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A NATURAL PATH TO SUCCESS
by Mark Ingelbretsen
January/February 2004
Some of the best ideas in business can also be the simplest. In the case of AgraQuest, a 52-employee Davis, Calif.-based maker of natural pesticides, the idea is that more than half the drugs used to treat human diseases come from plants and other natural sources. By contrast, only 7 percent of pesticides are naturally derived. So if you develop more natural-based pesticides that are cost competitive with chemicals, you can win an ever-larger share of the $30 billion annual pesticide market - especially given that natural pesticides today represent a scant 1 percent of that amount.
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| Pamela Marrone, CEO, AgraQuest |
But as AgraQuest's entomologist founder and CEO Pamela Marrone explains, there's more to the company's elevator pitch than that. For one thing, she estimates the price tag of creating a chemical-based pesticide at $200 million, along with a 7- to 10-year lead-time. By contrast, the cost of creating a natural-based product runs anywhere from $5 million to $10 million, with lead times as short as three years.
Add to that business model the growing global demand for organic foods and even a U.S. government mandate. As a San Francisco Chronicle article explained, "The Food Quality Protection Act of 1996 has led to the gradual phasing out of a variety of chemical pesticides. That has set off a scramble to find replacements." Now you understand why AgraQuest and its 30 or so smallish competitors hope to join the agricultural big leagues.
However, to understand why AgraQuest has pinned all its hopes on natural pesticides, it helps to understand a little about founder Marrone and how the products she's developed work. Growing up on a small acreage in Connecticut, Marrone recalls that when she was eight, the family used a chemical pesticide to rid a dogwood tree of caterpillars. The chemical killed more than caterpillars. In an interview with National Public Radio, Marrone said the pesticide also killed red and black beetles and lacewings - a beneficial insect that eats aphids. Equally appalled by the carnage, her mother said the family would never use chemicals again.
And the younger Marrone took that message with her from college to work. After a seven-year stint at Monsanto, she was hired to launch a natural pesticide subsidiary for the Danish firm Novo Nordisk. The opportunity to create AgraQuest came in 1995. "We started up with friends' and family's money, and my own money and some of the management's money. With that we were able to develop a product proof of concept within six months." They called that first product Serenade. And it was the outgrowth of samples taken from a peach orchard in Fresno County. For some reason certain trees there escaped being infected with brown rot. Taking samples from the trees, AgraQuest researchers discovered that a strain of the bacteria called Bacillus subtilis was responsible for keeping the brown rot at bay.
The company secured a patent on the strain. Further research would reveal that 38 substances called lipopeptides, produced by the bacterial strain, attacked the brown rot organisms. In fact, the strategy used by bacteria is somewhat like the multi-drug cocktails employed by doctors to control AIDS and other scourge diseases. "You could take individual lipopeptides and they wouldn't work as well as the combination. That's what nature does. I call it the best combinatorial chemist that exists," Marrone says.
Because the bacteria attack via the complex interplay of numerous substances, the target - a fungus let's say - cannot even evolve into a resistant form. That fact further sets natural products apart from chemical pesticides, where a single mutation on the part of the target organism can make them less effective.
Meanwhile, since Serenade's ingredient mix exactly duplicated the lipopeptide makeup of Bacillus subtilis, the EPA regarded it as a wholly natural substance, which greatly expedited its approval. Result: as a proof of concept, Serenade earned the company $50 million in venture funding.
No doubt the venture capitalists backing AgraQuest knew that the model the company used to develop Serenade could be repeated thousands of times over, as untold numbers of bacteria around the world able to fend off plant diseases awaited discovery. That aim has sent AgraQuest teams searching for samples in Central American jungles and the grape-growing regions of Chile. The many bagged specimens they've extracted and analyzed form part of a large database that can be tapped for future products.
However, before those products can reach consumers in any great numbers, AgraQuest must take on what may be an even bigger challenge: to become profitable, the company must prove they work. There's "a long history of natural products that don't work as well as they were supposed to, snake oils. So there has been quite a bit of skepticism," Marrone admits.
To change minds, she and her colleagues have put together meticulously documented field trials - a lengthy process. But her team has already had some successes. Marrone says AgraQuest's products have achieved significant penetration in the lettuce, tomato and grape markets. They've also chosen to focus on high value products such as fruits, nuts and flowers - as well as the organic market. "When we first started out, the organic market was a good beachhead for us," she explains. "To succeed, they have to be in the conventional side as well."
That may not be as hard as it sounds. Some big California growers, for instance, devote a small fraction of their fields to organics but use chemicals on the remainder. Those growers are willing to experiment with AgraQuest products on their organic fields. And if the products succeed there, the growers may apply the natural products exclusively. "They're receptive to reducing chemical residues on their products," Marrone says, as a way to meet international market demands.
Eventually, she says, as more and more growers switch to natural pesticides, the result will be a paradigm shift in agriculture, where naturally derived products play as important a role as their chemically based counterparts. "I'm in it to change the paradigm. But money would be nice," Marrone says. Both could well come to AgraQuest. Its products already sell in Wal-Mart stores.
Mark Ingebretsen writes a daily column for the Wall Street Journal Online.
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