Plant Health Care certainly understands the need to find the right partners to maximise the potential of its intellectual property.
In December 2008, the company announced that it had entered into an agreement and received an initial order from US agribusiness heavyweight Monsanto for its Harpin technology.
However, almost in the same breath, it confirmed that it had terminated a previous commercialisation agreement with another industry leader, Bayer CropScience, for Myconate.
Understanding the world that Plant Health Care operates in can be an overwhelming experience.
Agribusiness is big business, which requires gargantuan amounts of research & development to commercialise new products - not dissimilar from the pharmaceuticals industry.
Also like the pharmaceuticals industry, the agribusiness sector is controlled by a handful of players who are the gatekeepers that can take a product truly global.This is the context in which investors must look at Plant Health Care. Plant Health Care undeniably has products with immense potential, but to maximise the potential, it needs a big company - or companies - to adopt its technology.
The announcement of a deal with Monsanto is certainly a step in the right direction, yet the analyst community is thus far slightly hesitant on the news, as it was accompanied by the loss of Bayer, which was seen as the company's near term gravy train.Charles Pick, an analyst at FinnCap, summed it up nicely.
"The Monsanto agreement is expected to “make a material contribution to…future revenue and profits” although from this year on future payments are expected to be H2-loaded thereby accentuating Plant Health Care’s existing H2 revenue bias...after Bayer CropScience’s termination of the commercialisation agreement for Myconate in December, an agreement with another party is expected in 2009... whatever now happens, the commercialisation of Myconate has been delayed."
So what are Plant Health Care's products? Myconate stimulates the growth of fungi around the roots of crop. This fungi, as it grows, acts like an extension of the crop’s roots, expanding its "rooting volume", allowing it to absorb more water, nitrogen and nutrients, and hence increasing crop yields. Studies have already been completed on several major crops.
Including corn, wheat and soya beans, and the results have been impressive. Not surprising then that Bayer CropScience was interested. Myconate can be applied to the seed before planting, requiring no further assistance from the farmer.
The original agreement that Plant Health Care signed with Bayer included the requirement to commercialise Myconate in the first quarter of 2010. It now appears that Bayer could not meet the deadline, so Bayer terminated the agreement.
Plant Health Care reckons a replacement partner can be found relatively quickly. An update on this front will likely be one of the most material announcements in 2009, so it is certainly worth keeping an eye out for one.
Meanwhile Harpin is a protein that activates the plant’s natural immune system - so to speak. When a plant comes under attack, it will naturally protect itself and also stimulate growth. Harpin activates this natural defence system, which boosts growth and suppresses nematodes and yield-inhibiting diseases, and in some plants, increases tolerance to salinity.
The agreement with Monsanto gives exclusive seed coating commercialisation rights to Harpin in corn, soya beans, cotton, canola and "selected vegetables".Plant Health Care will receive a milestone payment plus royalties on total volumes of seeds treated with Harpin.
Seeds incorporating Harpin could be available in Monsanto's 'Acceleron' brand in 12 months. In recent studies, Harpin boosted soya beans crop yields by 5.8%, while a different study in South Africa with potatoes found that when Harpin was used in conjunction with a standard treatment, yields were boosted 8.1%.
It is also worth noting that Bayer CropScience is still active with Plant Health Care, with the two companies signing a long term licence agreement to use Harpin genes in Brassica oilseeds.Beyond Harpin and Myconate, Plant Health Care supplies natural products to The Scotts Company which it in turn adds to products for lawns and gardens.
Highlights from interim results for the six months ended 30 June 2008 included revenues of US$7.9 million, a pre-tax loss of $3.3 million and cash in the bank of $7.6 million. This is small fry compared to the potential revenues for Harpin and Myconate, which is where the true potential of Plant Health Care lies.
It certainly appears that Plant Health Care is on the cusp of entering a new phase. The agreement with Monsanto for Harpin is undeniably good news for the company, and suggests that meaningful revenues should be on the horizon. A second agreement to commercialise Myconate would silence many of the concerns about the commercial potential of the company's products.
Playing with the big boys is often a slow and expensive exercise for small technology companies. The good news is that Plant Health Care is not a new kid on the block, and has spent years building relationships with the main players.The research is complete, the products are ready for commercialisation and both Harpin and Myconate appear to have bright futures ahead of them which bodes well for the company.