Thinking small Crop Genetics has speed, flexibility

March 28, 1993|By Liz Bowie | Liz Bowie,Staff Writer

Hanover -- Inside the towers of corporate America, researc divisions have proper, authoritative titles. But at Crop Genetics International Corp., managers call the guys with the bright ideas "the wacko group." The wizard: chief scientist Peter S. Carlson, who left a university lab in 1981 to found a company that applies genetic engineering to agriculture.

Throughout this unpretentious, no-neckties company, the mantra is speed and flexibility. Executives decry stodgy companies that can't react swiftly to new opportunities. Here, scientists can chuck a bad idea out the window as fast as they can plant another test plot of corn.

"We start and stop a lot of things," said Joseph W. Kelly, chief executive of the 100-employee company. "Failure here is not considered bad."

His strategy -- which relies on this creative spirit -- has been refined over a decade of experimentation and failure to reflect the realities of the biotech business.

Executives once dreamed of creating a big company, anchored by revolutionary products to protect bananas, corn and other crops from disease. Now, facing financial pressure common to small biotech companies, they want to be the brains -- but not the brawn -- needed to make viable products. They're content to develop joint ventures with agribusiness giants, which have the needed manufacturing and marketing muscle.

That strategy already has been adopted by some medical biotech companies, although most agricultural biotech companies, such as Illinois-based Calgene Inc., are unwilling to relinquish manufacturing or marketing rights.

But the nation's venture capitalists, who bankrolled the first biotech companies a decade ago, are becoming anxious about their investments. Some are looking to sell their shares, to reap a return on those investments. If the public markets are not hospitable, analysts say, cash-starved biotech companies that need millions of dollars to take a product to market will face extinction or be forced to share profits with larger partners.

Some older companies already have realigned their strategies. Crop Genetics, which lost $6.9 million, on $4 million in revenue, last year, recently signed a joint venture deal with E.I. du Pont de Nemours & Co. to develop and market insecticidal virus products.

Du Pont, which is contributing $3.75 million to develop the products, will retain exclusive distribution and marketing rights. Crop Genetics will produce the viruses. And the companies will share profits under agreements made as the products come to market -- which could be as soon as 1994.

The big question remains: Will Wall Street like Crop Genetics' strategy? The answer is unclear.

Last summer, to fulfill its promise to Du Pont, Crop Genetics made a secondary-stock offering to finance a manufacturing facility for natural pesticides. The 2.5 million shares brought only $4 apiece -- far less than the company expected when it announced the offering.

"It hurt," Mr. Kelly said. "It wasn't pretty by any means, but we got enough. We have enough if we really watch our pennies to take us to profitability."

And although some analysts praise Crop Genetics' strategy, its stock, which first sold at $14 in 1987, remains in a slump. It closed as low as $4.38 last week, and ended the week at $5.

The Du Pont alliance is very different from the founders' vision in 1981, when the company had developed a tissue culture technology for bananas and sugar cane that provided farmers with disease-free plants.

"We were going to raise cane and go bananas," Dr. Carlson recalled. That strategy was quickly discarded because Crop Genetics encountered several obstacles, including problems protecting its patents.

Company executives decided to concentrate "on first world countries, first world crops and technologies that were patentable," Dr. Carlson said.

In the mid-1980s, Crop Genetics did market the first agricultural biotech product from a U.S. company, Dr. Carlson says. The technology, called Kleentek, is used by seed cane producers in Louisiana and produces $2 million in annual revenues as well as a profit (most years).

By 1985, the company had shifted its focus to a technology called InCide. The concept: to vaccinate a seed with a genetically engineered microorganism, so that as the plant grew it would produce its own pesticide, eliminating the need for chemical pesticides.

Crop Genetics' first effort has been to vaccinate corn seeds to battle the European corn borer, which destroys the corn cob. Eventually, the company hopes to apply the technology to rice and wheat, crops with greater market potential.

When the company launched the project in 1986, it believed that a product would be on the market in a few years.

In fact, executives were preoccupied by critics who opposed releasing genetically engineered plants -- among the first in the nation -- into the environment. Jeremy Rifkin, head of the Washington-based Foundation on Economic Trends, believed that the microorganism might might be unsafe for animals.

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