also reflects the methodical nature of the science of crossing plant genes, which despite its reams of data and years of trials, starts with high imprecision.

Early on, in fact, it was a ”gene gun”— literally, a 22-caliber slug—blasting genes from one plant into the tissue of another. ”It’s the brute-force method,” says William Kosinski, a Monsanto scientist, while giving a tour of the company’s labs. More often now, it is a quieter injection involving bacteria that are expert at carrying genes into foreign tissues, but no more exact as to where and how the target DNA attaches to the host plant. The only way to know how the gene expresses itself in the new plant is to grow it (and scores of variations) to see which might take on the characteristic, such as Roundup tolerance.

”It’s a long winnowing process,” says Thomas Peters, Monsanto’s chief scientist for new corn traits. ”There are no skipping steps.” Each gene project eventually leads to hundreds of plants being cultivated in growth chambers, which are rooms filled with bright lights and sealed behind stainless steel doors that give them the look of walk-in refrigerators. There are 122 of the growth chambers at a Monsanto lab building in a St. Louis suburb alone—the most at any one location. The plants that graduate move to greenhouses that sit atop the six-story lab building. Steadily winnowed down over several years, as many as 70 in a promising project make it to the first year in a Monsanto test field, where the selection process continues for three to six more years. His corn teams may have 10 or 12 projects underway in any one year, Peters says, and maybe only one every three years leads to a ”Eureka moment” of a commercialized plant. Along the way, crops get analyzed, including at a lab with machines that can each process 5,000 ears of corn a day, kernel by kernel. ”You never know when you might find the one you’re looking for,” says Monsanto scientist Steven Modiano.

It’s that randomness of the initial process that fuels some criticism. ”We don’t know enough about plant genomes to know what all the effects will be,” says Bill Freese of the Center for Food Safety, an environmental group. He and other critics say the new genes can generate new or raised levels of toxins in a plant or introduce proteins that cause allergies—and argue that testing is inadequate. Biotech proponents say governmental regulation is stringent and that people have lived with those genetically altered soybeans for a decade with no food or feed safety issues. ”The thing I’m most proud of is the industry’s impeccable environmental and safety record,” says Fraley, Monsanto’s technology chief.

While best known as a research powerhouse, Monsanto has also led the industry in marketing and distribution. Growing seed and getting it to the right markets, on time, is a huge logistical challenge, says Ben Johnson, an equity analyst at Morningstar. ”Every production run for seed is an entire growing season,” he says.

 

Less weeding.

There have been commercial flops. Genetically altered wheat appeared close to market when, under CEO Grant, Monsanto killed the venture after farmers voiced concerns that foreign markets would close to all U.S. wheat. But the move also helped assure producers that Monsanto was becoming less arrogant and more willing to work with exporters and regulators. ”It’s been a learning experience for everyone involved,” says Martin Barbre, who farms 4,300 acres of corn and soybeans with his son and son-in-law in southeastern Illinois and considers himself a fan of biotech. But even Barbre is given pause by Monsanto’s success. ”As a producer, it bothers me a bit that there isn’t more competition in the traits in beans,” he says.

Still, the Roundup-ready beans have meant fewer of the more toxic herbicides that he used before, and he plants the beans more closely together—he doesn’t have to till later for weeds. Farming’s more productive, and more fun, he says. ”Otherwise, I’d probably be out on a tractor right now in this heat.”

Like a lot of producers, Barbre has his eye on planting more corn. Demand for ethanol has as much as doubled prices in recent years. Where the nation once consistently planted 80 million acres in corn, it has planted 93 million acres this year, with more expected next. It’s an extraordinary shift in a business, says Grant, that since the 1940s has been extraordinarily predictable. For Monsanto, corn has already displaced soybeans as the company’s biggest profit maker. And crops have eclipsed the plummeting income from Roundup, which is no longer protected by Monsanto’s patent. But in corn, the St. Louis company has competition in Roundup-ready and pest-protected strains from other seed companies, including the Pioneer subsidiary of DuPont and Syngenta, two that are also racing to produce drought-tolerant strains.

Monsanto execs have said they’re confident they’ll be first with water-efficient corn, somewhere around 2010. Monsanto hopes other new products will keep its momentum going until then, including seed that yields more soybeans and beans with more healthful oils. But drought tolerance is a trait that can be applied across the company’s seeds, including cotton and fruits and vegetables. It’s what he focuses on now more than anything, Grant says: ”We have to get it right.”

At a Glance

Name: Monsanto Co.?Headquarters: St. Louis?Chairman and CEO: Hugh Grant?Employees: 17,000?2006 profit: $689 million?2007 profit: $1 billion (estimate)?Major products: Genetically modified corn and soybeans, herbicides


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