The timing could have been better. The year was 2000, and European consumers were beset with food-safety concerns. The EU was already two years into a moratorium on approvals of new genetically modified (GM) foods and crops, and worries about mad cow disease were mounting. Against this backdrop, two of Europe's mightiest pharma giants, Novartis (NVS) and AstraZeneca PLC (AZN), decided in November, 2000, to merge their agricultural biotech units. The result was Syngenta (SYG) of Basel, Switzerland, which in its first year posted $6.8 billion in sales of seeds and farm chemicals, including fertilizers and pesticides.
Almost four years later, Europe remains less than friendly to GM foods. But Syngenta Chief Executive Michael P. Pragnell has no qualms about the company's mission or its future. The merger was "the best thing we could have done," says the 58-year-old Oxford, England, native, who came to his post from AstraZeneca. The move "liberated a high-growth, high-tech operation from a much larger pharma organization." The proof is in Syngenta's numbers: After bottoming out in 2002 at $6.2 billion, revenues rose last year by 6.1%, to $6.6 billion. Profits hit $268 million, following a $27 million loss in 2002. Analysts at Pictet & Cie, a Swiss bank, predict Syngenta's revenues, fueled by sales outside of Europe, will surge by 12.7% this year, to $7.4 billion. And profits, after acquisition costs, will be $98 million.
Pragnell is confident that Europeans' worries will abate in time, especially once the world starts reaping the benefits that genomics brings to plant science. Along with new strains of GM pest-resistant corn and cotton seed, for example, Syngenta has also spearheaded the worldwide effort to map the rice genome and to develop so-called "Golden Rice." Unusually rich in vitamin A, this engineered strain could help prevent some forms of blindness and other chronic childhood maladies.
Over lunch in New York, Pragnell spoke with Industries Editor Adam Aston about how biotechnology is changing agriculture.
Unlike most Americans, Europeans remain hostile to GM foods. How can the industry regain its confidence?
We're at a point where the benefits will begin to become clearer. Our Golden Rice could be the first example. We launched a product with such obvious and tangible benefits to human health that we hope to overcome these anxieties. There are other examples, too: We've been doing work with [the antioxidant] lycopene in tomatoes. There's promising evidence of a link between a diet heavy in cooked tomatoes, which are rich in lycopene, and a reduced incidence of prostate cancer. If these health claims could be substantiated and we were able to launch a tomato with high lycopene levels, I don't think consumers would hesitate to buy them at even two or three times their current prices. The record shows that consumers are willing to spend -- and will accept new technologies -- when it comes to personal health.
Does it follow that plants could someday be used to make drugs?
Yes. Last year we spent about $12 million on this area, and in 2004 we'll invest over $30 million. Keep in mind there is already a market in biopharmaceutical therapeutic remedies -- in the billions of dollars now -- but most of these products are produced by fermentation, which is an expensive process.
We're trying to use plants as the production medium to make therapeutics to consistently predictable quality standards. This harnesses the plant's own chemistry and the energy of sunlight to create the agent, so it should be less costly. If it's successful, we'd like to be in a position towards the end of the decade of licensing those ideas to big pharma companies.
Sooner than that, we might see plants used as the production media to make enzymes [used to accelerate chemical and biological reactions.] This is a research area where we've invested about $50 million. So, for example, we're launching an enzyme that can increase the efficiency of how farm animals process feed. This improves their growth and cuts down on the amount of waste they put out. We've had our first sales in Mexico, and [Food & Drug Administration] approval is pending in the U.S.
Let's go back to human foods. What sorts of new plant strains are succeeding?
Our PureHeart watermelon is a great example. It's not a GM product by any formal definition, because GM is about taking a gene from one species and putting it into a different species. This is about the manipulation of genetics that exist within the watermelon plant already. So you look in the genes for the effect you're after -- in this case, a thin rind, no seeds, and sweeter flesh -- then you target those traits. In the past we teased out desired features by cross-breeding. It was a very hit-and-miss affair. Now we can do it by picking a trait and going after the right genes directly. Think of it as precision hybridization.
Has the backlash in Europe hurt your R&D efforts there?
Absolutely. The measure of disaffection is reflected in the number of field trials in Europe: It's down by more than 75% in the past five years, and few trials are taking place for new GM products. Before, there was a very active research fraternity in Europe, particularly in Germany and Britain. We closed our largest single research laboratory in Holland. Instead of moving all that work into our Swiss lab or British lab, we moved most of it to this side of the Atlantic.
Today more than 70% of our field research is in the U.S. If we look at the statistics on scientists, by the way, over 70% of European students who come to the U.S. to complete PhDs choose not to return to Europe. That tells you a lot about consumer and government attitudes to the funding of science and research. It's a worrying trend because no scientist likes to work in an area that is vilified publicly. It's very bad for Europe.
What about Asia? China faces ever-growing food needs and is advancing rapidly technologically.
For the past 15 years or so, each successive economic plan in China has focused on agriculture and self-sufficiency in food production. The Chinese have acknowledged the calorie deficit they face, which results from having 21% of the world's population but just 7% of the world's arable land. That's one of the main reasons they were anxious to have us invest in agrichemicals manufacturing. We invested about $100 million in a herbicide plant in Nantong in the 1990s.
China was very interested in this project, for one thing, because of the educational programs we would bring to farmers in using this technology. Our system enables a subsistence farmer to move from growing a single crop on one plot of land to double cropping in the same season -- all because he no longer has to weed by hand. For another thing, the training we provide in the materials, the stewardship, safety precautions -- all of this in modern farming is of enormous value.
What about genetic engineering? Is China fearful of GM foods?
No, quite the opposite. The Chinese are paddling their own canoe in this area. They want to run their own research programs, and they're not really working with Western companies at all. It'll be interesting to see what they do. We do field tests there but not any basic research. China has smart researchers in genetic engineering -- good chemists, also -- and they have strong commercial instincts. They're hungry for knowledge and work extremely hard.
Syngenta played a leading role in the decoding of the rice genome. How does understanding this DNA help with other crops?
In the words of our head of research and development, until we had the genome, "it was like doing research in the dark. Now it's like somebody switched the lights on." The rice genome is the simplest of all the major cereal crops, including wheat and corn. The rice genome has helped us become more efficient in developing new products based on these other crops -- because there's a similarity in the genomes.
Plus we've made information on the rice genome public through universities and government research institutions around the world. The information is there for researchers everywhere to work with, through a public database. All we've asked, initially, is that they keep us informed of their programs, discoveries, developments, and so on.
What comes next? Are you mapping the genes of other plants or pests?
One of the things we've also been doing is mapping the genomes of pathogens such as molds, diseases, and pests that attack food crops. One researcher described this as the equivalent of mapping the genome of the cat burglar as opposed to having a map of the building he's burglarizing. You want to know more about the thief than the place he's breaking into.
The cost of genetic technologies -- for mapping and manipulation -- is falling rapidly. How is this changing Syngenta's R&D process?
It's not easy to isolate the effects of genetic sequencing technology alone. I can tell you this: To get a new agricultural product to market today -- be it a major new chemical entity, or [patents on] a biological trait, or a new gene -- now costs close to $200 million. That's taking into account basic research, invention, development, and regulatory approval. This has to do with our ability to measure things you couldn't measure 10 years ago. If you can measure things, regulators will want to know about it. But all of that measurement requires more money. So the costs keep going up, even as the cost of genetic sequencing falls.