Representatives from four of the world’s biggest agribusinesses gathered at the World Agri-Tech Investment Summit to discuss the value of collaboration and investment in agtech innovation. All agreed on the importance of partnerships in driving innovation forward, and they highlighted some of the alliances between them. But when it came to agtech investment activity, there was a clear difference.
Monsanto’s chief technology officer Robert Fraley said the company wanted to “get more than [its] fair share of technology”. He highlighted alliances between Monsanto and BASF and Dow Chemicals, and the large number of agtech startup investments made by its venture arm Monsanto Growth Ventures. “You don’t only need to worry about being disruptive, but about your disruption being disrupted,” he said. “I view that as a healthy paranoia to have as head of research for a company.”
Meanwhile James Blome, CEO of Bayer CropScience, which spends $1.1 billion a year on R&D but doesn’t have a dedicated VC arm, said the company needed to pick and choose the agtech bets it makes. “We can’t fund everything; before sorting the horses in the corral, we need to know we have the right horses in there,” he said. For this reason, Bayer is looking at various different collaboration models and Blome highlighted a partnership with Grains Research Development Corporation in Australia, and the $1.4 billion it spent on wheat genome sequencing in 2014 alongside a variety of partners to make sure it was looking at all varieties.
Neal Gutterson, vice president for agricultural biotechnology at DuPont Pioneer, talked about how DuPont had recently reintegrated its entire research organization into one unit to create a platform to enable it “to collaborate more informally with many investors, partners, and entrepreneurs.” In genome editing, the company has made some strategic investments such as in Caribou Biosciences. The strategic alliance between the two was announced in October 2015 and involves research collaboration and cross-licensing of intellectual property. “Genome editing is drawing a lot of attention from academics and we think we need to patent broadly in that area, and we’re collaborating with NGOs and ag organizations to enable that innovation to grow.”
Dow Agroscience’s Steve Webb, new technology and IP portfolio development lead, talked about the importance of entering into pre-competitive relationships with the main agribusinesses and various universities in UK, a strategy he said was introduced by Bayer.
To find out more about Monsanto’s approach to agtech innovation and investment, AgFunderNews caught up with Fraley on the sidelines of the event.
What sort of changes are you making internally to weather the current downturn in commodity prices?
I don’t think what we do is any different than what I think you would do if you run into tough budget times. We go through and look hard at all of our investments, and make decisions on which ones are the most priority and we’ve made decisions to stop some things that were good products but not the best.
We announced about six months ago that we were going to exit the area of sugar cane; we were bringing in some of the biotech traits for bug and wheat control in sugar cane. Obviously, when we got into sugar cane a few years ago, the demand for biofuels was high. Since then, worldwide oil prices have collapsed and natural gas prices is an area that arguably you could invest through the next change in demand or you could make a decision to exit, stop and do other things.
The other area we have put a huge effort in has been in investing in automation and scale and using a lot of the data science tools in our own R&D and commercial operations. We invested heavily for years in our sequencing and marker capability as it relates to the identification of genes and traits in our breeding program. That has gotten to be so sophisticated now that we can take that information and make our first round of selections on breeding products for the future, literally in the laboratory, without doing that first year of field testing. That not only saves an enormous amount of cost in seed production and putting out trials but what’s exciting—and I think this is really important—is it lets us scale dramatically the number of processes we can make. We think with these tools we will be able to look at 10 times more crosses than we could have done historically with the old ones, and that’s really using a lot of the genomic tools.
Can you be more specific about the types of genomic tools?
Fraley: It’s basically genome-wide sequencing techniques. We’re using complete knowledge now of every gene in the corn plant to look at those new combinations and establish the sequence-based correlations that allow us to pick already the best combinations. If you were to look historically at our corn gene program we would have run, our breeders would have made 100,000 processes every year and we would start to go through the field-testing program and six or seven years later, we would launch 100 or 200 hybrids. 100,000 process, 200 products. With the tools we have today, we can make a million processes and now pick 200 of the best products out of the million. That will dramatically change the rate of gain, yield and all that. That’s one example of using the genomics tools and rethinking the paradigm for plant breeding. The other part of it comes from all the work we’ve done on the precision ag side, where we now have the imaging technologies, the sensor technologies, that from the point of view of our field testing, we can generate a lot more data: imaging the plant, understanding exactly the genetics and field variability that make us better selections so we’re able to get more data out of those crosses and testing of the material and as a result reduce the number of locations we need to test in. Those are examples of using technology to get more information and create greater efficiencies in our R&D process. The other big example for the company is we have used a lot of the advances in data science to really change our supply chain, modernizing our production facilities, all controlled now with different electronic controls and computer controls. I feel good about how we’ve weathered the storm and we’re just starting to see the first signs that adjustments are being made in terms of supply and demand, so I think we’re probably at the bottom of the ag cycle now and looking for the catalysts to turn it the other way.
Your venture team is much more active than the other large agribusiness. Why do you think that is?
I can’t speak for anyone else. Speaking for Monsanto, I always describe it as a combination of the fact we are a company built on innovation. We’re pretty unique in the world in that we’re completely focused on agriculture. A lot of the other companies in ag are also in pharmaceutical or chemicals, but our focus is 100 percent on ag. That I think has the clarifying affect that you need to make sure you are innovative in your space. It has been a core driver of the company. I like to think that one of the things I have focused on in my period of leading research for the company has been a combination of a very strong external focus, and to be fair, based on a pretty healthy paranoia that there’s a lot of bright people out there and a lot of innovation and we want to make sure we get our fair share of it. From the very beginning of our program, we have heavily focused on external relationships across universities, startups, partnerships with large companies and it’s been a vital part of our success. Probably 25 percent or more of our R&D investments is supportive of collaborations, partnerships or acquisitions. It’s been a really important part of our story. Frankly, it’s even more important today than it has been because of the incredible amount of innovation that’s occurring across the biological, data science space and it’s absolutely critical that you have those type of relationships. We’re really proud of the fact that we’ve focused on it and increasingly, you can see from the event we had last night and our participating here, I think we have the opportunity to position ourselves as a partner of choice. That is key.
How are you measuring Monsanto Growth Ventures’ success?
Obviously, we have our financial metrics but really the thing that matters the most is the quality of the deals and investments we do. Kiersten, John and the team have done a great job. Across the company from our financial to our business to research groups that are closely tied into it, they screen hundreds of opportunities. Last year we did 20 investments across the board in different sectors, so that’s pretty impressive.
Kiersten, what are the KPIs that you work to?
Stead: They are similar to what Robert is describing. We are venture investors and we invest with a cohort of about 60 other co-investors and our focus is similar there. We help the companies grow, we help hire, we help do whatever they need to do. Simultaneously, we’re also looking where can Monsanto help a great team and idea grow into something more substantial.
Fraley: That’s a really important point. As you know, there’s a lot of froth in the investment world. A lot of financial investors, a lot of investors who have knowledge in a particular science or technology and one of the things that I think Kiersten and John and the team bring to it is really the knowledge of how to turn outstanding science and technology into products that can be delivered to growers. That’s why the team and network of co-investors is so important. I find that it really gives us an important and unique edge.
Kiersten: We also try from the strategic standpoint to regenerate portfolio teams and ideas that are options to interact with and learn from. Fraley: Last night we met with 30 or 40 partner investors and potential candidates for investments so it was a great evening. The thing I find that is really unique and special is what brings everybody together is a realization that the agriculture and food chain is underinvested and at the same time, the challenges of meeting the future food security demands for the world, coming up with techniques and tools and products that can help farmers grow more food and at the same time minimize some of the negative impact that agriculture could have on the environment gets people really excited. I think there’s a natural draw and inclination to spend focus on something that’s probably one of the most least understood but most important challenges facing mankind—feeding the world in a way that’s smart and enhances the environment.
There have been question marks raised about the price you paid for The Climate Corporation in the industry, as many claim it was an overvalued purchase. How did you come up with the $1 billion figure and what is your response to those claims?
Fraley: I hope more folks believe that and they don’t want to invest. It’s kind of interesting. Last month I celebrated my 35th year with the company. I graduated from a post-doctorate at University of California San Francisco, studying with folks basically building the biotechnology industry here. People like Bill Foyer and Bill Rudder; folks who created the fundamental science and my interest was bringing biotechnology into agriculture. I joined the company in 1981 and back then, the equivalent viewpoint would have been all the other companies in the industry saying that Monsanto was overinvesting in biotech and nothing will happen from it — they are wasting their time and they should instead be developing new pesticides and it didn’t turn out too bad for us.
Then in about the mid-’90s, after we had basically seen the company transition from being a chemical engineering company to a biotech company, we realized there was a huge opportunity to serve farmers better by bringing the seeds with the biotech traits together. I led the charge to get into the seed business. I think we spent a billion dollars on Holden’s and we spent $3 billion on Dekalb, and everyone was saying it would never pay back and we should be doing something else, and it didn’t turn out too bad for us. We became one of the largest seed companies in the world.
Now we’re transitioning into the data science space. I look at it this way—agriculture is probably the last and largest industry left in the world that hasn’t digitized and it’s going to go very, very quickly. When we look at the Climate investment, we realize that speed is important. We could have tried to hire engineers and statisticians and mathematicians in St. Louis, and taken a lot longer than what we were able to accomplish here in Seattle. It was an impressive group of intellects focused on agriculture and the modeling they have done in the sophisticated field of mapping and weather detection and rainfall is very unique and given us the momentum to move forward very quickly. Today, we continue that with a whole series of acquisitions like 640 and Solum, and there’s a couple in progress now we can’t talk about. That has let us create a partnering network I think is very special. Today, we’ve created license partnerships with all the major farm equipment companies, with all the retailing organizations across the US, who have direct context of the farmer and I think it’s essential. I’m glad other folks don’t think it’s the right thing to do, that’s good news.
How and why did your sale of Precision Planting come about?
Precision Planting would have been another of the companies we acquired and a lot of people didn’t really understand the deal. Precision Planting was both a metal bending shop, making physical improvements to planters, which was important to us because we’ve gotten to the point where sophistication of the knowledge of the genetics of the seed and how that seed needed to be planted both in terms of population, the density, the depth, the variability of that field having exceeded the capabilities of most external equipment that was available on the market. They had a very nice retrofitting capability where they could take a farmer’s old planter, sure it up with better planting technology to give it better precisions. But the other part of the company that a lot of people didn’t appreciate is they had developed some very easy but sophisticated electronics based on the iPads that were easy and intuitive for farmers to use. That was really the gem and we built them into Climate’s capabilities. In the recent deal with John Deere, we sold them the planter upgrade capability, because in a tough economic time like this, where they’re not selling a lot of new planters, the opportunity for them to accelerate their retrofit business was a good one for them and then in exchange for that, we worked out a relationship where we had unique, real-time access to the information coming out of the John Deere equipment that flows through the electronics in our cab?
What do you think Monsanto will look like in 10 years?
I can tell you that it will look different. I kind of went through my own history. I watched the company when I joined them, we were a chemical engineering company and a lot of people don’t realize because we kept the Monsanto name for our IPO, but in 2000 we floated the company. We were actually a startup company. We spun out and we barely got funded in the IPO because it was another down market and we’ve become a pretty successful startup. We became a biotech company, we transformed into a seed company, we’re now in the process of transforming into a data science company and it’s hard to bet on the future because we’re seeing technological advancements in this space that are unprecedented, but I think you’ll see us be even more aggressive on external partnering, acquisitions, collaborations. I think there’s a real opportunity and the best I can describe it now is that we believe the opportunity is to integrate all these solutions. Today it’s still not uncommon for a farmer to purchase their seed here, their seed treatments there, their equipment, their use of nutrient or pesticide, and not have all of that integrated together to optimize all of those discreet decisions into an ideal system to maximize crop production and profitability. So we talk a lot about the integrated solution where the genetics in the seed—because we know every single gene in that seed and can modify or change it—the treatments around that seed that are now very sophisticated with multiple products to help control bugs and weeds and biologicals to stimulate the growth of that plant and increasingly using imagery to track the progression of that crop, start to identify problem areas in the field. We’ve now mapped the field to the point where we understand at a pretty precise level what’s going on meter by meter. Using that information to give growers better ability to make decisions I think is an exciting opportunity. Basically, that’s what’s going on when you look at how the communication industry has basically created integrated solutions. The way the healthcare industry is doing the same thing. In agriculture, it’s still pretty disaggregated and we see an opportunity to give farmers the tools so they’re making precision farming decisions across their operations and really farm very discreetly and very specifically, each unit of land. That’s where I say we end up right now.