Grains That Taste Like Meat?

Monsanto and DuPont are pouring billions into "life sciences"

Organically grown plastics. Genetically engineered, disease-resistant crops. Cancer-preventing proteins. These are the real and promised products of an entirely new industry--"life sciences"--that brings together agriculture, biotech, and pharmaceuticals. Almost nonexistent two years ago, life sciences is taking off. Industry pioneer Monsanto Co. will plant 50 million acres this year with herbicide- and insect-resistant corn, soybeans, and cotton.

Now, Monsanto and others are on a multibillion-dollar buying and alliance frenzy to grab the lead in this new world of genetic engineering. The industry was already generating big buzz among investors. Then, on May 11, chemical giant DuPont Co. announced that it would begin divesting its $22 billion Conoco Inc. oil-and-gas unit, with much of the capital raised to be reinvested in the company's biotech agriculture and pharmaceutical businesses. And Monsanto, after spending $2.5 billion over the past two years on deals in life sciences, agreed to spend $4.2 billion more--$2.3 billion to purchase the 60% of grain-seed producer DeKalb Genetics that it doesn't already own, and $1.9 billion to acquire cottonseed producer Delta & Pine Land.

GOING ABROAD. The rich valuations are one measure of how hot this industry is becoming: Two years ago, Monsanto paid $170 million for its 40% stake in DeKalb. "This is not just a research phenomenon anymore. It's real," says Monsanto President Hendrik A. Verfaillie. So he's turning his sights overseas to find still more deals. "I don't think we're done."

The message resonates loudly with Dupont CEO Charles O. Holliday Jr. In the past year, DuPont has spent $3.2 billion to acquire a 20% stake in a top seed-technology company, Pioneer Hi-Bred International, and to buy all of soy-protein supplier Protein Technologies International. Holliday's spin-off of Conoco will allow him to accelerate that dealmaking. He wants life sciences to generate 35% of the company's after-tax operating income by 2002, up from 20% last year, excluding the oil-and-gas business. "Biotechnology will be the technology for the first half of the next century," says Holliday.

The next step, some Wall Streeters are betting, could be the combination of the two leaders: DuPont buys Monsanto. Or DuPont could do a deal with Britain's Zeneca PLC or American Home Products. Indeed, analysts figure alliances and deals are highly likely among all the players with big ambitions--including Novartis, Hoechst, and Rhone-Poulenc--despite the fact that big profits in the industry are several years away. "These are mergers waiting to happen," says Bear, Stearns & Co. analyst J. Jeffrey Cianci. Beyond that, analysts and company executives predict alliances, if not outright mergers, among giant food processors from Archer Daniels Midland Co. to Cargill Inc.

FOOD FRIGHT. The driving force is technology that is allowing scientists to alter genes in plants and animals. Scientists are already moving beyond seeds that have healthier oils or that can resist herbicides. Monsanto, for example, is working on a cottonseed that can produce its own colors, while DuPont is working on grains that can look and taste like meat. "We're moving to value-added products," says Greg May, a researcher at Boyce Thompson Institute for Plant Research at Cornell University.

Before those new veggie burgers hit stores, however, the industry may have to allay the concerns of consumers and regulators in the U.S. and Europe. For now, the debate centers on whether food produced from gene-spliced seeds should carry labels noting that. "The people at the Food & Drug Administration will hear a lot more from the environmental community on labeling," predicts Margaret G. Mellon, a biotech expert at the Union of Concerned Scientists.

DuPont's Holliday acknowledges that fighting those efforts could backfire. "If we don't do the job right up front, there's always the risk that [market growth] could go slower than we think," he says. For the companies pumping billions into life sciences, that would be a bitter harvest indeed. But for now, the sprout is thriving.

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