(Reuters) - Monsanto Co (MON.N), 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 slightly 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 marketshare of biotech corn, soybeans and other crops that have had their DNA altered to tolerate being sprayed with herbicides and to ward off harmful pests.
But increasing weed and pest resistance to Roundup and other crop protection chemicals has been a mounting problem for farmers, and Monsanto and rivals are racing to offer alternatives.
The work in microbials could help address some of those concerns but has broader implications for improved production and sustainability, using bacteria and fungi to optimize the performance of crops. Row crops as well as fruits and vegetables are target areas for product research.
The deal with Novozymes (NZYMb.CO) 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.
Seed treatments in a group of core crops that includes corn, soybeans, wheat, cotton, canola and fruits and vegetables is a priority for the near term, the companies said.
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 an 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 by national antitrust authorities and is not expected to close before early 2014.
Company officials said as Monsanto extends its research into the microbrials, that work will help the company strengthen performance in another new business platform - its precision planting product called “FieldScripts” that uses individualized field data to guide farmers in planting decisions.
Monsanto shares rose 78 cents to $112.43 in afternoon trade while Novozymes shares rose 10.80 DKK or 5.2 percent at 217.50 DKK, boosted also by the company’s announcement Tuesday of a new stock buyback program worth up to 2 billion Danish crowns ($367.8 million).
Reporting by Carey Gillam; Editing by Bob Burgdorfer and Phil Berlowitz