Steady R&D for Agchem

The global agrochemical industry is one of the most R&D-intensive businesses in the world, according to a new study from Phillips McDougall, plant science market research consultants based in Edinburgh, Scotland.

The study was released at a press conference in Frankfurt held by CropLife International, the global federation for the plant science industry, based in Brussels. CropLife commissioned Phillips McDougall to make the study.

With R&D spending by leading agchem companies at 7.5% of sales, the industry is outpaced only by the pharmaceutical sector, where R&D spending is roughly 15% of sales, and by information technology, at 10%. Indeed, one of the major forces shaping the agchem industry's R&D spending is the adaptation of discovery tools originally developed by drug companies.

The survey covered 10 companies—BASF, Bayer CropScience, Dow AgroSciences, DuPont, FMC, Makhteshim-Agan Industries, Monsanto, Nufarm, Sumitomo Chemical, and Syngenta—and looked strictly at spending on crop protection chemicals. It excluded spending on biotechnology areas such as genetically modified organisms. Aggregate sales of the 10 companies in 2004, the study notes, were $30.0 billion. The entire agchem industry's sales, by comparison, were about $35.4 billion in 2004.

According to John McDougall, a partner at Phillips McDougall, combined 2004 R&D spending by the 10 was $2.25 billion, which the study looked at in two ways.

First, it charted R&D spending by research phase. New products accounted for 53.8% of total R&D spending—31.3% for new product discovery and 22.5% for new product development. Maintaining existing products accounted for 42.5%. Managing existing businesses, excluding reregistration, was 24.8% of the total, while reregistration of existing products required 17.7% of R&D spending. Spending on patents made up the remaining 3.7%.

But the study also looked at R&D spending by scientific discipline and activity. It found that classical chemistry accounted for 30.4% of spending, just topped by the 31.5% for biology-based research. Human health risk assessments accounted for 14.2% of costs, and environmental risk assessment took another 7.8%. Regulatory activities ate up 12.4% of the R&D budget, and patent work was the small remainder.

Biology-based research is particularly important, the study points out, in managing an existing portfolio, including reregistration of active ingredients. Reregistration, McDougall notes, is becoming increasingly important as companies seek to comply with tighter U.S. and European legislation.

Other findings in the study: About 10% of the plant science industry's employees—roughly 8,900 people—work in agrochemical R&D. And some 16% of R&D spending goes to research outside the companies-at universities, research institutes, contract research and testing firms, and the like.

The study builds on a 2003 report by Phillips McDougall that examined the cost of new product discovery, development, and registration. In 1995, that study showed, it cost $152 million to bring a new product to market. Five years later, the cost had jumped to $184 million. The largest part of the increase, McDougall says, went for developments in biology and chemistry, as technologies such as combinatorial chemistry and high-throughput screening began to be widely used in agchem labs.

The cost has continued to rise and now is an estimated $200 million, according to Christian Verschueren, director general of CropLife International.

Ironically, however, while those technologies have enabled companies to screen more molecules, they have not brought about a commensurate increase in new product launches. According to the new study, the number of active ingredients being registered has remained fairly steady at 1012 per year, McDougall points out. Instead, he and Verschueren suggest, the higher costs have raised commercial barriers to entry.

Now, McDougall says, for a company to bother bringing a new active ingredient to market, it must see the potential for at least $100 million in annual sales to justify development. If potential sales are only $5 million or $20 million per year, forget it, he observes.

Moreover, he adds, as large companies focus on selected areas for portfolio development, they sell off small-volume products. A product with sales of only $20 million per year might not be of interest to a large company. But it would be to a small company.

Many people think of agriculture as a mature industry, Verschueren says. However, this study clearly shows that innovation remains the driving force.

Our companies have introduced more than 300 new agrochemical active ingredients since 1980 to help make crop protection and production more effective and to address emerging agricultural challenges, such as soybean rust, he adds.