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Reluctantly Green

AgraQuest seeks to take biopesticides into the agricultural mainstream

by Michael McCoy
June 8, 2009 | A version of this story appeared in Volume 87, Issue 23

Credit: AgraQuest
AgraQuest says its Serenade biopesticide has succeeded in the Florida pepper market.
Credit: AgraQuest
AgraQuest says its Serenade biopesticide has succeeded in the Florida pepper market.

AgraQuest , a Davis, Calif.-based biopesticide firm, makes naturally derived crop protection products that pass muster with organic farmers and would warm the hearts of Whole Foods shoppers everywhere. But the company's green pedigree is not the favorite topic of Chief Executive Officer Marcus Meadows-Smith.

That's because AgraQuest has learned the hard way that, when it comes to crop protection, organic isn't where the money is. The money is in mainstream agriculture, and most conventional growers are more interested in efficacy and yield than in the natural origins of their bug killers.

AgraQuest was founded in 1995 by Pamela G. Marrone, a one-time Monsanto scientist who saw biopesticides as viable competitors to synthetic ones and a perfect complement to the expanding business of organic farming. "We started off evangelical about organic," Meadows-Smith says about the firm's early days. "That was the sector we believed in."

In 2000, the company acquired a former Abbott Laboratories drug fermentation plant in Mexico to manufacture its products. The following year, it won Environmental Protection Agency approval for its first product, Serenade fungicide, based on the bacteria Bacillus subtilis.

In those first years, AgraQuest did enjoy double-digit growth. But that was from a small base, Meadows-Smith says, and the company soon bumped up against the limits of the organic market.

Today, AgraQuest still faithfully serves organic farmers, but they are only about 5% of the company's business. Most of its customers are growers of conventional fruits and vegetables who want AgraQuest pesticides to do the job quickly, completely, and without residue problems.

Rather than chemical-free farming, AgraQuest is targeting what it calls low chem. With the low-chem approach, Meadows-Smith says, farmers reduce the chemical load on crops by synergistically combining traditional pesticides and biopesticides. Or they increase productivity by adding a biopesticide to their chemical treatment programs.

Meadows-Smith likens the emergence of low chem to the birth of the genetically modified seed business in the late 1990s. Biotechnology, advanced mainly by Monsanto, created a new category of products that grew alongside existing crop protection techniques. Today, genetically modified seeds are an $8 billion-per-year business pursued by most of the major agricultural chemical manufacturers.

In Meadows-Smith's view, AgraQuest is the Monsanto of low chem. In the same way that traditional agchem companies eventually embraced seeds, he sees them changing their view of biopesticides from fringe competitors to solutions that work with traditional chemicals.

For AgraQuest, a big step in that direction came in April when it signed an agreement with BASF under which the German giant will distribute Serenade in Europe, Africa, the Middle East, Asia, and Latin America.

AgraQuest also has partnerships with the biopesticide marketer BioWorks to distribute Serenade in the horticulture market and with Sylvan, a leading mushroom company, for mold protection technology in the mushroom market. According to Meadows-Smith, more such deals are in the offing. Eventually, he says, "we hope we will be feeding products to most of the top 10 ag chemical companies."

With big player acceptance, Meadows-Smith thinks low chem can be a $5 billion to $10 billion business by 2017. AgraQuest's annual sales today are in the tens of millions of dollars—the company won't be more specific—but he predicts they will exceed $200 million by 2013.

The company certainly has been on a growth path recently. Sales were up 70% in 2008 and are 50% higher so far in 2009, Meadows-Smith says. AgraQuest turned cash flow positive this year, he adds, and plans an initial public offering of stock in late 2010 or 2011.

Others in the industry are also bullish on the company, but with some caveats. One knowledgeable AgraQuest watcher is William Dunham, who was its vice president of international business from 2003 to 2007; he now runs International Bio Consultants, an agribusiness consulting firm.

Dunham says AgraQuest was the first biopesticide company to generate respect in the mainstream agriculture sector, which had long looked suspiciously on the outsized claims of some biopesticide marketers. "AgraQuest gave credibility to their product line and did not overpromise," Dunham says. "They delivered what they said they had. That started changing the biopesticide market."

The firm's main weakness, Dunham says, is its limited lineup. "Their business depends on their Bacillus subtilis product, Serenade," he says. "It still has legs, but it's getting to be old."

Marrone, the former CEO, counts herself as an AgraQuest booster. Today she's head of Marrone Bio Innovations, which she launched in 2006 after leaving AgraQuest. Although both firms develop biopesticides, Marrone doesn't see them as competitors. AgraQuest markets fungicides and insecticides, she points out, whereas MBI is strongest in herbicides.

Marrone left AgraQuest in part due to disagreements with investors over whether to continue the microbe screening program that yielded Serenade and other product leads. "I wanted to continue the discovery process; it's a unique competitive advantage," she says. "The new investors wanted to harvest what we already created."

After she departed, Michael J. Miille, now AgraQuest's president and chief operating officer, took over the helm. Meadows-Smith arrived in May 2008 from Chemtura, the specialty chemical company, where he had led a $1.9 billion portfolio of businesses that included Chemtura's crop protection unit, a provider of conventional pesticides.

Meadows-Smith recounts that he had other job offers in the chemical industry. He was intrigued by AgraQuest but skeptical.

"I had a very biased, industry-type view of biopesticides," he recalls. "But I did a lot of due diligence around the quality of the products, the pipeline, the people, and the investors, and I was impressed."

The screening program was halted before Meadows-Smith arrived, but he defends the decision. The company screened 22,000 microbes and got 111 leads. "We turned off the screening and are now developing the leads in a sequential fashion," he says. The firm continues to employ 40 scientists in R&D, product development, and registration, he adds.

And AgraQuest's shelves and pipeline are full, Meadows-Smith contends. Far from being old, Serenade continues to grow, he says. It has roughly a one-quarter share of the Florida tomato and pepper crops and this year is being introduced for high-volume row crops such as corn and soybeans. AgraQuest sees it reaching annual sales as high as $300 million at maturity.

Early this year, the company launched Requiem, an insecticide extracted from the chenopodium plant, which it picked up through a 2005 acquisition. Requiem already boasts a decent market share in Florida tomato, pepper, and cucurbit (melon, squash, and cucumber) crops. Meadows-Smith says he's working on an international distribution deal similar to the one the firm has for Serenade.

Other AgraQuest products on the market include Sonata, a fungicide based on Bacillus pumilus, and Baritone, a Bacillus thuringiensis-based insecticide. And the company says its pipeline holds 13 products in various stages of development.

Amid the efforts to expand, the CEO says he and his colleagues haven't lost sight of the reason AgraQuest was founded: to use the power of nature to create environmentally responsible pest control products. But they've learned that proselytizing doesn't win them any friends.

"We're passionate about farming and helping growers increase efficacy and increase yield," Meadows-Smith says. "We're also passionate about the environment, but we do that in a balanced and business-like fashion."


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