Cambridge, Massachusset
February 20, 2003

Bio Economic Research Associates, or bio-era(TM), a new, independent research and advisory firm providing analysis on issues related to human-induced change to biological systems, today issued its first study, an assessment of the evolving structure of the agricultural biotechnology industry, and the
key challenges facing industry participants.

Based on an R&D index developed by bio-era, the study quantifies a shift in research and development activity in recent years toward large agricultural biotechnology companies, such as Monsanto, Syngenta, DuPont, Dow, Bayer, and BASF. These companies have the R&D capability, financial depth, and intellectual property assets to support long, costly and risky new product development cycles. While more than 180 organizations are involved in agricultural biotechnology, the top eight firms account for 69 percent of research and development activity in 2002. The top four account for 57 percent.

The study, "Agricultural Biotechnology at the Crossroads, Part I: The Changing Structure of the  Industry," was written by Gregory Graff, bio-era's Director of Research, and James Newcomb, bio-era's Managing Director, Research. The report is available at no charge on bio-era's web site: www.bio-era.net 

"The agricultural biotechnology industry is at a crossroads," said bio-era founder and CEO Stephen C. Aldrich. "On one hand, the industry is poised to introduce a host of new genetically modified organisms with remarkable new attributes -- ranging from crops with enhanced pest protection and nutritional value, to grasses that cleanly manufacture plastic, to bacteria that perform environmental clean-up. At the same time, the industry faces serious resistance to some kinds of genetically engineered products from the public and other agricultural industry groups. Opposition slows down and increases both the risk and expense of the product development-to-market cycle, and hurts the industry and its investors. We think industry participants would be wise to address this challenge by investing even more in mutual education with other stakeholders, leading toward a more collaborative, multi-stakeholder approach to product development."

"With industry consolidation, we're seeing agricultural biotechnology mature," Aldrich said. "It's not unusual for capital-intensive industries to have R&D concentrated in large companies."

"Large companies can leverage complementarities between genetically modified seeds for GMO crops that they developed and agricultural chemicals that have specificity with those crops," said Graff. "We're seeing the emergence of integrated crop protection solutions that large companies have a competitive advantage in developing."

The bio-era study also breaks down R&D activity by company size and category, including agrochemical, seed, commodity processing, pharmaceutical, biotech, food and tobacco retail, and forestry and paper. This methodology shows, on a relative basis, which sectors are aggressively investing in agricultural GMO innovation and which sectors are bowing out.

"We're clearly seeing a playing field increasingly characterized by a few elephants and lots of ants," Aldrich said. "The elephants have deep research capabilities and extensive market and distribution reach. The small research- oriented firms are developing other market niches. Both are under growing pressure to get their technologies to market quickly."

The study is the first in a series on the agricultural biotechnology industry, with upcoming bio-era reports focusing on non-profit organizations and advocacy groups, quantifying their size, resources, constituencies and activities.

Other bio-era findings:

• Universities make significant research and development contributions, accounting for 6 percent of R&D activity in 2002. Twelve universities rank in the top 35 organizations. Universities tend to broaden the scope of plant biotechnology by focusing on products that are less attractive commercially but warrant attention for other economic or social reasons.
• In 2002, large agrochemical firms accounted for 66 percent of U.S. field trials of genetically modified organisms, up from 37 percent in 1998.
• Between 1997 and 2002, 5,433 field trials of genetically engineered plants were approved, including 1,619 for insect resistant traits, 1,461 for herbicide tolerance, 818 for product quality, 636 for disease or pathogen resistance, 390 for agronomic properties, 235 for other novel proteins and pharmaceuticals, and 212 for genetic markers.

"What we see emerging is a significant diversification of trials that includes many new crops and new types of applications beyond traits related to crop protection," said Newcomb. "This portends a new wave of biotechnological innovations that will move towards commercialization in the years ahead."

The bio-era report states that even as the agricultural biotechnology industry embarks on a "third wave" of innovations, it faces ongoing concerns about GMO products, the most significant of which are:

• gene flow from genetically modified crops into other plant species
• unintended changes in plants' natural defenses or immune responses
• acceleration of the evolution of resistance on the part of crop pests
• contamination of food crops with genetic material designed to produce pharmaceuticals or other materials

Precautionary regulations of GMO products at a variety of levels inevitably raise costs and decreases commercial opportunities. Recent developments include:

• The U.S. National Organic Standard Program imposes strict limits on GMO products in certified organic foods. The U.S. organic food market exceeds $10 billion and is growing at roughly 20 percent.
• Ten U.S. food industry groups urged the U.S. government to halt "bio- pharm" crops until stricter regulations can be put in place to prevent accidental contamination of other crops.
• European consumer opposition to genetically modified foods remains high, and European governments are responding with entrenched support for labeling of food products that contain GMO ingredients.

According to bio-era, the way forward will require companies to adopt new, collaborative, multi-stakeholder strategies for product development, risk management, public education, and advocacy.

"By now, all biotechnology companies should realize that no amount of "benefits jawboning" will, by itself, overcome the objections of a public that responds emotionally to GMO products," said Aldrich. "Companies need to develop strategies that fully respect the power of other legitimate stakeholders to influence the political, regulatory, trade, and consumer choices that will ultimately determine their success or failure."

Assuming these obstacles can be overcome, the "third wave" of commercial GMO products will move well beyond the initial generation of products. According to bio-era, the next-generation of products will cover a vast array of applications, including:

• GMO crops with pest and disease protection traits for parts of the world where chemical pesticides are prohibitively expensive.
• Plant-based plastics, polymers, and films that could make inroads into the $60 billion U.S. market for products now made by petrochemical companies. Other bio based products: lubricants and functional fluids, inks, enzymes, and renewable fiber papers and packaging.
• High value-added pharmaceutical crops.

Release of the findings took today place during the formal launch of bio-era, held at the Future of Life Conference in Monterey, CA. bio-era is an independent research and advisory firm offering authoritative insight into a wide range of "bio-resource" issues, from identifying economic impacts and response strategies to human-induced evolution in pest and disease organisms, to evaluating industrial biotechnologies that may reduce the economic and environmental costs of producing bulk materials. The company is comprised of world-class scientists and economists with deep experience and expertise in biology, ecology, economics, and evolutionary sciences.

Industries to be served by the firm include agriculture, aquaculture, fishing, forestry, horticulture, human and veterinary medicine, and public health -- and the major suppliers and customers of these industries, such as the biotechnology, chemical, pharmaceutical, food, energy, insurance, forest products, and financial services industries.