Mycogen Corporation History

Company Perspectives:

With the prospect of a stream of new products flowing from our collaborations with DowElanco and Pioneer Hi-Bred in the future ... (we) have set our sights on making Mycogen one of the top five seed companies in the world.

Company History:

Mycogen Corporation is an agricultural biotechnology company focusing on the development of genetically engineered, pest-resistant crop seeds and environmentally safe bioinsecticides. Agrigenetics, Inc., a majority owned subsidiary doing business as Mycogen Plant Sciences, is the sixth largest crop seed company in the United States. The company also operates Soilserv, Inc., which provides custom crop-protection services to growers in California and Arizona. In 1996, 55 percent of Mycogen's stock was acquired by DowElanco, a subsidiary of Dow Chemical Co.

Company Origins in the 1980s

The Mycogen Corporation was formed in 1982 by members of the San Diego business and scientific communities, including David H. Rammler, a partner in the venture capital firm of Vanguard Associates, who served as the first chairman of the company, and Andrew C. Barnes, a biochemist with an MBA from the Stanford School of Business. The original concept was to develop environmentally safe herbicides from fungi using genetic engineering, thus the name Mycogen, coined from the Greek word for fungus and genetics. However, by 1985, the company was researching the use of dead bacteria as a delivery system for environmentally safe insecticides. The delivery system, which Mycogen called MCap (later CellCap), used the bacterium Bacillus thuringiensis (B.t.) to produce and encapsulate toxic proteins genetically engineered to target specific agricultural pests. In 1987, Mycogen received a permit from the U.S. Environmental Protection Agency (EPA) to conduct field tests of its patented MCap technology against the Colorado potato beetle.

In 1987, the company also announced the discovery of several new toxins and entered a three-year agreement with Kubota Ltd., a Japanese maker of farm implements, that contributed $6 million for research and established a research facility in Japan in exchange for Far East marketing rights. Mycogen also entered a three-year agreement with Cleveland-based Lubrizol Enterprises, Inc., whose Agrigenetics subsidiary was the nation's sixth largest seed company. In Mycogen's annual report, Jerry Caulder, former vice president of biotechnology business development at Monsanto Co., who joined Mycogen as president and chief executive in 1984, noted that Lubrizol was contributing $5.4 million to fund additional research in exchange for "rights to use certain of our technology outside the field of pesticides--our mainline business."

Mycogen also went public in 1987, raising $18 million from the sale of 1.8 million shares. Revenues that year, mostly installments from the research agreements, were $2.3 million, up from just $171,000 in 1986, but the company still finished the year with a nearly $5 million loss.

In 1990, Mycogen became the first company to receive approval from the EPA to conduct large-scale field tests of a genetically engineered insecticide. The pesticide, which Mycogen called MVP, targeted the leaf-eating diamondback moth caterpillar and other chemically resistant pests that attacked cabbage, broccoli, tomatoes and other field crops. "This is the flagship line," Albert D. Kern, then executive vice president, told The Los Angeles Times. "We expect it to be our largest selling product over the next several years." Mycogen also solidified its alliance with Kubota, which paid $10 million for a six percent share of the company, and acquired marketing rights to products developed by Safer, Inc., a Massachusetts biotechnology company researching insecticides based on fatty acids.

The EPA completed its review of Mycogen's field studies in 1991 and cleared the way for the company to begin selling MVP and M-One Plus, which targeted the Colorado potato beetle, elm leaf beetle, and other pests that attacked eggplant, tomatoes, potatoes and some ornamental trees. Later that year, Mycogen paid $21 million to acquire Soilserv, a division of Georgia-based Griffin Corp. that provided custom crop protection services to vegetable growers in California's agriculturally rich Salinas Valley. Mycogen planned to leverage the Soilserv division, which had annual revenues of $20 million, to distribute its biopesticides. By then, Mycogen was focusing almost exclusively on the B.t. bacterium and had identified more than 3,000 strains with potential insecticide applications.

The Development of Pest-Resistant Seeds in the early 1990s

In 1992, Mycogen acquired 51 percent of Agrigenetics from Lubrizol, which had become a major shareholder with a 12 percent interest in Mycogen. The acquisition was part of a joint venture designed to use Mycogen's B.t. biotoxin and gene technologies to engineer insect-resistant seeds. Lubrizol also committed $12 million to continue Agrigenetics research into genetically enhanced oil seed crops. Reporting on the acquisition, the San Francisco-based Medical Technology Stock Letter noted, "This makes Mycogen the premier company in the plant biotechnology industry. This is an important deal."

That same year, the EPA authorized Mycogen to begin commercial tests of M-Peril, a bioinsecticide that targeted the European corn borer, potentially a $50 million market in the United States. The company also established a wholly owned subsidiary, Parasitix Corporation, to develop pesticides affecting the poultry and livestock industries, and introduced its first products based on the fatty acid technology developed by Safer, Inc.

The agreement with Kubota was expanded to include the formation of a Japanese marketing subsidiary, Kubota Biotech Corp., that was 60 percent owned by Mycogen and 40 percent by Kubota. Kubota, which then owned 5.8 percent of Mycogen, also contributed another $10 million to its research program. In conjunction with its research partners, which by then also included SC Johnson Wax, the maker of Raid and other household pest-control products, Mycogen also announced that scientists had discovered B.t. toxins that targeted ants, houseflies, mites, and other organisms.

On the downside, Mycogen was forced to pay $4.3 million to Denmark-based Novo Nordisk, which contended that it owned the patent for the strain of B.t. bacteria the company used in its M-Trak pesticide. The settlement included $3 million for a nonexclusive license that allowed Mycogen to continue selling M-Trak in the United States. This settlement as well as the cost of acquisitions and product development left Mycogen with a loss of $30 million on revenues of $38 million in 1992.

With the introduction of insecticides for the strategically important corn and cotton markets, Mycogen reported revenues for 1993 of $121 million, more than company revenues in all previous years combined. Mycogen, however, still posted a loss of $45 million. The loss, in part, was due to the acquisition of an additional 30 percent of Agrigenetics, then doing business as Mycogen Plant Sciences (MPS), from Lubrizol. Lubrizol, meanwhile, upped its ownership of Mycogen to 32 percent.

That same year, Mycogen entered into a ten year agreement with Enzyme Bio-Systems, Ltd., a Beloit, Wisconsin, subsidiary of CPC International, Inc., to manufacture its B.t. insecticides, ending a similar agreement with Bio Synthetics, Inc., which had been producing Mycogen's insecticides at its Kingstree, South Carolina, plant since 1988. Mycogen also reached a cross-licensing agreement with Ciba Seeds, a division of the Ciba Geigy Corporation, and the company's biopesticides were licensed for commercial use in France, Mexico and Canada, giving it a presence in 50 countries around the world. In addition, there was encouraging news on the regulatory front, where the U.S. government announced a program to reduce the use of chemical pesticides and encourage the development of "reduced-risk" alternatives.

First Profit in the Mid-1990s

In 1994, Mycogen became the first agricultural biotechnology company to post a profit for a full year with earnings of $2 million. Ironically, in 1995, Mycogen changed its fiscal year to end August 31. In restated earnings for fiscal 1994, the company showed a loss of $33.2 million. Perhaps more importantly, however, the company was granted a broad U.S. patent that covered the gene sequencing method developed by Mycogen, and used by all other agricultural biotechnology companies, to modify B.t. bacteria to allow it to imprint crop plants with built-in protection from insects.

The company's five-year collaboration with Kubota resulted in regulatory approval by the Japanese Ministry of Agriculture to market the first pesticide to use the encapsulation delivery system in Japan. The product, Mycogen's Guardjet, was targeted to protect cabbage and radish crops against caterpillars. The company's MVP insecticide was also registered for commercial use in Korea, Taiwan, Malaysia and Pakistan. In addition, Mycogen became the first company to receive approval from the State of California to market an insecticide effective against the so-called killer bees, or Africanized honey bees, that were expected to reach the state on their migration from Texas later that year. The formula for the insecticide, known as M-Pede, had been developed by the, then defunct, Safer Co.

With its primary focus again changing, this time from bioinsecticides to pest-resistant crop seeds, Mycogen also acquired the corn and sorghum seed business of the Delta & Pine Land Co., reorganized its four seed companies into a single Mycogen Plant Sciences Organization and consolidated eight brand names, including Jacques, SIGCO, McCurdy, Agrigene, Golden Acres, ORO and Taylor Evans, into a single Mycogen brand.

Despite again slipping into the red with a $15 million loss, 1995 proved to be filled with milestones for the company, beginning with EPA approval to market seed corn with a genetically enhanced resistance to the European corn borer. Caulder called EPA approval the "biggest development in company history." Corn borers annually affected about 20 million acres in the United States and the company's entire production of NatureGard seed that year sold out, immediately capturing 20 percent of the U.S. market. Mycogen announced that it would triple seed production for 1996.

Mycogen also entered a joint venture with Pioneer Hi-Bred International Inc., the world's largest seed company, to develop B.t. enhanced, rootworm-resistant crop seeds for soybeans, sunflowers, canola and sorghum. The deal was worth an estimated $51 million to Mycogen. In addition, the company signed an agreement with Cargill Hybrid Seeds to distribute Mycogen's insect-resistant seed corn.

DowElanco Takes Control in 1996

Early in 1996, DowElanco, then a joint venture of the Dow Chemical Co. and pharmaceutical giant Eli Lilly & Co., acquired 46 percent of Mycogen's stock from Lubrizol, heading off a bid by a third party widely rumored to be Monsanto. In December, that stake was upped to 55 percent, giving DowElanco control of the company. Although Mycogen insisted it would continue to operate as an independent, public company, as majority owner DowElanco controlled five of nine seats on the board of directors.

Soon after DowElanco gained control of the company, Mycogen traded its $8 million European seed business for an 18 percent interest in Verneuil Holding Co. Verneuil, which had annual revenues of $62 million, marketed hybrid seed corn and other seed products in Europe and North Africa, and was 35 percent owned by DowElanco. Mycogen closed out 1996 with a loss of $47.7 million on revenues of $155.6 million

In May 1997, Caulder, resigned as chairman of Mycogen, a post he had held since 1989. He was replaced by Nickolas D. Hain, DowElanco's vice-president of global growth, who had negotiated the deal to acquire a majority interest in Mycogen. Hain said Caulder, who remained on the board as chairman emeritus, "not only shaped the vision and built the company, he was instrumental in creating a new industry."

After Hain's election as chairman, he and Carl Eibl, then president of the company, met with financial analysts and outlined their vision of creating an "assembly line" of genetically engineered crop seed. In a letter to shareholders in mid-1997, Eibl said he had his sights set "on making Mycogen one of the top five seed companies in the world."

Mycogen was embroiled in numerous suits and countersuits related to its bacteria encapsulation and genetically engineered toxins, although most analysts expected the company to emerge controlling the technology. Meanwhile, DowElanco agreed to limit its ownership of Mycogen to 65 percent through 1998. There was no limit after that date, but if DowElanco's interest in Mycogen reaches 80 percent, it was obligated to tender an offer to acquire all remaining shares, which could result in the company becoming a wholly owned subsidiary of that company.

With the backing of Dow Chemical, which acquired Eli Lilly's 40 percent of DowElanco in 1997, Mycogen was expected to continue acquiring seed companies to bolster its share of the world market, as it did with the 1996 acquisition of Santa Ursala S.A.A.I.C, the third largest seed company in Argentina, which did business as Morgan Seeds. Mycogen also acquired United AgriSeeds, Inc., a U.S. subsidiary of DowElanco. Mycogen's competitors, however, were also getting bigger in industry-wide consolidation. In mid-1997, for example, Monsanto acquired Holden's Foundation Seeds, the last remaining independent seed company in the United States. At the time, Eibl told Bloomberg News, "We think Mycogen is positioned to become one of the lead players in agricultural biotechnology. But this is an industry of giants and to be an emerging growth company in an industry of giants is very difficult."

Principal Subsidiaries: Agrigenetics, Inc.; Mycogen Crop Protection, Inc.; Soilserv, Inc.

Further Reading:

• Clarke, Toni, "Mycogen Determined to Prove Itself," San Diego Union-Tribune, June 29, 1997.
• Johnson, Greg, "Mycogen Gets OK to Market Bio-Insecticide," Los Angeles Times, June 28, 1991, page 1B.
• ------, "Mycogen Plans Joint Venture with Lubrizol," Los Angeles Times, April 24, 1992, page 1D.
• Kowsky, Kim, "Mycogen Biopesticide Testing OKd," Los Angeles Times, March 6, 1990, page 2D.

Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.

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