Dec 10 (Reuters) - Monsanto Co, the world’s largest seed company, said Tuesday that a deal with Danish company Novozymes to form a long-term research and development alliance should accelerate the release of microbial-based products designed to improve crop production.
The news helped to lightly lift shares in St. Louis-based Monsanto, and analysts said while the biological work is not likely to offer a near-term revenue boost, it does hold long-term promise.
“I like the transaction. This is a brand new opportunity,” said BGC Financial equity research analyst Mark Gulley. “This supplements Monsanto’s current crop protection portfolio.”
Monsanto is known for its development of genetically modified crops and Roundup herbicide. The company has broad global market penetration of biotech corn, soybeans and other crops that have had their DNA altered to tolerate being sprayed with herbicide and to ward off harmful pests.
But resistance to Roundup and other crop protection chemicals has been a mounting problem for farmers, and Monsanto and rivals are racing to offer alternatives.
Monsanto has been working to build a new business platform in what it calls “biodirect” research, over the last two years, working to find ways to use bacteria and fungi to optimize the performance of crops and protect them from weeds and pests. The work is aimed at improving production of both row crops and fruits and vegetables.
The deal with Novozymes provides an “important head start” for Monsanto’s work in this area and will help create more value for farmers faster, said Monsanto Chief Technology Officer Robb Fraley.
“By combining the capabilities of both companies, there is a unique opportunity to reach a global market... faster than either company or others in the industry could have accomplished on their own,” said Fraley.
Biologicals are used to complement or replace agricultural chemical products and represent a growing market segment of roughly $2.3 billion in annual sales, according to Monsanto.
Novozymes has an established commercial business in microbials, offering products that improve fertility, yield and help control disease. The company had 2012 revenue from its “bioag” portfolio of about $120 million.
One of the company’s products, known as JumpStart, is a micro-organism that is applied to seed before planting. The active ingredient, a soil fungus, grows on the roots and interacts with the plant in a way that allows improved nutrient uptake in the plant’s early life and increases yield.
In the deal with Novozymes, Monsanto will make an upfront payment of $300 million and establish the “BioAg Alliance,” which joins Novozymes’ microbial discovery work with Monsanto’s commercial capabilities, the companies said.
Under the terms of the arrangement, each company will maintain and independent discovery program to generate leads for what will be a joint research and development pipeline, Monsanto officials said.
Projects will be equally funded at a 50-50 cost sharing for each phase of development, and Monsanto will act as the lead in field testing, registration and commercialization of new products.
The deal is subject to approval of national antitrust authorities and is not expected to close before early 2014.
Monsanto shares were up 64 cents at $112.29 in midday trade while Novozymes shares were up $10.80 cents at $217.50, boosted also by the company’s announcement Tuesday of a new stock buyback program worth up to 2 billion Danish crowns ($367.8 million.