Has Bayer's Acquisition Of Monsanto Sown The Seeds Of Its Own Destruction?

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About: Bayer Aktiengesellschaft (BAYRY), Includes: ARWR
by: Delmar Price
Summary

The dependence of transgenic crops for industrial food production, throughout the USA and elsewhere, has exacerbated societal controversies.

Companies engaged in 21st century agronomy research are heavily focused on commercially exploiting newly discovered aspects of symbiotic relationships between plants, livestock and transkingdom microbiomes.

Investments in RNA interference (RNAi) technology are enabling a refined alternative to achieve more controllable and better alleleopathic targeting.

Prediction: intransigent companies with a reputation for pursuing agronomic monopolies based on outdated, misapplied technology will likely find themselves played out on the stage of irrelevance.

"We know more about the movement of celestial bodies than about the soil underfoot"

— Leonardo da Vinci

Last year Bayer acquired agro-chemical giant Monsanto, a purchase of over 60 billion dollars. On the business side of things, expectations were that earnings from Monsanto's herbicide glyphosphate (the most widely used and profitable herbicide in history) and Bayer's glufosinate, along with revenue from the merger's extensive patented assemblage of genetically modified commodity seed stocks, would make it an unassailable agricultural behemoth, not to mention Bayer's considerable pharmaceutical portfolio.

Its size alone wields tremendous clout influencing regulatory policies (that's the world we live in these days), including the way food is grown in America and elsewhere in the world. However the only thing the merger seems to have grown for investors is trouble. As of mid-May, Bayer has lost nearly 1/2 of its market cap from a year ago, in large measure due to plaintiff lawsuit awards (13,000 pending) associated with the pervasive herbicide roundup. There also are more independent clinical studies in 2019 from respectable universities associating the herbicide with other health conditions, for example a correlation of glyphosphate levels in the body with NASH (a type of nonalcoholic fatty liver disease).

Understandably, the Bayer shareholder meeting in Germany this last April was the raucous scene of a no confidence vote. Political activism, all too often associated with Monsanto, provided color to the business proceedings. Apparently what wasn't taken into adequate consideration by executive management was the controversy associated with Monsanto's questionable business practices. The merger has actually placed Bayer squarely in the cross-hairs of liability pertaining to: (1) litigation exposing well-documented, corrupted regulatory practices; and (2) controversial factory farm production, artfully masked by bucolic scenes of imaginary goodness labeled on products sold in your favorite grocery. These are two among many other areas of contention.

Can an argument be made for Bayer management's apparent lack of awareness in consumer-desired trends? How is it possible to discount these observations, especially for a European company, since GMOs for human consumption are outlawed in the EU? Perhaps the investing public has more of an inkling that these controversies constitute more than just another battleground for political opposites. Since the USDA policy shift towards industrialized agriculture (started during the Nixon administration), nothing has altered the downward economic trajectory of 'flyover country' in the last 50 years. Less than 2% of the US population are farmers today with much of our food being imported. One likely reason the above concerns are largely ignored by conglomerates is that independent small producers and family farmers (even here in the US) have been on the endangered list for decades, along with the once vibrant, small rural communities they supported. Take a good look sometime.

Bayer seems indeed to have forgotten about the 'human element' in its political alchemy. Never mind that Monsanto has been of one of the most publicly reviled corporations in recent memory....a reputation that resurfaces memories of Bayer's own sordid past with chemical weapons production, the development of petrochemical-dependent inorganic fertilizers, and botched pharmaceutical products knowingly sold in third world environments. The marketing budget for Monsanto from 2012-2014 was on a par with many large state government departments, to the tune of hundreds of million$. Is it any surprise mainstream news media outlets haven't reported on these topics in any depth? That may all change with continuing litigation.

Despite the uphill struggles of community centered farming, there remain encouraging trends in the US supporting distributed models of organic agriculture. Promoting healthy sustainable rural agricultural landscapes, this agricultural niche in the US has grown from a $3 billion market in 1997 to over $50 billion today. What makes this possible (in part) are microbiology research advances, implemented to lower input costs. Plan Health Cure BV, a private company supporting Dutch farmers (traditionally among the most renowned for advancing agronomy), has a variety of materials/videos on the web to help the reader catch a glimpse of developments reshaping 21st century agriculture.

Make no mistake, a paradigm shift is coming for industrial food production as currently practiced in lifeless dirt, not healthy soil. This may help explain why famous investor Michael Burry bought farmland after making a fortune managing Scion Capital. The question remains what's going on in the fields of agriculture. One would think investing in commodity processors and companies providing farm inputs would be more profitable; it has been the last half century.

Accumulated farming experience points to deficiencies in the way GMO crops and their associated synthetic inputs were conceptualized in the late 1970s and rushed to market (in a political climate change heralded by the Reagan administration to re-invigorate capitalism). It was a time when problem weeds were approaching full resistance to chemical herbicides, when Sanger gene sequencing and fledgling recombinant DNA manipulation techniques enabled gene gun technology to create transgenic plants with bacterial constructs, when molecular biology's central dogma was set in stone, and when inorganic fertilizer salts had become ubiquitous and commonly advocated in agronomic theory. The petrochemical-dependent first green revolution was teetering. It was about this time that Monsanto transformed itself into a biotechnology company.

Today we know from empirical results that pesticide and herbicide overuse reduces symbiotic bacterial/fungal populations in soil that are dependent on plant exudates, that gene gun technology had unforeseen consequences as a blunt means of introducing trans-kingdom genes into plants, and that GMOs planted in concert with herbicides have reduced commercial seed stock diversity. The problem of evolving pest/disease resistance to GMOs has surfaced, not to mention the unintentional cross pollination of taxonomically related weeds with genetically modified crops. Thankfully technology marches on to address these deficiencies responsibly (I've heard that somewhere before...). For these and many other reasons the author does not see Bayer's present business model surviving. American agriculture will have to transform itself to survive Bayer's experiments in GMO monopolies, as Bayer will have to in some transform or another, judging by its past.

The phenomenon of RNAi (RNA interference), first noticed in plants by Rich Jorgenson but heavily researched in animals, will be the next area for debate in agronomy. Its full application in pharmaceuticals has been successful with companies like ARWR, IONS, and ALNY leading the pack. I wouldn't be surprised if these companies, perhaps even MRNA (or an also-ran like Arbutus) may eventually venture into agronomy with a similar approach.

RNAi demonstrates exquisite specificity to transiently silence species-specific genes with the added benefit of a likely favorable toxicity profile, without changing an organism's DNA blueprint. An encouraging recent trial in Australia has demonstrated a 30 day window of plant protection with a sprayed double-stranded RNA (stabilized in clay nanosheets) to inhibit a virus carried by aphids. Plant research at Berkeley corroborates the approach. Even before being acquired, Monsanto (along with Bayer) had been investing millions in RNAi research for years to improve target specificity and reduce herbicide/pesticide toxicity, often thru startups. Efforts involve cheaply manufacturing large amounts of double stranded RNA, possibly via patented genetically engineered bacteria (many early antibiotics were produced by fermentation). Companies employing refined gene editing techniques like CRSPR have sprung up, along with research to employ plant stem-cell transcription factors to more efficiently propagate genetically engineered plants. Here is a partial list of companies I found intriguing: AgraQuest, Ginkgo Bioworks, Elemental Enzymes, Rizobacter, Cibus, Calyxt, and trillium Ag.

There also are companies today that market the optimization of naturally occurring, OMRI (Organic Materials Review Institute) certified products containing beneficial soil bacteria and mycorrhizal fungi to control pests/disease and fertilize plants. One such company is Mycorrhizal Applications, acquired by Sumitomo Chemical in 2015. These products have found use primarily in seed inoculants, however field application in tilled furrows is also feasible. Even bacteria that provide nitrogen to fertilize non-legume plants are being sold. With next generation sequencing and species identification techniques such as metagenomics, the ability to better monitor and maintain crop/soil health is on the horizon. Some speculative companies at this point for an agricultural investor: Indigo, Marrone Bio innonvations, Pivot Bio, TerraMax, XiteBio.

Future agronomy may be able to change the prospects for the independent producer and recalculate the balance between the value of commodity foods and their processing. Most of all, recognizing the true intrinsic value of farmland for the long term will prevent continued mismanagement. Perhaps one day these developments will serve the many urgent needs of society and its people citizenry, not the least of which is an American renaissance in rural quality of life along with its agricultural land reserves...oh wait, I'm dreaming again.

Disclosure: I am/we are long ARWR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.