Novozymes’ BioAg R&D Turns to Microbials to Boost Crop Yields

Xconomy Raleigh-Durham —

Before Colin Bletsky’s work took him around the world to talk about agricultural microbials, he was using them himself in the fertile region often called Canada’s breadbasket. Bletsky, now global bioag strategic alliance director for Novozymes, still farms at his Saskatchewan home. It’s too far north for corn or soy, but he uses microbials—beneficial microorganisms such as bacteria and fungi naturally found on plants and in soil—on canola seed and small grains, such as oats. The deciding factor for him, he says, was research showing the science of how microbials help plants grow.

“If you don’t have science, farmers are not going to buy in,” he says. “If you have science and it’s proven that it works, farmers will buy in.”

The choice Bletsky made to use microbials on his own farm is one that Novozymes (NASDAQ OMX: NZYM) and its new bioagricultural partner Monsanto (NYSE: MON), are hoping more farmers around the world will also make. For decades, the agriculture industry treated microbes as the enemy. Crop yields are hurt by pathogens such as Fusarium fungi, which cause blight in wheat and other cereal crops, and Erwinia, bacteria that cause fire blight on apples and pears. Companies responded by producing chemicals to kill them. Farmers bought these agents and applied them to their fields.

But there are limits to how much crop yields can be improved by using more chemicals, Bletsky says. And even if that weren’t the case, he adds, environmental regulations on chemical inputs are expected to only become stronger, limiting their use. Global population, estimated to top 9 billion by 2050, will bump up against resource constraints, such as the availability of water and arable land. That means farmers need to find ways to grow more food from the land they already farm. Industry, which once tried to defeat microbes with chemistry, is now aiming to harness their beneficial effects to help plants absorb nutrients better, fight disease, resist pests, and tolerate drought.

Denmark-based Novozymes, which operates its North American headquarters and one of its largest production facilities in Franklinton, NC, boosted its bioagricultural profile late last year through a microbials partnership with St. Louis-based agribusiness giant Monsanto. Monsanto paid Novozymes $300 million up front. The companies disclosed no other financial terms, saying only that they would share in development costs and profits from microbial products commercialized from the new alliance. With the deal, Novozymes’ portfolio of already commercialized microbial products transferred to Monsanto, which is now using its global scale and market reach to sell those products worldwide.

Novozymes is best known as an enzymes company whose products are used in a wide array of applications such as laundry detergents, biofuel production, and wastewater treatment. Food industry applications of enzymes include baking bread and brewing beer. But Novozymes sees agricultural applications as a growth opportunity.

“When you think of it, 60 percent of Novozymes’ business touches agriculture in some form—fields, food production, beverage, starch business, or bread,” Bletsky says. “At the root of this was primary agriculture, which Novozymes wanted to get into.”

Since the process of making enzymes employs microbes, they pose an obvious entry point to agriculture for Novozymes. A single gram of topsoil can contain more than 1 billion microbes, including 20,000 species of bacteria and 10,000 fungi. The challenge is figuring out how a particular microbe helps a particular plant.

The idea is not a new one. Legumes such as peas, beans, and soybeans all have a well-known, symbiotic relationship with so-called rhizobia bacteria, which convert nitrogen from the air into ammonia that the plant can use. The legumes, in turn, produce nodules that provide these microbes what that they need to thrive. The benefit of nitrogen-fixing bacteria was observed by the ancient Romans, says Gwyn Beattie, a professor of plant pathology and microbiology at Iowa State University. They would take soil from legume fields and apply it in another field. The new crops grew better. The Romans may not have understood the science of microbes but by transferring soil they were also transferring beneficial bacteria, Beattie explains.

But a centuries-long awareness of the benefits of microbials is only now beginning to translate into new microbial products. Researchers in the 1990s had hopes of developing biological controls for agriculture that could replace chemicals, but it did not happen. Beattie says identifying beneficial microbes and understanding how they worked proved difficult. New technology, including advanced gene sequencing, is changing that.

“Our molecular tools and our scientific tools to work with microbes have increased greatly in the last decade,” Beattie says. “We can actually answer questions we couldn’t answer 20 years ago.”

Novozymes was formed in 2000 when it spun off from pharmaceutical company Novo Nordisk. It added microbials to its business portfolio in 2001 with its acquisition of Salem, VA-based Sybron Biochemicals, a company that developed and sold microorganisms for applications such as wastewater treatment. At the time, Sybron was also developing microbes for grass and crops. Sybron became part of Novozymes’ biologicals business unit.

In 2007, Novozymes bought Philom Bios in Canada. With a new critical mass, Novozymes formally established bioagricultural business as its own business unit. Executives also set a goal: $250 million in annual bioag sales by 2018—up from $15 million in 2007. The unit making progress toward that goal, with sales topping$120 million in 2013. For context, Novozymes calculates that agricultural microbials now total $2.3 billion in annual sales worldwide. That’s still small relative to spending on fertilizers and pesticides, which the 2012 U.S. Census of Agriculture estimated to total more than $16 billion in the United States alone. Novozymes calculates that 2012 global spending on chemical inputs was $240 billion, based on fertilizer data from Marketline and pesticide data from Phillips McDougall.

While Novozymes’ agricultural microbial revenue has grown organically, the company has continued to grow by acquisition as well. In 2010, the company acquired Turfal in Brazil. Novozymes bought EMD/Merck Crop BioScience in Milwaukee, the crop bioscience division of Merck, in 2011. A year later, Novozymes acquired Natural Industries, a Houston company that sells microorganisms that fight diseases in fruits and vegetables. And last summer, Novozymes acquired South Dakota’s TJ Technologies, a company whose microbial and micronutrient products are used in seed treatment of crops including corn, soy, and wheat. These acquisitions made Novozymes an industry leader in agricultural microbials, ISU’s Beattie says.

For its part, Monsanto had few microbial products before aligning with Novozymes. Beattie says Novozymes brings its credibility working with microbes to the partnership while Monsanto brings its commercialization strengths.

With new soil analysis tools and gene sequencing technology now available, Novozymes and Monsanto are aiming to first identify new microbes, then study them to understand how they work with plants. From there, the companies will try to develop microbial products that can be produced and sold to growers as something applied to seeds, the soil, or the plant itself.

Bletsky cautions that being derived from naturally-occurring organisms does not mean microbials have an easier or faster regulatory path. A new microbial, just like a new chemical, must still be registered with the Environmental Protection Agency, a process that can take between three and five years. The equivalent registration in Europe can take up to seven years. And within the United States, additional state regulations apply as well.

Novozymes currently sells three kinds of microbial products. Biofertility products help plants take up nutrients better. Rhizobia products help plants fix nitrogen. Novozymes also offers a product that helps plants use phosphates better, reducing the need for phosphate-containing fertilizer. Bletsky says these represent just the start of what Novozymes and Monsanto expect to offer, but he declined to specify which new targets the companies are now trying to hit.

As they pursue new microbials, they’ll face competition from big bioag companies like Bayer CropScience, Syngenta, and BASF Plant Science, as well as smaller companies like Seattle-based Adaptive Symbiotic Technologies, which is developing a bacterium that helps protect plants from drought, and the Canadian firm BrettYoung, which produces plant-growth-promoting bacteria. But by working together, Novozymes and Monsanto are betting they can make new microbial discoveries faster than either company could working alone, Bletsky says. Novozymes’ partnership with Monsanto will have the St. Louis company lead the way in field testing and commercialization of microbial products, while Novozymes will take the lead in manufacturing and production. Both companies are sharing in R&D.

Novozymes is already deploying additional R&D resources for microbials in North Carolina; in April the company announced plans to invest $36 million over three years for a new research facility in Cary, south of Research Triangle Park. Bletsky says Novozymes has already hired 50 new scientists for the site. When fully staffed, the Cary site will employ 100 scientists, making it comparable in size to existing Novozymes R&D sites in Milwaukee and Argentina.

Ultimately, Novozymes doesn’t expect microbials will replace herbicides, pesticides, and fertilizers. Bletsky says that by supplementing existing agricultural tools, microbials can help farmers grow more, sell more, and do so in a sustainable manner.

“It is about making money, it is a business, don’t get me wrong,” Bletsky says. “But [farmers] want to do what’s right and it is about protecting the asset.”