Commercial propositions

September 17, 1999

REPORTS FROM THE BRITISH ASSOCIATION FOR THE ADVANCEMENT OF SCIENCE

Is genetic modification of crops the hope for the future or a sure-fire route to bankruptcy? The issue was debated at this week's meeting of the BA in Sheffield, where the directors in charge of health and agriculture research at fictional bioscience firm SYZYGY argued over which business the firm should abandon. Here are the contributions by Jeremy Cherfas, journalist and chairman of the fictitious company; Ben Miflin, the agriculture research director; and Jim Coombes, the health research boss. Join the debate online and find out more with The THES and Nexus at www.netnexus.org/ext/thes/biotech Extraordinary General Meeting Agenda and Notes

Introduction by the company chairman, Jeremy Cherfas

Syzygy is a large life sciences company. We manufacture products for agriculture, medicines and food additives. But though we are worth the better part of Pounds 15 billion, that is well below our capitalisation of Pounds 20 billion just six months ago. Last year, earnings fell by 30 per cent against a background of pharmaceuticals sales that rose by 8 per cent. Someone is making money, and it isn't Syzygy.

We have invested Pounds 1 billion in research facilitie. We bought seed companies to the tune of Pounds 5 billion, and we have spent huge amounts developing new drugs, with some success. But we cannot keep investing in both health care and agriculture indefinitely.

We must reduce company spending on R&D until our earnings once again engender shareholder confidence. With net income of only Pounds 150 million on revenue of Pounds 5 billion, we can no longer afford to spend Pounds 500 million a year on R&D.

The R&D budget will be cut, as from next year, to Pounds 250 million. I feel that spending only Pounds 125 million a year each on health care and agriculture is unlikely to pay off in either case. Only one will survive this meeting. That is why I have asked the research director (agriculture) and the research director (health) to defend their programmes.

Health science director, Jim Coombes

We are living in times of great change in the markets of agriculture and health care. This is driven partly by advances in technology and partly by market forces: competition and drug price control in health care, and consumer-led farmer demands in agriculture.

Our competitors are getting bigger and tougher and spending more on R&D. Unless we act now we will fall behind in both our markets.

Let us not be swayed by sentiment. We have a great history in agriculture. But let us not be either blind to new technology (remember the Swiss watch industry) or over-enthusiastic about new technology (remember irradiated foods, which consumers rejected).

Companies can put their history aside when survival demands it. Hoechst originated as Farberwerke Hoechst, the dye works, before it became a general chemical company. It is now disposing of all non-health-care activities and consolidating its healthcare by merging with the Roussel and Rhone-Poulenc Rorer.

I urge this company to consider disposing of its agricultural business to focus on health care. My arguments are really very simple:

We are too small to compete in both areas.

Diposing of agrochemicals will bring the focus and release the resources we need to exploit fully opportunities in health care.

We must expect major changes in the agrochemical field in the future, led by consumer demand and new regulations addressing food safety and environmental concerns. Despite processors' insistence that segregation and labelling of genetically modified soya is impossible, and US government arguments that GM labelling is really a trade barrier issue, consumer power has prevailed. Supermarkets have rushed to announce that they will not sell GM soya products. Baby-food manufacturers have said they will not use GM soya. Archer Daniels Midland, one of America's largest soya producers, insisted on GM segregation because food producers are refusing to buy soya that is not GM free.

Because of these uncertainties, Deutsche Bank has issued a report linking GM crops to nuclear power in terms of consumer support and advising investors to steer clear of companies associated with GM crops. This will raise the company's cost of borrowing, including borrowing to develop our health-care business.

I believe our future - and it is a bright future - lies in health care. We can choose what foods we eat, but we cannot choose what ailments we will suffer as we grow old. We can choose the cheapest food, but which of us would choose the cheapest drug? Let us agree that our future is health care.

Director of agricultural research,

Ben Miflin

The company should not quit agriculture. We have a long and successful history. Agriculture is in a down period because of the successes in keeping production ahead of population growth.

However, analyses show that to feed the expected eight billion people in 2020 we must increase production of cereals and other crops by more than 40 per cent. The vast majority of production will need to be in developing countries. This represents a tremendous opportunity for us if we plan in the right way.

Despite urging from our biologists, we were too late into biotechnology, starting more than ten years behind our major competitors. Our chemists could see nothing but unbridled success for agrochemicals. The result has been that our seeds business has suffered from the tremendous US uptake of new GM crops and our herbicide and insecticide sales have plummeted. GM cotton users have halved their insecticide use. The insecticide market in the US cotton belt fell 12 per cent in 1998, and we sold 500 tonnes less of our organophosphorous Curecoton. The sales of our soybean herbicide Immimarvel have been decimated by Roundup-Ready herbicide-tolerant soybeans.

However, I see hope for us in the current GM furor. Let me suggest a three part strategy that allows us to profit from it.

We can expect a resurgence of sales from our existing agrochemical range. There is now a growing demand, with a premium price, for non-GM crops.

In the herbicide market we should relaunch Immimarvel as a special, higher price herbicide for non-GM soybean. Its advantage to us is that it is a pre-emergence herbicide that has to be applied before the farmer knows whether he needs it or not, and it persists well in the soil giving sure kill - he never knows if he could have done without it. This market will re-grow as Round-up cannot be used.

We can also expect great growth in cotton insecticides if the tide against GMs flows even wider. In addition, there is likely to be no pressure on our new fungicide from GM disease-resistant crops as their development is blocked or impeded in Europe. As these products exist we can maintain this approach with little research input.We should relocate our biotechnology to the developing world, probably Asia, because:

It is where the market will be for food

It is an area of great economic growth

Unlike Europe, the people, particularly the young, are keen on science and technology

Unlike the UK, which is cutting long-term public-sector research in this area and closing research stations, the governments are keen to get the benefits of the new technology for their people and will support our efforts

Our brightest youngsters are no longer attracted to science and research, and the labs in the UK are full of Asian and other nationalities. We can tap into this base by offering them good jobs in an Asian environment. This will remove jobs from the UK but will cut costs and enable us to make our return from the market that shows the greatest opportunity.

I urge you to be patient and stick with agriculture.

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