Firms Foresee High Stakes In Emerging Biopesticide Market

Genetic engineers at Crop Genetics and Mycogen place hopes on two different strategies for pest control Like Babe Ruth, John Henry sees himself as a slugger. The president and CEO of Crop Genetics International of Hanover, Md., Henry is going for a grand slam in his field of pest control: a genetically designed biopesticide against the European corn borer, a pest that munches $500 million worth of corn annually in the United States. In contrast to his heavy-hitting strategy are the efforts of competing firms, which, according to Henry, are only "trying to hit singles." John Henry may owe his interest in modernizing agriculture to, well, his genes. A distant ancestor, Cyrus McCormick, invented the reaping machine in 1831, and parlayed that into what is now International Harvester Corp. Henry wants to help usher in the next revolution in agriculture - designing a plant vaccine for the world's grain crops - and ensure a bright future for his company, Crop Genetics International. Although not a scientist himself, Henry, 41, is seen as a charismatic mover and shaker in the world of bioengineered agriculture. He calls himself the sum of his influences. He hails from McCormick's home state, Virginia, where he grew up among wheat farmers as the son of a minister. He studied government at Harvard University and spent three years working on the staff of the Senate Foreign Relations Committee. He's also a Columbia University law school graduate who's worked as a Wall Street securities lawyer. That experience prepared him well for building a company that needs to tackle the regulatory process. After founding Crop Genetics in 1981, he managed to pull together a board of directors that includes former White House cabinet member Elliot L. Richardson; Saul Linowitz, former chairman of Xerox; and Norman E. Borlaug, the only agriculturist awarded a Nobel Peace Prize. Then Henry, the nonscientist, found the perfect partner in Peter Carlson. The mastermind behind the vaccine, Carlson schooled Henry in gene manipulation shop talk. Henry says his enthusiasm and energy are unflagging even though his company already has spent nine years bringing his first bioengineered product to market and has many years to go. "It's a long march. There are a lot of hurdles and a lot of major technological risks," he says. "But I'm stubborn." --R.T. But base hitters can often win the game, says Jerry Caulder, president and CEO of Mycogen Corp. in San Diego, Calif. "People who win a game hit a lot of singles," replies the man who wouldn't mind becoming the Ty Cobb (a singles hitter nonpareil) of biopesticides, which are biological poisons harnessed for pest control. Caulder's company is trying to design a line of biopesticides to protect smaller and more diverse vegetable crops, such as broccoli and potatoes. But Caulder will have to hit the market with a lot of single products to match Henry's swing at one of the world's largest crops - that is, if Henry ever gets up to bat. Caulder and Henry are big names in the low-glamour but high-stakes arena of genetically engineered biopesticides. The industry, which in 10 years is expected to generate $1 billion annually, represents about 25 percent of the market for bioengineered plant products, according to Joseph Chow, an analyst at Consulting Resources Corporation in Lexington, Mass. Right now, this $100 million industry makes up a tiny fraction of the $20 billion worldwide pesticides market. And their companies' innovative pesticides could be the first bioengineered agricultural products ever ap- proved for use by farmers in the U.S. Their success could also trigger rapid growth in the field, according to Ralph Hardy, president of the Boyce Thompson Institute in Ithaca, N. Y., and could provide new career opportunities for scientists now working in related areas. It is also expected to spawn commercial ventures in which scientists try to capitalize on the path that Caulder and Henry have blazed. "This type of technology, as well as the ag biotechnology business in general, represents a major undiscovered opportunity for the investment community," adds Hardy. Although hailed as a way to control pests with minimal environmental damage, biopesticides have been slow to enter the market, says Hardy. Despite its desire to encourage nonchemical alternatives to pest control, the Environmental Protection Agency (EPA) has approved just 11 bacterial products as pesticides, compared with the more than 600 chemicals used in 24,000 pesticide products. Only about 1 percent of the 10,000 crop pests are controlled by natural biological methods. Mycogen and Crop Genetics hope to change those statistics with their new approaches to biopesticides. 5451 Oberlin Drive San Diego, Calif. 92121 Founded: 1983 Senior Officers: Jerry D. Caulder, President, Chairman, C.E.O. James R. Glynn, Executive Vice President, Chief Financial Officer Andrew C. Barnes, Executive Vice President, Operations and Corporate Development Albert D. Kern, Executive Vice President, Commercial Division Leo Kim, Executive Vice President, Research and Chief Technical Officer Revenue: Fiscal Year ending September 30, 1989 Revenue: $9 million Costs and Expenses: $10.9 million Net Loss: $1.9 million Since the company began, it has raised $53 million in investments, and has spent $27 million in research and development. Major Products:M-One Insecticide to control Colorado potato beetle Insecticide Fatty Acid Concentrate to control soft-body insects and mites Sharpshooter Herbicide to control a broad range of weeds Sunspray Ultra-fine Spray Oil to control insects and mites Developing MVP bioinsecticide, M-One bioinsecticide, M-One Plus bioinsecticide, Xanthominas bioherbicide Employees: 140 total; 30 Ph.D. scientists But before that can happen, these DNA-altered organisms must pass federal muster, with at least three agencies regulating such products on a case-by-case basis. They must also win over environmentalists, many of whom have serious concerns about the release into the environment of the type of live microorganisms that Crop Genetics has developed. At the same time, these publicly owned companies must convince investors to keep the cash flowing. Most biopesticides are derived from a bacterium, Bacillus thuringiensis, that is commonly referred to as B.t. Its more than 4,000 strains produce toxic proteins that kill certain insects - including a wide variety of caterpillars, beetles, and flies - but are harmless to other animals and humans. This specificity makes biopesticides a preferred replacement for chemical pesticides, which have been blamed for killing 10,000 people, and poisoning 500,000 more, around the world each year, according to David Pimentel, professor of entomology and agricultural sciences at Cornell University. Recognizing these and other environmental problems caused by the chemicals, an estimated 100,000 American farmers have switched to alternatives, and at least one farm, in Knox County, Ohio, reports 30 percent increases in crop yields. But unaltered B.t. products are slow-acting and quick to degrade, so some of the companies that pioneered the field are failing. Evans Biocontrol of Broomfield, Colo., put itself up for sale recently, saying that natural biopesticides were more expensive and less effective than chemicals. Another company, Ecogen of Langhorne, Pa., is also for sale, and it has already laid off 18 of its 80 employees. Mycogen and Crop Genetics, as second-generation biopesticide companies, say that gene-splicing techniques make their products more durable. Both companies set out to improve upon earlier versions of biopesticides, but in different ways. Crop Genetics is going for the big one: a live genetically engineered product. While there is a good chance that its product will face litigation by environmentalists who question its safety and delays from regulatory agencies still working out the best way to deal with these products, the company believes those risks are worth taking for the payoff from a potentially large and lucrative market. 7170 Standard Drive Hanover, Md. 21076 Founded: 1981 Senior Officers: John B. Henry, CEO and Chairman of the Board Peter S. Carlson, Chief Scientific Officer Joseph W. Kelly, Chief Financial Officer James H. Davis, Chief Regulations Officer Ronald R. Dodson, Vice President for Marketing Revenue: Fiscal year ending March 31, 1990 Revenue: $2.8 million Costs and Expenses: $8.8 million Net Loss: $6 million Since the company began, it has raised $37 million in venture capital and has spent about $25 million in research and development. Major Products: Kleentec seedcane - a disease-free seed for sugar cane that the company started selling in 1986 and has generated $2 million in revenue. Developing vaccines for corn, rice, wheat Employees: 110 total; 14 Ph.D. scientists On the other hand, Mycogen kills its bacteria before it releases them. Company officials believe that those products will soon win federal approval, and they feel that strategy outweighs the disadvantages of a smaller potential market. Mycogen's Caulder explains, "We realized that we couldn't get living organisms approved in a time period that was acceptable to us." That quicker approval period outweighs the disad- vantage of having a product that is sprayed onto crops and, therefore, can degrade fairly quickly. Mycogen has put the gene for the B.t. toxin into a different bacterium that churns out more toxin than B.t. did. After these engineered cells have had time to produce toxin, they are killed and treated so that the cell wall stays intact. The end product is an encapsulated toxin crystal wrapped in a long-lasting protective coat that then can be sprayed onto a crop. The bug nibbles the sprayed plant, stops eating, and dies. "We solved the social objections to genetic engineering [by killing the bacteria] as well as the technical problems [that B.t. didn't make toxin very efficiently] with nature," says Caulder. To go for the bigger market - 70 million acres of corn - Crop Genetics' Henry and his partner, chief scientist Peter Carlson, took a much more unorthodox approach. First the gene for the toxic protein is inserted into an endophytic bacterium, a microbe that can multiply and spread through a plant via the sap. Then Henry injects bacteria into the seed. This technique represents a new way to deliver the toxin to the pest. As the plant grows, the live bacteria spread to all parts of the plant. Again, the bug takes a bite, ingests the toxin, stops eating, and dies. Henry calls this delivery system, which Carlson invented, a vaccine. "This is something brand new," says Carlson. "No one has ever thought of using endophytes before." Although plants do not really have an immune system, Henry says the formation of an internal defense system against feeding insects is parallel to what happens in conventional vaccines. Caulder has already chalked up a couple of base hits with his vegetable biopesticides, in that Mycogen has won permission from the EPA to test two products: MVP is meant to kill the larvae of diamondback moth, imported cabbage worm, cabbage looper, and other worm pests that devour leafy vegetables; and M-One Plus is designed to control the Colorado potato beetle. In March the EPA allowed Mycogen to spray MVP on 9,000 acres across 17 states, and the company hopes to put its product on the market by next year. M-One Plus received its experimental use permit in May. Joe Panetta, a Mycogen scientist who deals with regulators, points out that Mycogen is the first company ever to win federal approval for a large-scale experimental field test of an engineered product. "We are the first, and that's a milestone, given the fact that the agencies don't even have a working definition of what a genetically modified organism is," says Panetta. Jerry Caulder's use of baseball metaphors to describe the biopesticides game is apt: Although trained as a botanist, Caulder spent his first years as an adult playing shortstop for the minor league Holcomb (Mo.) Cardinals. The 47-year-old Caulder received an undergraduate degree in botany and zoology from Southeast Missouri State University and a master's and doctorate in agronomy and plant physiology from the University of Missouri at Columbia. Then, in 1969, he went to work for what was then the only game in town - the Monsanto Corp. Caulder helped develop and market two of Monsanto's largest-selling herbicides - Lasso and Roundup. But in 1983, when Lasso, a chemical preparation used to kill weeds for corn and soybeans, was found to contaminate groundwater and was suspected of causing cancer in animals, Caulder was asked to look into biological approaches to pest control. In scouting for biotech ventures, Caulder suggested that Monsanto buy a company, Mycogen, that wasn't even a year old. Monsanto didn't want to take the business risk, so Caulder left and joined the start-up, which he now heads. Convinced that the best way to build a market for his company's products is to spread the word, Caulder spends a good deal of his time out stumping for plant biotechnology. As the current chairman of the Industrial Biotechnology Association, an industry trade group, he has appeared at congressional hearings and countless national and international symposia. He's also a consultant to several think tanks. He's advised West German Chancellor Helmut Kohl on biotechnology and venture capital, and he met twice with George Bush, then vice president, to discuss the impact of biotechnology on U.S. agriculture. So how does a company score runs when many agribiotech start-ups strike out in their first at bat? Says Caulder: "Never run out of cash, never turn down a good deal, don't license your technology, and believe in your product." --R.T. Despite Mycogen's progress, Henry's company seems not to be too far behind. Crop Genetics has conducted a few test trials of its seed microbes, and in March it received permission from the EPA and the U.S. Department of Agriculture to do field testing this year in Maryland. Henry expects that by 1992 he will be ready to request a permit to experiment on 1,000 acres, and he hopes to make the engineered corn seed available to farmers within four years. By the end of the decade, he predicts, the market for controls for corn borer could be $100 million. Although Henry has sown the seeds for regulatory approval, he still has a long row to hoe. Because he is using a live organism, he may have a much harder time than Caulder proving that his microbe will not spread. Environmentalists worry that the pesticide will spread to weeds, making them hardier and less susceptible to insect damage, so that farmers will be forced to use more herbicides and chemicals to control them. One environmental group, Jeremy Rifkin's Foundation on Economic Trends, has threatened a lawsuit when Henry applies for the experimental use permit and questions the efficacy as well as the safety of the product. Henry maintains that the microbes are safe because they cannot survive outside the plant. There is no evidence of spreading, he contends, and Carlson says the products have proved to be 80 percent effective in greenhouse tests. Ultimately, say analysts, the decision may rest with the public. Although biopesticides are supposed to help grow more food more easily, "the products have to turn the fear of a genetically engineered product into a sound environmental concept," says George Dahlman, an analyst who specializes in agricultural biotechnology for Piper, Jaffray, and Hopwood, investment bankers in Minneapolis, Minn. That could take some doing. One of the first steps in that direction, according to a report issued last summer by the National Academy of Sciences, is greater knowledge of genetically engineered organisms. It said questions about containment and risk are slowly being answered as scientists gain experience with engineered plant products. Over time, the report suggests, the regulatory system and the public have become more amenable to these products. But time is not a friend to Mycogen or Crop Genetics. Both these companies are trying to flourish in an industry in which new agricultural biotechnology firms, on the average, only last about two years. And they have had to plan second stock offerings this year to raise more money. Crop Genetics also faces stiff competition in its effort to corner the market on controlling the corn borer. When Henry began to develop his biopesticides, no one had figured out how to get the B.t. toxin to be passed on to the next generation of seeds. But this year alone, three companies - BioTechnica International, DeKalb, and Monsanto (in collaboration with the USDA) - announced that they had successfully incorporated the toxin into seed genetic material. Next, they must seek federal approval for small field tests, a process that could take years. Consequently, it looks like there's a long, hard season ahead for both the Babe Ruth and the Ty Cobb of biopesticides. And it remains to be seen whose team will strike out and whose will win the pennant. Renee Twombly is a freelance science writer based in Washington, D.C.

Firms Foresee High Stakes In Emerging Biopesticide Market

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