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Seed delay a blow to Pioneerqrcode

Dec. 7, 2009

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Dec. 7, 2009

Seed delay a blow to Pioneer

Pioneer Hi-Bred said Friday that disappointing yields in field tests will cause it to delay the release of the newest generations of herbicide-resistant corn seed to about 2015.

The Johnston seed company had hoped to introduce the genetically altered Optimum GAT seed lines by next year to challenge the leading seller of corn seed, Monsanto. Shares of Pioneers parent, DuPont, fell more than 7 percent Friday on the news.

A DuPont investor, Jake Dollarhide of Longbow Investors of Tulsa, Okla., called the news a "huge hit" for Pioneer.

"This is like a major pharmaceutical company having to delay the release of a major new drug," said Dollarhide, who originally invested in Pioneer when the Iowa company was still independent. DuPont purchased Pioneer for $7.7 billion in 1999.

A similar line of biotech Optimum GAT soybean seeds will be delayed until at least 2013, Pioneer said, because of anticipated delays in getting regulatory approvals from key foreign markets, particularly China.

Pioneers president, Paul Schickler, told Wall Street analysts in a conference call that the delay was a "disappointment."

Since it first announced Optimum GAT in 2006, Pioneer has touted the new traits as its answer to Monsantos widely used Roundup Ready biotech seed traits. The seeds enable corn and soybean plants to resist Roundup herbicide, also made by Monsanto.

Roundup and other glyphosate herbicides wipe out weeds on as much as 90 percent of all corn and soybean fields in the United States.

Pioneer has been unable to develop genetically altered seed that can resist Roundup. It has had to pay Monsanto licensing fees that will total at least $590 million through 2015 to use the Monsanto traits to keep its own seed lines competitive, according to company filings with the Securities and Exchange Commission.

Monsanto and Pioneer are virtually neck and neck in U.S. corn and soybean market shares, together controlling about two-thirds of the market. Differences in the way the two companies break out their shares makes comparisons difficult, but Monsanto is the slight leader in corn and Pioneer the leader in soybeans.

Pioneer announced Friday that "the current version of the trait in corn does not meet Pioneers high yield standards."

But Schickler said Pioneer remains confident in the soundness of Optimum GAT, which shuffles genes in corn and soybean germplasm to make the plants resistant to glyphosate and other herbicides as well as providing protection against pests.

During the Pioneer conference call, analyst Donald Carson of UBS characterized Pioneers announcement as a "failure" of the Optimum GAT technology. That drew an objection from Shickler. "Were satisfied with the efficacy of the trait. Weve had good results with soybeans," he said. "Its corn where weve had the problems."

Schickler did not give details of the yield test results that caused the delay. Neither he nor Pioneers chairman, Dean Oestreich, who announced his retirement this week effective Dec. 31, would agree to interviews Friday.

The morning announcement pushed the stock of DuPont, the parent company of Pioneer, down $2.49 a share on the New York Stock Exchange, or more than 7 percent, to end at $32.34.

The stock of rival Monsanto rose on the news, gaining $1.37 per share to end at $83.44.
Dollarhide said that DuPont and other chemical companies have been hit hard by the economic downturn, but that DuPont has benefited from its ownership of Pioneer.

"Pioneer has provided a valuable diversification for DuPont," said Dollarhide, who noted that the bulk of DuPonts operating profits during the last year had been contributed by Pioneer.

Monsantos Roundup Ready biotech seed traits have been a game-changer for the company, which entered the seed business in 1997 with the purchase of the DeKalb corn and Asgrow soybean seed lines. Monsanto subsequently has gained control of other Corn Belt seed companies such as Corn States, Fontanelle, Kruger, Crows, and Holdens.

When Pioneer said its Optimum GAT soybean traits would include Roundup Ready traits, Monsanto responded with a patent infringement lawsuit filed in May in federal court in St. Louis.

Monsanto objected to the combination of its trait with another set of Pioneer traits, saying "we believe that Pioneer is not authorized to make this genetic combination."

Pioneer and its parent DuPont responded with an antitrust lawsuit against Monsanto, charging the St. Louis company with using its Roundup Ready traits to prevent the sale of rival seed lines.
The two lawsuits were bookends of a summer of acrimony between the two companies made more intense when Pioneer and DuPont acknowledged that it had helped fund an advocacy group urging an antitrust investigation into the seed industry.

The U.S. Agriculture and Justice departments began such an inquiry last summer and asked Monsanto for its responses to the Pioneer antitrust suit. The departments will hold a hearing on the matter March 12 in Ankeny.
"We believe the announcement by Pioneer today belies their claims that we are preventing commercialization of a product they are unable to bring to market," Monsanto spokesman Lee Quarles said Friday.

One analyst, Chris Shaw of Ticonderoga Securities, said Monsantos patent infringement lawsuit against Pioneer could be moot. "As it will be some time before we even see Optimum GAT marketed, the pressure to resolve this case has gone away, and if a decision does come, its impact will now be much more limited, in our view," Shaw said.

Shaw noted that other glyphosate-resistant traits have come onto the market to compete with Roundup, which include the LibertyLink trait by Bayer Cropscience, which is present in soybean seeds sold by Stine Seed of Adel, and Agrisure, which is Syngentas trait line in its Garst, Golden Harvest and NK brand seeds.

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