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Copyright 2011, Forbseindia.com
by Rohin Dharmakumar | Aug 7, 2009
The boffins who left biotech firm Monsanto in 2001 are now ready
to take it on
K.K. Narayanan was stunned. Why do you need VC money? Instead
pledge your cars or wives jewellery, like we did at Infosys, he
was
told. And Narayanan thought that N.S. Raghavan, one of the
co-founders, of Infosys, would understand a bunch of bright
biotech
scientists.
Narayanan and his colleagues Gautham Nadig and Ganesh Kishore
persisted and Raghavan gave them Rs. 6.5 crore to start
Metahelix, an agricultural biotech company, in 2001. I made a
gut call based on their qualifications and experience at Monsanto,
says
Raghavan. He might as well add ambition to that quality.
After eight years Metahelix is ready to compete and guess who is
on the other side of the net? The big daddy of genetically modified
seeds,
Monsanto. This is the moment of truth for Raghavans gut and
Narayanans execution.
The Rs. 7,000 crore Indian market for agricultural seeds is the
fifth largest in the world. Of that, roughly Rs. 2,000 crore is the
market for
cotton seeds. This is the market Metahelix is targetting. Nadig
says a 10 percent market share is what Metahelix will be gunning
for in thenext three to five years.
Based on todays market and prices, that would mean Rs. 200 crore
in revenue.
Over 90 percent of Metahelixs target market is transgenic, or
genetically modified (GM). And 95 percent of those seeds
contain
technology from one company Monsanto. Monsanto is the Coca-Cola
of GM seeds business.
Based on proprietary genes derived from the Bacillus
Thuringiensis (Bt.) bacteria, Monsanto makes the secret sauce or
the
concentrate that makes a seed resistant to bollworms and
armyworms, both nasty vermins. It licences the concentrate to
companies
like Rasi, Nuziveedu, Ankur, and Mahyco that are like the local
bottling company of Coca Cola. These guys add other features like
usage
of water, fast breeding time (based on local farmers needs) to
the concentrate and then handle the distribution and selling of the
seed to
the farmers.
For example, a hybrid for Andhra Pradeshs (AP) Telengana
district will make do with lesser water (the area is mostly
rain-fed), fertilizer
(most farmers are poor) while maturing faster (poor farmers
prefer quicker yields). In comparison, the hybrid for APs coastal
districts
will mature slower (so they have time to absorb the nutrients
over time) and offer better yields (most farmers are rich, and
their plots are
irrigated).
Thats why even though there are only five commercial Bt.
variants in the country (two from Monsanto, one each from JK, Nath
and
Metahelix), there are over 300 different branded cotton hybrids
that are sold. Almost all of these contain the Bt. gene Monsantos
in
over 90 percent cases but the variety is in the hybrid features,
the localisation as it were.
A Masterstroke
If Metahelix has to take on Monsanto then the battle is clearly
split in two phases. The first phase is to come up with a
concentrate that
can rival Monsantos. This it has done. It is the first company
globally to isolate and use a completely new Bt. gene segment,
cry1C, in
cotton seed.
Metahelixs new seed offers protection against both the
Lepidoptera and Spodoptera pest families, placing it on a strong
footing against
first generation Bt. cotton seeds which target only the former
pest family.
Metahelixs seeds have undergone a stringent series of trials
across India since 2005. In July, two of Metahelixs Bt. cotton
seeds, 5125Bt
and 5174Bt, received official approval for commercial use in
central and south India. But the approval was too late for this
years kharif
sowing season.
Conventionally, the way Indian scientist-backed start-ups
behave, now would be the time for nerds to give way to the suits
who would
start looking for distribution tie-ups. Metahelix doesnt have to
do that.
Why? Because it already has a distribution company called
Dhaanya Seeds. Dhaanya Seeds is a commercial masterstroke. From a
Rs. 3
crore turnover in 2003 the company is now Rs. 80 crore in
turnover. It sells normal non-Bt. seeds for rice, sunflower, tomato
and
brinjal.
Dhaanya has provided Metahelix with two strong advantages. It
has created the distribution platform for the companys Bt. cotton
seed
now that it is ready to be sold. It also provides a steady
stream of money to fund R&D. This is where the business acumen
of this team
shows through.
The DifferentiatorWhen Metahelix started, it needed money to
fund its research and clearly angel funding was not enough. So the
company started doing
contract research research for other companies. This brought in
the cash but diverted company resources away from their own
seed
research programme. One of the first people to spot this shift
was N.S. Raghavan.
In the early days of outsourcing, we at Infosys refused to agree
to GEs conditions that all the code we generated would be theirs.
Even as
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all other vendors agreed we stood our ground, because we felt
that owning some elements of the code was critical for us to build
a more
robust, re-usable delivery platform, says Raghavan.
But doing away with contract research meant Metahelix would need
to find an alternate revenue source, so that its R&D would not
suffer.
Thats why Dhaanya Seeds was created. The cash-flow from Dhaanya
allowed Metahelix scientists to concentrate on their own R&D.
That
bore fruit when they became the first company in the world to
isolate and use a completely new Bt. gene segment, cry1C, in the
cotton
seed.
So Metahelix has the product and the distribution. Still, that
may not be sufficient. When they do enter the market, gone will be
the
low-hanging fruit of converting non-Bt. farmers to Bt. ones.
That battle is already over, for Monsanto won it. The Indian cotton
marketis almost fully penetrated by Bt. cotton, says Jagresh Rana,
director at Mahyco Monsanto Biotech (MMB), the joint venture
between
Indian seed company Mahyco and Monsanto which licences the
latters Bt. cotton in India. The trend today is farmers shifting
from the
first to second generation Bt. technologies, he says.
When that happens, says Nadig, insect protection will become a
given and therefore cease to be a differentiator. The focus will
move to
other areas.
Sometimes in the midst of all these technologies we forget that
farmers dont grow cotton to kill pests, but to get a better yield,
says
Narayanan. If Metahelix can engineer a hybrid that can grow
faster, utilise nutrient-s more effectively or produce a better
yield, that
might be its differentiator. This opinion is shared by Suman
Sahai, convener of rural advocacy group Gene Campaign. The success
of Bt.
cotton in India owes as much to the hybrids developed by Rasi
and Nuziveedu, as to Monsantos technology. In fact, MMBs initial
seeds
which were the first to get government approval were spectacular
failures, she says.
Challenges Ahead
Dhaanya claims that both the cotton hybrids it has developed
(5125 for rain-fed areas and 5174 for irrigated areas) have
demonstratedbetter traits like cotton boll size, the length of the
fibre (staple) and rejuvenation (ability to withstand longer
periods without water)
during field trials.
Therefore, when it goes to the market next year, its strategy
will be two-pronged: Convince farmers using Bollgard-1 cotton (the
first
generation of Bt. seeds) to upgrade to Metahelixs seed which
offers added protection against pests, and demonstrate to
Bollgard-2
(second generation Bt. seeds) farmers how their hybrid varieties
offer better yields while offering the same level of pest
protection.
In order to do this it is organising demonstrations of its
cotton crops in over 250 locations around the country, where
farmers will be
allowed to examine Metahelixs claims through live crops. It is
also combining this with village-level meetings where company
representatives will explain the benefits of their products over
the competition.
How successful we are in year 1 will depend on the trade
channels and our village level demos, says Ravi Krishna, head of
Dhaanya.
But if the crop is successful, then from year 2 onwards each of
our original customers will become a reference for added sales.
Its first year crop will also demonstrate the pest resistance
ability vis--vis Bollgard-1 and 2. And if it holds up, some seed
companies maybe tempted to jump ship from Monsanto to Metahelix as
the source for the Bt. gene.
Most seed companies are today aligned with Monsanto, which we
may not be able to break immediately, says Krishna. Though a
few
have approached us to sub-licence our technology, we refused. We
would prefer to show actual results before tying up with other
seed
companies.
And while pest protection may soon become a given, pricing
already has. For all practical purposes the price of Bt. cotton is
fixed at Rs.
650 (for Bollgard-1) and Rs. 750 (for Bollgard-2) in various
states, a matter that Monsanto is fighting in the courts.
This money is shared between Monsanto and the seed companies
that licence its technology into their own hybrids. It is here
that
Metahelix may have an advantage as its cost of developing the
Bt. cotton technology is only around a fourth of Monsantos. In
the
immediate term it means Dhaanya will have the freedom to sell at
a lower price (though Metahelix says it has not evaluated that
decision
yet), but more importantly, in the longer term it means
Metahelix might be able to offer a lower technology licence fee to
other seed
companies for its Bt. cotton.
In a volume-led market even a few hundred rupees per packet
could alter the equation dramatically. But if Metahelix can convert
a few
leading seed companies to use its Bt. gene, it might be an added
inflection point for the company.
Fact File
The Company:Agricultural biotech company, Metahelix.
The Opportunity:A Rs. 2,000 crore Indian market for cotton
seeds
The Target:Capture 10 percent market share over next 3-5 years.
Thats Rs. 200 crore in revenue based on todays market and
prices.
Strengths:It has the product its own version of a genetically
modified cotton seed, which is cheaper and offers added
protection
against pests.
The Challenge:Breaking into a market that is controlled by the
worlds largest player in genetically modified seeds, Monsanto.
Bt. Coton Blues
Rapid adoption of genetically modified (GM) seeds has left many
environmentalists aghast, as they questioned the long-term effects
ofGM crops on human health and the environment.
Suman Sahai, the convener of rural advocacy organisation Gene
Campaign, says Bt. cotton was shoved down everyones throats
even
though there was no clear demand for it. Not only do GM crops
lead to massive buildup of resistance among pests, there is
growing
evidence that its toxins affect many other organisms than the
ones they are targeted at.
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