Thank you for Subscribing to Agri Business Review Weekly Brief
What Happened in Pharma
A few decades ago, the pharmaceutical industry began to undergo a transformation. Previously, research and development in the industry had been predominantly focused on small molecule synthetics and was predominantly conducted by internal R&D groups within the major companies. This model came under pressure as easier targets were addressed, patents on early blockbusters began expiring, and it became clear that while small molecules were effective against their intended targets, they also often had unanticipated negative effects, leading to higher development costs and more late stage failures as regulatory hurdles increased. At the same time, new biotechnology techniques enabled better characterization of pharmaceutical targets and the optimization of proteins to address them. Thus, the stage was set for the rise of biologics – larger molecules that could provide the same level of efficacy as small molecule synthetics but with far more precise targeting and a more predictable metabolic fate, resulting in far fewer adverse side effects. A whole new industry of biopharma and segment of biotech venture capital sprung up to pursue this opportunity. New industry leaders like Amgen and Genentech emerged, and the existing majors shifted from predominantly in-house drug development to a model involving substantial in-licensing and M&A to fill their pipelines. Now, biologics account for 7 of the top 9 pharmaceutical molecules by revenue, the growth rate of biopharma is double that of conventional, and the clinical success rate of biologics is more than twice that of small molecules. The Parallel to AgChems A similar transformation is now poised to happen in the world of crop protection chemicals. As with the pharmaceutical industry before, the crop protection industry is suffering from a lack of innovation in terms of new molecules being brought to market as well as increasing development costs due to more late-stage failures. There are also additional drivers at work in the crop protection industry that could make this transformation more of a revolution: (1) resistance of pests to existing solutions, (2) environmental and safety issues, and (3) consumer awareness. The Additional Drivers First, much like with antibiotics in humans, in those segments of crop protection, such as insecticides and fungicides, where the target pests develop resistance quickly, there is a need for persistent vigilance in resistance management. Sustainable agriculture requires the constant development of novel modes of action that can be effective against pests that have developed resistance to existing solutions. Without this, crop yield and quality would drop, and agriculture would be unable to meet the increasing global food demand. Worrisomely, the pace of novel, broad-acting insecticides and fungicides being brought to market has slowed dramatically. Prior to Vestaron’s novel nerve and muscular mode of action for its new SPEAR® peptide being approved in 2018, the last novel nerve and muscular mode of action was approved in 2007. Second, agrochemicals interact with a complex environment and, as a result, negative side effects, such as harm to beneficial insects, may become apparent only over longer time periods. As this and other environmental effects have become a greater focus of regulators, it has both increased the burden for approval of new products and resulted in some existing products being withdrawn or significantly restricted. Just this May, the EPA announced final notices of cancellation on the registration of 12 neonicotinoid pesticides because of their demonstrated harm to honeybees. Again, paralleling the story in pharma, this underscores the importance of a biologic insecticide like SPEAR® having greater specificity and thus a superior safety and environmental profile. It is particularly relevant in this case given that SPEAR® has been shown to target the same key receptor in pest insects that is targeted by the neonicotinoids while being safe for beneficial insects like honeybees. Third, consumers are increasingly interested in their food – where it came from, what inputs were used in growing it and what that means both for nutritional and environmental implications. As these pressures travel back through the value chain from consumer to retailer to grower, the demand is increasing for biologic products like SPEAR® that are not only environmentally friendly but also lack regulated residues and hence allow growers to protect crops near harvest in a manner that is safe for consumers. What It Could Mean for the Industry If the parallel between the rise of biotech in pharma and the need for a similar transformation in AgChems leads to a similar outcome, the industry should expect not just a shift from more synthetic small molecules to more biologics in development and regulatory pipelines and in the crop protection market, but also a fundamental shift in industry structure. The cost to develop a traditional synthetic small molecule in AgChems is more than $250M. The cost to develop one of Vestaron’s biologic products is less than $25M. This cost advantage, combined with the greater safety, environmental and consumeracceptance benefits of biologics should lead to a shift in AgChems toward (1) growth of a robust ag biologics industry segment, (2) expansion of the AgTech VC community to support it, and (3) a transition from predominantly inhouse R&D to a larger focus on in-licensing and M&A amongst the majors to take advantage of this opportunity, consistent with the pharma precedent. Those, like Vestaron, who are at the forefront of biologics development for crop protection, with robust pipelines of safe, environmentally friendly molecules featuring novel modes of action that will fundamentally transform the tool set available to growers, are leading this revolution.
