Monsanto Will Let Bio-Crop Patents ExpireBy
Beset by federal antitrust lawyers, a deep-pockets competitor, and a barnful of groups opposed to genetically modified crops, Monsanto (MON) is suddenly playing Mr. Nice. Chief Executive Hugh Grant says the company will let patents on its bioengineered farm seeds expire without a fight, starting with its ubiquitous Roundup Ready soybeans in 2014. The move would allow rivals to make cheaper knockoffs—and farmers to plant these seeds from their own harvests—without legal restriction for the first time since 1996.
Don't expect Monsanto to turn into Mr. Pushover, however. The world's biggest seed company has begun selling new versions of herbicide-resistant soybeans and corn, with other gene-modified products to follow in 2011. Monsanto will be just as tough in protecting these patents, a strategy that has helped it capture 93% of the U.S. soybean crop with its first-generation biotech seed. To achieve that dominance, the company has also relied heavily on licensing rights to other producers. Says Scott S. Partridge, Monsanto chief deputy general counsel: "We are going to seek appropriate protection under existing patent laws."
Monsanto's conciliatory gesture hasn't helped so far. The St. Louis-based company disclosed in mid-January that it has turned over millions of pages of documents to the U.S. Justice Dept. as part of a civil investigation into allegations of anticompetitive behavior in its soybean business. In addition, DuPont (DD), the seed industry's No. 2 company, is suing Monsanto, accusing it of exploiting its market position and technology licenses to block products from DuPont's Pioneer-Hi Bred International unit and other companies.
Monsanto's stock, which soared from 10 a share in 2000 to almost 140 in mid-2008, is down more than 40% from its peak and has barely budged over the past year; it closed at 81.42 on Jan. 20, lagging both DuPont and Syngenta (SYT), another competitor, in price appreciation. In its fiscal first quarter, which ended Nov. 30, Monsanto lost $19 million as revenue tumbled 36%, to $1.7 billion. The company blamed the loss on plunging sales of Roundup weed killer, as farmers turned to generic varieties.
Grant, 51, sees a bounceback by 2012. Although activists continue to decry bioengineered crops—Monsanto was tarred in a recent documentary, Food Inc.—Grant notes that over the past 18 months Brazil, Mexico, Argentina, India, and China have opened the door to genetically modified crops or research. He sees that as a sign that fears of food shortages are trumping what he says is unfounded anxiety about safety.
New products may win over more converts. Monsanto is already marketing Roundup Ready 2 soybeans, which produce greater yields. This spring in the U.S. it is introducing a new corn with genes that make it immune to herbicides and a host of insects. A drought-resistant variety will follow in 2012. Monsanto scientists are also manipulating wheat DNA to produce a drought-hardy strain, which would open a new market for the $11.7 billion company.
Grant is betting that sales of these higher-priced, second-generation seeds will more than offset the loss of sales of earlier versions as their patents expire. "Growers will decide, 'Do I go with the old 1996 material or do I go with some of these new varieties?' " Grant says. "I'm fine with that setup."