22:20 PM | April 1, 2013 | —Rebecca Coons
DuPont’s Pioneer Hi-Bred business will pay Monsanto a minimum of $1.75 billion in royalty payments through 2023 to stack Monsanto’s Roundup Ready 2 (RR2) glyphosate-resistance technology in DuPont’s Genuity seeds in the United States and Canada, the companies announced last week. The deal ends a long-running legal dispute between the leading genetically modified seed firms and nullifies $1 billion in damages a that St. Louis district court awarded to Monsanto in August 2012.
“This technology exchange helps both companies to expand the range of innovative solutions we can offer farmers, and to do so faster than either of us could alone,” says DuPont Pioneer president Paul Schickler. “The agreements broaden the Pioneer soybean lineup. Importantly, they give us greater flexibility in developing combinations of genetics and traits to help feed an increasingly crowded planet.”
Monsanto had sued DuPont in 2009 over DuPont’s Optimum GAT (OGAT) soybean seed, which stacked Monsanto’s prolific first-generation RR (RR1) trait with DuPont’s own newly developed trait for glyphosate-resistance. Monsanto said stacking RR1 with another glyphosate-resistant trait was prohibited under the two firms’ 2002 licensing agreement, and that DuPont was using RR1 to mask OGAT’s inadequacies. DuPont countersued, alleging antitrust and patent misuse on the part of Monsanto. Under the terms of last week’s agreement, DuPont and Monsanto agree to dismiss their respective antitrust and RR1 soybean patent lawsuits.
The use of RR seeds and glyphosate has been widely adopted by farmers—over 90% of soybeans grown in the US contain the trait—and solidified Monsanto as the top genetically modified–seed company. DuPont had hoped a competing trait for glyphosate resistance would help it gain market share, but the company said last year it was abandoning plans to commercialize OGAT.
Monsanto says the deal endorses the value of its next-generation soybean technologies. “This signals a new approach to our companies doing business together, allowing two of the leaders in the industry to focus on bringing farmers the best products possible while working to advance innovation and long-term opportunity for agriculture,” says Brett Begemann, Monsanto president and chief commercial officer.
DuPont will be able to offer Genuity Roundup Ready 2 Yield soybeans as early as 2014, and Genuity Roundup Ready 2 Xtend glyphosate- and dicamba-tolerant soybeans as early as 2015, pending regulatory approvals.
DuPont will make a series of upfront and variable-based royalty payments subject to future delivery of enabling soybean genetic material, including 4 annual fixed royalty payments from 2014 to 2017, totaling $802 million, for trait technology, associated data, and soybean lines to support commercial introduction.
Beginning in 2018, DuPont will pay royalties on a per unit basis of Genuity Roundup Ready 2 Yield and Genuity Roundup Ready 2 Xtend for the life of the agreement for continued technology access, subject to annual minimum payments through 2023 totaling $950 million.
DuPont also will receive regulatory data rights for the soybean and corn traits previously licensed from Monsanto, enabling it to create a wide array of stacked trait combinations using traits or genetics from DuPont Pioneer or others. Monsanto will receive access to certain DuPont disease-resistance and corn defoliation patents.
Schickler reaffirmed DuPont’s existing financial growth commitments for its agriculture segment. The segment is targeting sales of $13.3–14.6 billion in 2015, up from $10.4 billion in 2012.
Analysts view the deal as a win-win for both companies. “For Monsanto, it is a clear validation of its RR2Y and Xtend platforms under favorable economic terms with an estimated $10-plus/bag of royalties versus about $1/bag of royalties for its first-generation RR soybeans,” says David Begleiter, analyst at Deutsche Bank (New York). “For DuPont, it enables a strong and competitive soybean product suite well into the future while removing the uncertainty stemming from the $1-billion jury award.”
The deal also mitigates uncertainty for DuPont around the patent expiry of RR1 in 2014 and will allow DuPont to offer a strong product suite to its customer base well into the future, Begleiter adds. “The added flexibility to combine RR2 traits with other traits and genetics is critical for DuPont to compete and maintain its position as the [number-]two player in global seeds and traits.”
Begleiter estimates the deal will be 35–40 cts/share accretive for Monsanto upon full adoption of the next-generation traits by DuPont in 4 years. He also notes that the payments beginning in 2014 will offset the 20–25 cts/share Monsanto is expected to lose in 2013 when RR1 comes off patent in Brazil.