FMC Corporation (FMC) Earnings Call Transcript & Summary

Hi, everyone. This is Steve Byrne. It's a pleasure for me to host FMC for this next session. Sorry, we're running a couple of minutes late, the technical issue, but we're going to go ahead from here. So I have Mark Douglas on with me. Mark became CEO of FMC last June. He was the COO, part of that for the last 2 years, that's post the spin-out of license. But he ran the Ag Solutions business for FMC since 2012. Prior to FMC, Mark worked for Dow, and that was post their acquisition of Rohm and Haas, and he had a 21-year career at Rohm and Haas and worked in many regions. We also have Andrew Sandifer on with us. He's been the CFO of FMC since 2018. He's been with FMC since 2010. Has had roles in strategic development and responsibility for M&A prior to the CFO role. And like Mark, he previously was at Rohm and Haas. And actually, that makes all 3 of us, say, worked for them for a brief period back in the mid-'90s. And let me just highlight that Andrew has a master's degree in engineering. Not too many CFOs have those credentials. So -- and I believe Mike Wherley is with you guys. So welcome to all 3 of you. We're glad to have you, and thanks for being with us today.

Pleasure, Steve.

Pleasure to be here, Steve.

So Mark, let me start with a rather high level forward look from you. I mean now that FMC is a pure-play crop chemical company under your leadership. Where do you see the company going? Or how might it change over the next 5 to 10 years. What's your view?

Yes. Thanks, Dave. Thanks for the opportunity. So listen, 5 to 10 years. It sounds a long time, but actually the way the world moves today, it's not. I think many of the investment community know we have -- we have a pretty robust 5-year plan that we put in place back in 2018 that had above-average growth rates of 5% to 7% of the top line and 7% to 9% EBITDA growth stretching through 2023. So that's kind of the near-term horizon. We feel very good about where we are on that trajectory. We are within the ranges on a 3-year average growth rate here. So we're feeling good about where we sit. Looking further afield, I think there's a couple of things that I would highlight for the company. First of all, the whole technology sustainability aspect of the company. I mean we are the only pure-play crop protection chemical company that is basic in research and discovery. And really, that's the platform from which we intend to continue to build. So that, that very robust pipeline of new technologies, whether it be synthetic or biological is going to be very important to that longer-term view of where the company goes. And listen, we have a very robust view of the marketplace itself. I mean, today, it's a $60 billion marketplace. Its average growth rate over the last 30 to 40 years is about 3%. So we know there is expansion going on that we can drive our technologies into. I'll add to that, as I just said, is sustainability. We are believers that once you're in the chemical space, you need to have a very sharp focus on sustainability. Not just from a climate perspective, but societal change perspective. And certainly, when you think about your own operations and where they are in the world from a safety and process safety perspective. So I think those are the core elements that drive the company forward. From a market perspective, we are expanding our market access. And I think you should expect to see us continue to do that. There are certain geographies in the world where we are growing rapidly, yet we don't have a full footprint from a commercial perspective, India brings to mind, Indonesia, Brazil as well, Argentina is another good one. So I think you should expect to see us investing in our commercial activities to continue to grow our market access. And then I think from a purely inorganic growth perspective, the world is changing from a technology perspective. We have a very robust suite of skills inside the company. But frankly, there are many technologies out there that are coming to the forefront, whether it be from a biology or chemistry perspective or from a precision ag perspective. So I think that's where you will see us invest. We've been very clear. We put in place FMC Ventures last year to really invest in those new areas. And it's so far, so good. I think there's more to do there, more investments to be made. But crop protection is our core, and that's where it will remain as we go through this decade and beyond.

You, in recent days, announced this tolling agreement for the diamides through UPL. UPL is clearly a very large generic chemical producer in India. Tell us a little bit about what led you to that contract? What are the benefits to you? And does it likely give you some comfort about whether other generic companies might try to figure out how to produce Rynaxypyr. But with UPL as being a partner, might they go down the path of contracting through you rather than developing it themselves. What's your view on that?

Yes. Listen, it is an important deal for us. And it -- frankly, it's much more than a toll manufacturing deal. We've been hopefully educating the investment community around our strategy to continue to grow the diamides franchise and yet also defend it. It's really a two-pronged strategy. First of all, is a very robust defense of a pretty significant patent estate that stretches through this decade. That's ongoing. We have cases against people who are trying to make the products illegally in China and India. And we've been very successful with those legal defenses, and there are some that are on the docket today that will continue. The second piece, which we've alluded to on a number of the earnings calls is really the commercial strategy around FMC engaging with third parties to allow them to sell the products prior to patent expiration and yet having a longer-term relationship well into the end of this decade and in some cases, beyond. UPL is an important part of that footprint as we grow. They are, as you said, a major player in the industry. They have interesting areas of market access that we don't have. So there is a great deal of complementarity there in terms of how we can both grow the market together. And this deal is different to the other. We have over 50 deals now with everything from our fellow global companies all the way through to smaller local crop protection companies or distribution companies around the world. So it's important that you recognize that this deal is the first time that FMC is allowing another company to manufacture the diamides under our patents. And listen, we chose UPL and they chose us because they see the fact that we do have this robust suite of patents and we are defending them. They acknowledge that they want to have these technologies to grow, and we have no doubt they can grow very successfully. And the fact that they have significant manufacturing capabilities outside of our -- in India. What that does is it gives us manufacturing capabilities in India, which augment our manufacturing facilities in the U.S. and China. So we really now have [Technical Difficulty] major jurisdictions where we have significant manufacturing capabilities. That's an important part of our ability to continue to grow the franchise, but also our partners' ability to grow as well. So it's, as I said, much more than a toll manufacturing agreement, it goes much deeper than that. We have a lot of confidence that along with the other major players that we have under this program, and there'll be more in the future, that we will continue to grow this franchise well above the market rate.

And Mark, you mentioned out of those 50, it includes your large global competitors. Does it include all of them? And you also made a point about these supply agreements or pre-patent expiry, does that encourage these -- your large global peers to engage with you on this because pricing will remain high pre-patent expiry. Is that part of the attraction to them?

Well, yes, look, I think when you are a provider of these types of materials and you have the significant capacity that we have, obviously, a cost structure related to that capacity. Why does somebody else want to go and spend significant amounts of capital to produce a molecule that we are happy to give them on a long-term basis and remain competitive. So I think it works both ways. This is not the only molecule that works under this type of constructs. There are others -- we buy molecules from others that they have a similar construct. So it's well known in the industry. I think what is unique about what we're doing with the diamides is just the breadth of what we're doing and how extensive it is across the world. And that's important because there will be other players who wish to try and manufacture this. And when the patents run out towards the end of this decade, they can go ahead and do that. But I think the people that are with us will have a very secure advantage in terms of both surety of supply and a cost structure that goes with that. So time will tell. We're talking of something over the next decade or so. Plenty of time for us to continue to develop this plan and tweak it to see what works best in different parts of the world. But so far, so good, I would say.

And before we leave diamides, where are you at on the development of new formulations that can give you a little more patent protection?

Yes. We have a new formulation that's coming out soon, that is a very different type of formulation in terms of how concentrated it is. That formulation is patented -- patent applied for as well, sorry. That formulation will change the game in certain parts of the world where a more concentrated product will give us a lot of different market access capabilities. So we're looking forward to that one. We have a new Rynaxypyr and bifenthrin formulation that's now for sale in the U.S. and is doing very well. It broadens out the market access for different crops. So those are 2 that are immediate. And then there are more coming as we go through the next few years. So you know what, it is part of our strategy. We do know how to formulate these products very well. I think the key is making things that are very different that others will have trouble making. And the example of the high concentrate project is one of them.

And just -- I've never -- I hadn't heard of that one, Mark. What exactly is the value proposition of being high concentration?

Well, in certain parts of the world, growers don't need significant volumes. They may be more applicable to small holders. Having a high concentrated product allows us to deliver the product in a form that is easier to use for the grower when they have small holdings. And you know what, there are significant opportunities there, especially in places like India, China and Southeast Asia.

Okay. That makes sense. You had a few disruptions in operations recently, had this bonded warehouse issue in Argentina. You had the toller that had the shutter on the U.S. Gulf, some supply chain disruptions. What's an update on the status of -- of those issues?

Yes. Listen, we had a couple of things that were not exactly our normal way of operating in the fourth quarter. And as I said on the call, we're not proud of how we did operate. So we've put a lot of effort into making sure that those events become transitory. Certainly in the U.S., the issue with the toll manufacturer is behind us. We have made some changes to our supply chain in terms of how we operate that piece of the supply chain. So that's behind us and gone. I don't expect any more issues in that area. In Argentina, the problem is essential, but not fully, we do still have material that is locked away in bonded warehouses. I don't think that's going to change in -- certainly in this year and maybe into next year. Once again, we're doing some things differently in our supply chain that will free us up from that situation. So as we go into the next season that starts in Q4 in Argentina this year, we'll be in much better shape to make sure we have all the products available where they're needed and not have that bonded warehouse issue.

And Andrew, maybe a currency question for you. Brazil is a big market for you guys. And there's always currency volatility down there and your hedging strategy is complex. Was there anything about it that was different in 2020 than prior years that led to a larger-than-expected level of currency impact or anything that you're -- you learn from it or that you're doing differently for 2021?

Yes. Look, Steve, great question. Certainly, BRL is obviously a big part of our FX headwinds when we look at it as a full year impact. And you're right, we started the year thinking we'd have FX headwinds at EBITDA of around $45 million and ended up with FX headwinds at EBITDA closer to $270 million. So a very significant increase in those headwinds. And it was essentially the BRL. When you look at the BRL last year, we started the year with a BRL around 4. And on a weighted average basis through the year, it's about a 5.35, 5.33, in the mid 5.30 range. No matter how you hedge, you're going to have some impact from that. So we followed a very similar hedging strategy that we've used for multiple years in 2020. It was the magnitude and the volatility around -- and those changes that made it more difficult to mitigate both through hedging and through other proactive means of offsetting BRL movements, which is moving pricing. And that volatility in the pricing, particularly on very short-term volatility, made it more difficult to move pricing as systematically as we would have liked during the year. So we ended up with still at a meaningful price FX gap at the end of the year that we're expecting to significantly recoup against as we go into 2021. The other factor that plays in with the FX headwind being so much larger in the year than we had anticipated are some end market dynamics. Look, some of our crops conduct business differently in Brazil. Cotton is a largely -- business is largely conducted in U.S. dollars; whereas for soybeans, it's largely conducted in BRL. Cotton was not a great market for us this year. We ended up with less sales in cotton than we had hoped and ended up with substantially more business in soy. So that mix shift is -- it was a big piece of what happened, particularly in the latter part of the year on why we continue to see a higher impact to the BRL because the exposure ended up being substantially higher than we had anticipated hedge we get. So at the end of the year, when you look at it, the rate movements were probably about 2/3 of the impact on our FX headwind with the mix shift between BRL and U.S. dollar-based business in Brazil being the remaining third. So we're always looking at the ways we can refine our hedging program. I think if you look at across our peers, a number of our major peers have had similar kind of challenges with significant headwinds in Brazil. I think everybody is looking at different ways to refine, but generally using a similar kind of playbook to try to hedge and look ahead. But I think we all have to rely on pricing as an important part of that FX strategy for the BRL. And I am encouraged by what we've seen in the marketplace is very public price increase letters coming out from several of our competitors, noting explicitly that the FX losses from last year need to be recovered. So we're quite optimistic that in addition to the hedging, the pricing strategy that we have in place for this year will also be a big help.

Okay. That's helpful. Tomorrow, we have this crop protection panel discussion, and I'm -- I thank you're in advance for giving me access to your Head of R&D for that panel, Dr. Kathy Shelton. So I got a question on R&D for really both of you. One being, at least I recall, the pipeline that you acquired with the diamides from DuPont had quite a few really early-stage products, quite a bit that was in discovery. Should we expect your R&D expense to just steadily increase over time from here as those molecules move from the laboratory to the greenhouse to the field, is that a reasonable expectation for us?

Yes, Steve. So think of it this way, and Andrew, please add any comments you want here as well. We spend about 6.5% to 7% of revenue on crop protection R&D, all the way from discovery through development. It's a rate that works for us because we have a target of basically having one new active ingredient every year to be commercialized. So we sort of have a constant flow through the pipeline. And what was good about the acquisition we made in '17 was, you're right, we did get a number of early-stage discovery type products, a very robust pipeline. But FMC had its own development pipeline. And when you put the 2 together, you have a pretty constant flow of products through that. So it's not as if the real profile of the spend changes because our development pipeline is full, it is where you spend the vast majority of the dollars from an R&D expense perspective. But we do intend to keep that 6.5% to 7% of revenue over the long haul. So obviously, the dollars are going to inflate as our top line inflate. You do have R&D inflation. We are starting to look at other technologies outside of our core of R&D, as I talked about earlier, that will be costs that will come in. So I'm not expecting a significant ramp in R&D, but I'm not expecting it to decline either. I think we are in a sweet spot for us, and I think Kathy may talk about that tomorrow. But from an expense standpoint, we do have a full pipeline. We don't need any more at this point. And listen, the returns are very good returns when you look at the life of the projects. Andrew, do you want to say anything on that?

Sure. I think certainly, the expense piece is a big part of it, but I think we got to look at the overall return picture here as well. And we're talking about 11 new major product launches this decade, resulting in $1.8 billion to $2.1 billion in sales -- incremental sales by 2030. And certainly, that 6.5% to 7% of sales per year R&D expense, and Mark pointed to, is an important part of delivering that. But we'll also be very, very capital efficient. The capacity required to deliver that $2 billion in incremental sales is only about $350 million. So the ongoing expense is within a well-understood and manageable level. The capital required to support the volume as we commercialize this product is also at a very low level. The combination, particularly when these new products typically have average margins well above our average margin, it's a very powerful value creation, high-return kind of investment opportunity.

All right. I might come back to my other R&D question because your comment there just provoked another one for me, Andrew, and that is being capital-efficient with production, where do you see FMC move from here with respect to how much of your active ingredients will be outsourced versus manufacturing plants that you will need to construct over time, those 11 new molecules you're talking about, are these ones that you will hold the manufacturing capabilities initially? Or do you think you can toll manufacture them?

Yes. Steve, I'll pick that one. I'll just start, and then Andrew can comment on the total capital expenditure as we go forward. Looking from a strategic standpoint, we've had a process over the last 5 years where we've been very deliberate and where we put steel in the ground to really have a distributed or we're calling low-risk supply chain in terms of active ingredient and intermediate supply. If you go back -- and you've known the business a long time, if you go back prior to the Cheminova acquisition in 2015, FMC was probably 95% dependent upon China. All our intermediates, all our guys came out of toll partnerships that we had. When we bought Cheminova, we acquired a number of major active ingredient manufacturing assets in India and in Europe. And then when we acquired the DuPont assets, we acquired assets in the U.S. in Puerto Rico, which are significant assets for us. So we have a very strong footprint. I think today about 60% of our active ingredients and intermediates come out of China. And within the next 3 years, that's probably down to about 40%, which is, frankly, where I think it will sit for some time. We like that model. The steel in the ground is predominantly going into our own facilities when we start a new active ingredient. For instance, bixlozone, our brand-new herbicide that's just been launched in Australia this year, that's been made at our site in Panoli in India. We may well put another facility to take the increasing capacity into Europe. But then after that, then it's a decision for the supply chain and procurement teams of whether we go to a toll manufacturer somewhere in the world. But right now, we really have the view that we have the sites. We have all the utilities. The more we can put into those sites, the lower our cost structure is. So that's kind of how we think about it. Andrew, do you want to talk about the capital expense side?

Sure. I think, Steve, I'm building on Mark's comments there. That ability to leverage the infrastructure of major sites we already have in place, particularly Panoli, India and Ronland in Denmark, allows us to be very efficient with the capital investment as we support this growth. We would expect over the next several years, that CapEx stays in that $150 million to $200 million a year range. It's in that range, a tick higher this year as we're catching up with some deferred CapEx from last year. But for a multi-year horizon, that's the right kind of place to be as we start adding this capacity. And again, it's because we can add increments of capacity without having to build major infrastructure. And that was one of the big attractive elements of the tolling model that we've had in the past. But now that we have some scale in a couple of key manufacturing sites, we can take advantage of that in-house as well as continue to use our toll partners as a part of an overall capital mix that gives us a very high return.

Very, very good. I wanted to bring up an observation that we made in an ag retailer survey that we published last Friday. I had the pleasure of this relationship with Purdue University for many years, and we published a survey of retailers and their outlook for the year on crop chemicals and seeds and fertilizers and so forth. And this one -- this one was really different from prior years with respect to the constructive outlook that the retailers had for all of those shelves that they have of crop inputs. And with respect to crop chemicals, nearly all of the respondents thought that application rates of crop chemicals would go up this year. And the part that was more surprising to me was they almost also thought there could be higher pricing this year for crop chemicals. In prior years, it was always no change. But there was a move towards higher pricing. So my questions for you on that are, one, on the application side, is that consistent with your expectations, that could be pretty robust use of crop protection this year to drive higher yields? And then on the pricing side, is that also possible to see maybe a mix shift towards higher end crop chemicals, more efficacious formulations, et cetera? What do you think of both of those conclusions?

Yes. Listen, I think we said it on our call. We have a view sitting here today, which is much more robust than we had this time last year, for instance, in terms of where the market is. Over the last few years, we kind of pegged the annual market growing very, very small amounts and flat to down in certain other years. This year, we came out and said we thought the market would grow in the low single digits. I saw one of my competitors announced last week that they said the market was going to grow 2%. So that's pretty consistent for 2 major players in the industry. I think there's a couple of other things going on. Talking to, obviously, I think in your survey, obviously, a lot of U.S. distribution and retail. We've also picked a trend up that U.S. retail and distribution is watching their own working capital very carefully. So I think -- I would agree that I think applications will be good. But the question is, does that channel get refilled or our distribution taking the opportunity to reset some inventory levels there that are at a lower working capital sort of consumption. I think that's what's going to happen. We'll see how that plays out. I do think growers around the world are feeling more bullish than they have in the past. I think and our forecast shows that we think Asia will be probably the robust market in the world despite everybody focuses on soy and corn prices in the U.S., but there are a lot of other crops that prices have moved up, everything from cotton to sugarcane. So we expect Asia to be a very robust market. To your second point about pricing, certainly, in some parts of the world, and Andrew alluded to it, in Brazil, there has been a lag in the industry given where the local currency is. I do expect significant amounts of that to get clawed back as we go through this year. I think you may well see pockets of pricing in the world. You've got to put that in the terms of what will growers spend to get the highest yield and productivity they can because soft commodities are at a high price, plus I suspect you may see some supply disruptions or price increases of raw materials and intermediates because of disruption that is occurring mainly because of COVID in certain parts of the world. And that may be raw materials, it may be logistics costs, but there is certainly inflationary pressure there.

And maybe I'll go back to the R&D question that I wanted to ask you, Mark. And you've recently announced an agreement with Novozymes. And you've certainly expanded your own platform in biologics. So my question for you is why? What -- not that I'm suggesting that it's not a reasonable direction to go, but in your view, what do you see as the attractive value of a biologic versus a synthetic? And maybe to expand on that, can you comment about just regulatory scrutiny around the world? And we're certainly seeing it in Europe. Is this trend that you're moving your R&D platform towards a potential benefit to you as regulatory scrutiny intensifies?

Yes. I think there's a couple of dynamics that we've been watching over the last few years. And we started our real journey on biologicals back in 2013, where we acquired some assets in the U.S. and a very significant library of microbes. We then followed very quickly with the Chr. Hansen alliance on microbial biologicals and built our own research facility in Copenhagen. I think as we watch this develop, there's a couple of things that have sprung to mind to us. First of all is biologicals, they're not necessarily a replacement for synthetics in the broader scheme of things. They certainly are very much more targeted because of the nature of the microbes that you're fermenting and the metabolites that you express from that, which is really the products that have the pesticidal activity. They tend to be smaller in nature. The notion of having a biological Rynaxypyr is going to be very difficult, not only because of that targeted nature, but many countries in the world, you're not allowed to import microbes that are not native in the soil of that country. So you actually segment the market by geography as well by application. We like the fact that you can grow a biological product range pretty quickly. The R&D time is shorter. The investment is less, yet the way you screen and test them is somewhat different. So that is -- I think that's an advantage for the true R&D players. You can apply a lot of the knowledge that you have from your synthetic R&D activities into the biologicals. And then what we've learned and some of our sales that are growing pretty rapidly are sophisticated formulations of biologicals plus synthetics together. So you can imagine a pure biological can be put into a spray rotation program to remove synthetic products from that spraying. But you can also put them together so you lower the load of synthetics in that formulation. And the other thing, I think, is really different modes of action. You can bring new modes of action to help with resistance build, which is also very beneficial to the growing community. So for us, biologicals is part of our plant health business. It's about a $200 million business today. Pure biologicals themselves for us is about $100 million business, growing in the high teens, low 20s percent, above-average EBITDA margin. So a very nice business to be investing in and one which we will continue to invest in. You raised the point of the regulatory scrutiny around the world. And certainly, it is, as you well know, getting more intense in certain parts of the world, and Europe is an obvious example of that. It is a bit of a double-edged sword really. A lot of the biological products, especially in Europe, you don't actually catch or break. It's very much a similar process to get a biological pesticide approved as it is a synthetic. So I think something has to give there from the regulatory authorities if they want to move forward and have softer, more targeted chemistries in the marketplace. From a regulatory environment, in general, Europe is, as we all know, leading the way in terms of the green deal and the way they want to look at the farm to fork process. I think the winners fundamentally in this are the research companies. Because you are bringing softer chemistries, more targeted chemistries, newer chemistries, whether it be biologicals or synthetics into a marketplace where all the chemistries are getting removed. And fundamentally, that is a growth model that we've applied in Europe, and we'll continue to apply in the rest of the world. So it's a pretty complex subject, but certainly, biologicals have a role to play, and they are certainly growing.

Is it your view that the pace of new molecule or new active ingredient discovery in this -- in the crop protection industry has sort of slowed from where it was in prior decades. And if so, does that not increase the opportunity for you with your R&D pipeline?

Yes. I mean if you -- I'm sure Kathy could comment on this more than me, talk to her tomorrow about this subject, Steve. But if you look at the long-term curve, certainly, the numbers have come down. I think what is happening, though, is that as we get more sophisticated at this and different companies focus in different areas, we have noticed that there is an uptick in the patent applications for new chemistries. And that's what I was saying about. I think as the world of traits for seeds has changed over the last 20 years, the advent of more sophisticated chemistry that can tackle resistance is much needed. So a lot of the research activities are going on into those newer areas. That's where I think you'll see that uptick. And frankly, look, there's only 5 real companies practicing basic research into crop protection. So you have a limited subset of the industry that is actually driving that forward. I think those companies will be the winners.

You mentioned on your last call about in the U.S. markets, you had some generic herbicides that had weak volumes, something along those lines. And what according to me might have contributed to that was kind of the shift in the U.S. soybean -- shift towards this triple stack herbicide-tolerant product in west. Is that a -- is that the driver of that particular challenge? Or was this something completely else?

Yes. I think you joined 2 dots that don't necessarily get joined. Here's what happened. Listen, we have a franchise that is in a preemergent franchise that has been down for the last 15 years. And some of the old, more basic formulations have become generic and much more competitive. The actual growth of that franchise in the U.S. is really for us at the high end, which are much stronger, much more targeted formulations for very difficult-to-control resistant weeds. So we're seeing a shift in that portfolio, and this is a manifestation of that. So as is normal with a lot of these types of products, you go through a product life cycle, some of the products we're getting towards the end of their product life cycle. So we're naturally focusing more at the high end where technology can be much more of a player. I think the other point that you raised [indiscernible] extend as well, it's quite interesting that the pre-emergent herbicides are still recommended with these new technologies because we call them new technologies. They may well be new traits, but 2,4-D and dicamba have been around for a long, long time, and there are resistant weeds to them. So you are always going to need a pre-emergent selective herbicides to deal with those really resistant weeds, which continue to grow. So our franchise is not on every acre by a long way, and we see that in the Midwest, the weed resistant acres continue to grow, and we're growing with that. So a bit of a mixed bag really. But that franchise is still a very strong franchise for us. It's not the only one. Our post-emergent Anthem products are growing rapidly on corn. So we have different things that are coming through. But yes, part of the portfolio has been genericized.

And your revenue is generated fairly similarly to -- out of the 4 key regions in the world, where would you see the most growth opportunity for you? If those -- if you had to anticipate where those percentages might change in coming years, where do you think you're going to have the most growth?

I think, I go straight to Asia. I think Latin America, obviously, is very large. There are some large markets in Latin America that we don't participate in that probably it will take us 5 years or more things like Asia soybean rust in Brazil is a $2-plus billion market for fungicides. We have 2 products in our pipeline that are targeted for that market, but they don't appear until the second half of this decade. So it will be a while before those products come to marketplace. The reason I say Asia is because it suits our model very well. It's multi country, highly fragmented crop structure. Again, my comment right at the very beginning around market access, places like India, where inputs are at a very low level compared to the U.S. and Europe and Latin America, there is tremendous opportunity as farmers upgrade to really get those input levels higher to improve yields, and then obviously, improved productivity and profitability for those small biz. So India is a good example of where we're focused to really drive that growth. I see the same thing in Southeast Asia all the way through Indonesia, the Philippines, Vietnam, Thailand. We have new products that are coming for rice as a herbicide in the next few years, in 2023 and '24. Asia is the target for that new herbicide. So you get a feel for the fact that we're not driven by the large row crops in the U.S Corn and soy, they're not where FMC makes its money or where its growth comes from. Something like 70% of our portfolio is on the niche crops, specialty crops, high-value crops around the world. So it's not just that geographic balance, it's really that crop focus and technology, and Asia is going to be one of those key places, Steve.

Very interesting. Well, fellows, we're out of time, but it's been a pure pleasure for me to have this dialogue with you. My best to you for the year and look forward to having more dialogue as the season unfolds. So thank you.

Thank you, Steve. Thanks for the invite.

Well, hi, everyone. My name is Steve Byrne, and it's a pleasure for me to host this panel on crop protection. It's an area that is a perpetual area of demand unlike most demand drivers where the source of the demand doesn't change too much. The source of the demand in crop protection is perpetually changing what we've been using for years. The chemistry drives selective pressure for an evolutionary change in resistance. And thus, we're in the state of perpetually needing more and new active ingredients. We're also in a world where regulatory scrutiny is intensifying on the use of crop chemicals, whether they be synthetic or biologic. It's a demanding situation. Farmers need help, it protects yield. But yes, there's -- it's getting more and more difficult to bring new molecules. So that's kind of the setting. And I'm proud to have a fantastic panel here to drill into these issues. And so let me just go around the -- around the screen here and introduce who's on the panel with me today. To the right of me on the panel is Matthew Phillips. Matthew's Ph.D. is in -- I believe it's animal biochemistry. But he's had a long career in crop protection, seeds. I've been -- I started relying on a consultancy almost 20 years ago called Phillips McDougall, and Matthew was one of the founders of Phillips McDougall. That entity has kind of morphed into what I -- what we use now is ag bio investor, which Matthew is still a consultant for that entity. So Matthew's got a global perspective. To his right, it's Kathy Shelton. She's got a Ph.D. in microbiology and immunology, and she is the Chief Technology Officer for FMC. And she previously was Head of Crop Science R&D for Dupont. So she's been with the FMC organization post that acquisition of Dupont. She has probably 800 research scientists that report to her. So below Kathy is Tina Sejersgard Fano. How'd I do on that, Tina? All right. Tina is a chemical engineer by training, and she has been with Novozymes for nearly 30 years. She's responsible for applications, research, technical service, sales and marketing for the ag and industrial solutions business of Novozymes. Now to her left, we have 2 CEOs that are both part of the Evogene organization. Doug Eisner is the CEO of AgPlenus, that is the division that is focused on synthetic crop chemicals. And Ido Dor is the CEO of Lavie Bio, which is the biologics arm of Evogene. So let me just say welcome to all of you. Thanks for being with me today and let's get in here. We got a lot of challenges globally in crop protection. I want to just go around the panel here take a couple of minutes and just tell us what is exactly your role, what are you doing here, but more importantly, just some highlight that you're particularly excited about or feel is challenging. So let me kick it over to you, Matthew.

Yes. Well, I think we're in a long-term trend of recovery in the crop protection market at the present moment in time. I mean crop prices are improving. When you look at the USDA numbers for crop stocks in 2021 and beyond, they're all coming down. So we're looking at a potential increase in crop prices and farmer wealth, which is generally a positive flag for the crop protection market. But that's not to say we're not without our challenges. As he said, resistance is an ongoing issue. And then the regulatory situation, particularly in the European market, has created a lot opportunities for new products but a much harder environment for getting those products on to the market. And I think that when you're looking at from a regulatory perspective too, you've got the registration review program in the United States, which is some way behind where we are in Europe at the present moment in time. But if -- with the new administration, this has ramped up a little bit, then we could have a similar situation where some older private volume products leave the market. And if that is the case, it creates an opportunity for newer chemistry. So it's definitely a changing environment all the time and one which kind of creates a lot of challenges.

Over to you, Kathy.

Thanks, Steve. So let me start with FMC. We are extremely proud of the fact that last year, we were given -- we were awarded the best pipeline award by Crop Science Forum. And I think that really recognizes both the breadth and depth of the pipeline that we talked about in detail at our Investor Update last year as well. We have over 35 active ingredients in our pipeline with more than 20 of them with new modes of action. And I think, as you know, that new modes of action is a passion for FMC and for our organization. So where do I think things are going in the future for agriculture? Yes. The regulatory environment will continue to be one where the challenges ever increase and the expectations are higher. And I think that R&D-centric companies are going to be rewarded for both the investment, but also the innovation that they bring. We are a creative group of scientists, and we're passionate about the new products that we bring to the market. We know that new modes of action can help address resisted tests around the world. And one area that I can note today is that we were given, through the Herbicide Resistance Action Committee, a group 28 designation for our molecule tetflupyrolimet, which is now the new -- first new mode of action discovered in herbicides in over 30 years. So we're proud of our awards. We're proud of our accomplishments, and we think that R&D will be -- that investment in research and development will enable companies to bring new products to the market, both now and long into the future.

On to you, Tina.

Perfect. So as we just have heard from the former speakers, ag is under a lot of pressure. And what we're doing at Novozymes is we're using biology to help tackle these challenges, which they are for the benefit of farmers, for the benefit of sustainability and thereby, for the benefit of all of us. What we do at Novozymes is we help deliver more output, we call it bio yield. And we also work to replace our complement pesticides, and that's what we call bio control. What we use in our portfolio is microbes; we use them today. And then we're also expanding into some applications as well. We work with a mix of different partners and go-to-market models depending on what the need is because we always focus on leveraging the strongest capabilities, which they are, to secure the biggest impact. And for us, bio ag is a very fascinating opportunity, and we have very high expectations for years to come. How we drive things is why our innovation and therefore, we have a very exciting pipeline in the field of ag and also in other spaces, and we have just done some launches, both in Canada and South America, which should help support that. So we are very excited about our pipeline, and that includes the [ S America ] control where we just have launched a new collaboration together with it.

Ido, let's go over to you.

Thank you. So Lavie Bio is focused on microbiome-based biologicals. We are tackling the corporate action through biologicals and biological products. And it is to leverage what is probably nature's largest function bank. So being able through our AI-based platform to harness the potential of this micro functionality through the understanding of the genes and the genetic elements. And we leverage it to develop products that are kind of living production site or living production units within the field. So it's about live microorganism that work with and on the plant in a longer durability along the sitter. And of course, what we target is we target to bring efficacy levels and consistent levels that can be equivalent or similar to what we see from core protection products. Considering the outlook or looking forward in the next few years of what's going on to happen in the market, we see 2 trends that are very favorable for our initial for biologicals. First of all, the [ full ] thing for us is the fund. So all the discussion and all the impact of this consumer journey has just been started, and we believe this will have a huge impact. The second thing is what we decided at the beginning of this panel is, of course, the on-farm needs for productivity. So this results from the climate change and the emergence of new or old test in different territory reserving different scale. And of course, the resistance for the existing types of chemistries. So in both of these angles, we believe that biological could be very, very instrumental in bringing a solution that is stand-alone or combination with chemistry.

Over to you, Doug.

Yes. At AgPlenus, we're focused on chemistry. We're focused on dealing with some of the issues that were mentioned, the resistance issues, the canceling of registrations. We view chemistry as a critical tool for farmers. And our whole approach is to go after new modes of action. So those will be able to tackle resistance from existing commercially used insecticides and herbicides, and what we do, the R&D platform that we employ is from our parent. Our parent has a computational predictive biology platform, Evogene, and it's a very sophisticated platform, machine learning, artificial intelligence and a huge database. So we employ these tools to find new chemistries that will attack new modes of action and new modes of action will necessarily get around the resistance issues that currently exist. So we also have a very robust pipeline in a lead molecule, which is a new MOA that we've discovered and pushed toward the field and are continuing to develop it so our approach is to use new chemistries to tackle existing problems for farmers.

All right. Very good. I just wanted to make sure everybody that's on the line. If you want to send a question to me for this panel, use the Veracast conference portal and send me a question. If not, I got plenty. My very first job was actually in crop chemical research. It seems like it was an eternity ago, but a lot has changed since then. Let me send the question around that any of you can comment on and that is, we've talked about regulatory scrutiny. We've talked about resistance. When you look at the global ag outlook, are there any particular areas that you see as a significant need, either a resistance problem, similar or a test that has kind of exploded or a very efficacious active ingredient that has lost registration. Anything out there that you'd like to highlight as a meaningful opportunity, whether you're focused on it or not, but just something that to make us all aware of as a potential area of need. Anybody -- I'll open that up. Anybody in the panel jump on that. Go ahead, Kathy.

Sure. So about 7 years ago, we at Dupont and now at FMC thought that we would start looking into research because we believe that glyphosate resistant leads were going to be a challenge. Of course, glyphosate is a molecule that's been used widely around the world. And recently, as we know, there are glyphosate resistant leads that are causing challenges for growers, both in their yield as well as in growing their crops. And so the fact that we focused on that about 7 years ago means that we now have molecules in our pipeline to really address that. And one is a molecule that is effective on Palmer amaranth, which is a very invasive weed for growers, mainly in the corn and soy areas, but can be a challenge as well as water hemp and pigweed. So not only do we see the challenges that there are today, Steve, but as you probably know from your background then, you have to have a lot of foresight to be thinking about those solutions sometimes even before they're obvious to people in the world.

Go ahead, Matthew. You're on mute.

I didn't do that. There's a number of issues. And it's very easy to look at the number in the European situation, in particular. I mean clearly, grass weed control in cereals is an ongoing problem, I mean which is exacerbated in Europe as we've lost trifluralin and some of the early season application products. You'll start with an ALS and ACCA's products for post-emergent grass weed control, which have resistance issues. The people have moved to kind of cross-spectrum products, grass and broadly wheat control, which sometimes don't have the efficacy. And now we're seeing products like [ defenicet ] under regulatory kind of threat. So the world is crying out for new grass weed control in cereals. And I noticed that bixlozone from FMC has a nice kind of profile and is coming in Australia. Coming to Europe, that would be the question. But that's one of a number of issues. I mean clearly, we've lost the neonicotinoids in Europe, whereas the EPA have accepted them for the moment. But there's a big problem with flea beetle and oilseed rape, which neonicotinoids are very good in controlling. And now we're getting big problems in sugarbeet as well. Septoria is an ongoing problem, and we just lost chlorothalonil in Europe, which has a big septoria product. We've got resistance to kind of TRIzols and some of the [ sutaneke ] hydrogenate inhibitors as well. So there's always an ongoing demand for new chemistries to actually kind of come in with a similar resistance issue to TRIzols and [ SPHIs ] in the Asian rust sector on soybeans as well. So and -- then most recently, the loss of mancozeb in Europe. Mancozeb is used in combination with a lot of the more newer specific disease control fungicides which are there. And if you don't have the mancozeb in there, there's a huge potential for resistance to be driven to these specific products in that market sector. So there's a significant number of opportunities there. I mean clearly, as we've lost a lot of the broader spectrum, less expensive chemistry, high-volume products in Europe, these issues are kind of probably uppermost to see in that market and in many others, but it's not to say there isn't resistance issues everywhere, but a number of opportunities.

Yes. So let me just tell you that bixlozone is going to be registered in Europe. We've submitted the dossier. Of course, waiting for regulatory review. So we are very excited about that molecule in the cereals market in Europe as well.

Anybody else there want to talk about what you see as a prime opportunity? Ido, go ahead.

Yes. So I fully agree with the targets that were described, and this is the key and collator that we consider also when we approach this. I think there is a second-tier of opportunity where we don't see the resistance yet, and we have like promising chemistry out there doing their job, but taking into consideration, like Kathy described, how long it takes to bring new molecules to the market. So thinking about how to slow the resistance through combination products or through -- we take it to our end with combination with biologicals, is something that even if you don't have resistance now and you want to avoid the resistance or extend the product life, the chemical product life, instead of getting resistance, I don't know, 7 years maybe to extend it to 10 years. So that's quite significant, and this is the second-tier type of focus that we take when we consider the opportunity. And maybe the third, which is more based on the trend of the consumer is when we get closer to the consumer, even if we don't have any issues with resistance or stuff like that, we are trying to position solutions that can be alternative because the consumer has bigger impact when it's closer to the table forward. So that's just another angle from our side, the biological angle.

Go ahead, Tina.

Yes. I wanted to build on that, that you could say there is resistance and what it is the world need and what it is farmers need is different mode of actions. And that can come from biologicals, that can come from chemicals. What we are focused on is exactly the biological way. And there are also different technologies which can help overcome these resistance and can give an extra choice to consumers as Ido just was talking about. And I think that is also going to be important in the future in order to help drive things forward. It is for the biological side, it is there. It is real, but I do feel is in the early days. And just as Kathy talking to, it is a matter of being out there early in order to drive the change.

Yes. And I just would like to reiterate, the issue of resistance is an enormous problem for farmers, in terms of decreased yield and increased expenses. So we're also going after new modes of action to handle resistance. The glyphosate resistant weeds are really quite problematic. Palmer amaranth Kathy mentioned. We have a new product in our pipeline that actually tackles many of the resistant species. And it really is new modes of action, new ways of controlling crops, controlling resistant strains rather, that will be a benefit to farmers, reduce costs and increase yield.

All right. I want to throw another question that all of you or any of you can address it, that is synthetics versus biologics. And I think there might be some reasonable advantages and disadvantages of each pathway. I don't know. Maybe you can comment on this. Is there a speed to market? Is there a regulatory scrutiny difference between them? Is there an efficacy difference between them? And perhaps more importantly, is there some potential synergy by using both? But we've got a fairly equitable distribution here on this panel of both of these pathways. There's clearly value in both. But let's -- I think those that are on the line with us could benefit from maybe a little education on what's the difference between them. And is there a reason to have both? So I open that up. Go ahead, Tina.

Yes. So I think you're right. I mean there are benefits of both kind of technologies. I think that for a number of the synthetic chemistries, the regulatory hurdles have been high, and they seems to be increasing. And as we're talking about more and more as Matthew was alluding to, a number of chemistries are being difficult to use due to regulatory scrutiny. So that is getting more and more difficult. And as Ido was talking about, especially closer to consumers, there is an increasing wish for having more clean and sustainable products, food products, and therefore, the biologicals come in. Historically, a number of the biological products have had -- have not shown the same efficiency as a number of the synthetics. And that's one of the areas where we, on the biological side needs to secure that they do indeed show the same kind of efficacy and stability and ease of use in order for getting the impact as we are looking for. And that is some of the, you could say the things we are working on in order to secure that, that happens. At Novozymes, we're using both -- you could say, we're using biologics in a broader sense. So it's both microbial derived products, and it's also in some [ medical draft ] solutions. And I think you're putting on a very important point, that is that the combination process is also a way of solving some of the issues where one, in fact, is supporting the others. There's also the whole integrated pest management where you combine in some sprays might be synthetic, and in others, it might be the biologicals. So I think there's a lot of options and a lot of solutions here.

Yes. I agree with Tina. And FMC has both what we call our plant health, which is our business that provides biologicals around the world, as well as our synthetic chemistry pipeline. And when we talk about our pipeline, we're talking about both of those. And I think we've really seen, though, is that there's enough space and there's enough need in the world for both. And we will be continuing to look at how those 2 can be used in the most -- as Tina said, integrated pest management to really have the highest yield for growers and the best use of their land. So I would be remiss not to mention that Tina and I actually have been speaking quite often, and we had an announcement a few weeks ago. Because we do believe that there is a space for biologicals for enzymes and for chemistries to come together, both as mixture products and possibly even as stand-alones. So we're very excited about that announcement we've made. And I think it's proof of what we're saying here today.

Doug or Ido, anything you would like to add to this? You're each heading down one of these paths, but presumably, there could be some synergy between these 2 divisions of Evogene.

Yes. So I fully agree. And as mentioned, the combination products is kind of the reasonable and win-win situation for us to bring as much biologics as possible to the market. But let's take a situation where we don't need to compete with chemistry. Let's assume we have an amazing chemical that it costs millions of -- hundreds of millions of dollars to bring to the market. And if by combining it from day 1 with biological, we can make sure that this will live for 10 years rather than 7 or 5. Or even with GM trades that -- also [indiscernible] trade that you can add a biological and extend life and secure this significant market. So everyone wins. In a way, you don't need to bring maybe more complex mixtures and higher doses of chemistry because of the biological. And on the other hand, we secured the investment in the chemicals. So it's a win-win also from the end deal of a pure biological play.

We would look to work with biologicals in any way that could extend the life and the efficacy of our chemistries.

There's one thing I'd like to ride in there, if I could. It's clearly, I think that the holistic view to crop protection and using the synthetics alongside the biologicals is obviously the way to go with an integrated pest management kind of environment, particularly as the rate of new chemistry entering the market has been kind of slowing down. But I mean clearly, biologicals is a relatively young market, you might say in the present moment in time, but there is a huge number of players in this field. And when you look at the kind of microbes which are on the market at the present moment in time, there is many, many people offering very similar kind of products. So I mean -- and then you look at the biostimulant side, which is likely, particularly in Europe, to come under further regulatory stress in the next few years anyway, they're going to be regulated as fertilizers. I wonder if you'd like to kind of comment about the patent ability of these kind of products and how you see the regulatory environment kind of moving in the biological space overall.

Okay. So for Lavie Bio, we started the activity in 2015, and the idea was to do natural things. So we are not playing with the genes within the microbe. And in order to do that, we wanted to capture nature's diversity, and we did it through 4 continents, 4 years sampling campaign, which is quite unique, and we use enrichment method. So in a way, our baseline collection represents close to 200,000 microbes collected from all over the world. None of our products in the pipeline is similar to things that are out there now and 95% of what we are doing are gram negative microbe. So we bring totally different diversity, different functionality, different mode of action, dealing with the challenge of shelf life and stability naturally. And by the focus of the microbiome, we are able also to mitigate some of this challenge because all of our microbes are related to the [indiscernible] organism. We don't sample soils or something like that. So that brings us to a situation where we have the right sourcing or collection. And then we kind of dropped the prism of the microbe and move to the prism of the genome. So we look at the functionality and the microbes in a way are just packages of function. And when we find the right function composition, that's the starting point, and that's just the baseline to find potential that follows downstream with optimization. So we deal a lot with the question, how can we use this type of understanding in order to fix the performance or maybe to capture the potential? So the proof is in the pudding, and we are going to launch first product in 2022 and second in 2024. So it's on us. But we are targeting for something that is totally different. We have mostly received results comparable to chemicals, and we use benchmarks of all the relevant target geographies, general class and chemicals. So we feel quite comfortable, but we need to prove that it really works in the field. We will do that.

And we have already today a number of biocontrol products in the field. And as you are -- as Ido was talking to, it is based on naturally occurring -- the naturally occurring microbe. And these, you cannot patent ourselves, but there is a lot which can be patented around it in terms of, as Ido is talking to, in terms of delivery, in terms of stabilization technologies. And there is also a lot of know-how in how to produce them and how to formulate them in order to secure that the farmers get the performance when they're using them in the field. But as we also talked about and as Kathy was mentioning, on top of that, we have explored or ventured into exploring the use of enzymes, which is also naturally occurring molecules, but they are those a different possibility as well to patent. But again, they need to be affordable, they need to be so that it is effective for the farmer to use it. And again, you need to secure that you have the efficacy and the stability as is needed. So although you might not be able to patent the individual microorganism or source, there is a lot of other areas where you can go in and patent.

Yes, I agree. The enabling technologies that bring biologicals to the market continue to be key to the commercial success. And we've thought a lot about the formulation technology that we need to bring. And as you say, stability, efficacy, all of those are critical as well as getting the farmers in a way that they have the easiest way to use it. So it is interesting that we talk about biologicals as the active ingredients themselves, but there's a lot of enabling technologies that are necessary in order for them to be competitive and really the benefit of the best commercial product for the growers.

I'd like to get your views on the regulatory outlook, and maybe I'll start with you, Matthew. What are you seeing globally in terms of any changes in the regulatory pathway for approvals? It takes a long time to develop a new mode of action, like we've been talking about here. The regulatory pathway adds on to that. Are you seeing any changes in that level of scrutiny, either on new actives or old actives, that's an additional challenge? And what's provoking the question to you for me on this is this goal of European Commission to cut crop chemical use in half by 2030, if I have that correct. I don't know exactly how that's going to be achieved, but I welcome any comments on that from any of you, but let me kick it over to you first, Matthew.

Well, I think that -- I mean I think it's a volume usage that they're kind of talking about, although you can never be 100% sure. I think it's a pretty wishy-washy piece of legislation anyway. But when you look at the kind of products which have recently left the market like mancozeb or [indiscernible] so these are all pretty high application products. So purely by removing from the market, you're removing volume from the volume, which is actually kind of applied. I mean there's one of your questions further on. It does beg the question that, I mean these are all very broad spectrum, relatively low-cost products, tried and tested and do a job, but don't meet the -- use kind of current criteria for being on the marketplace. But I mean most of them are products which are coming down the line now of single site mode of action in a particular enzyme spec or whatever, and that increases the potential for resistance development if you're on a single enzyme rather than a broad spectrum kind of contact product. So it does steer into the question of the longevity of these products and it comes to Ido's comment earlier on, if you can actually use a biological alongside to actually put an alternative mode of action alongside this to actually take away the resistance development potential, then they all fairly well and good, but it actually creates a lot of challenges. When you look at the situation of product reregistration in Europe and the registration review program in the United States, well, there's an awful lot of products within the states, which are out for comment or an initial judgment on them. But there's a lot of chemistry. Look, if you look at the kind of chemistry which is introduced in the 1950s and '60s, there's only about 30% of that available in the EU market at the moment, where there's 60% of that available in the U.S. market. And the key question is what's going to happen there with the registration review, particularly with the change of regime, which we've actually kind of just had in kind of U.S. market. So I mean it's going to be an ongoing regulatory challenge. And the thing is in Europe, because we're regulated by hazard rather than risk, and that hazard criteria actually covers new molecules coming to the market as well as what's existing there. It means that the companies themselves have to be pretty sure they got an extremely clean product to even justify spending the -- making the expenditure to develop it for the EU market. But you've got a sniff of toxicology in there and a threat, you won't get a registration. They clearly -- it doesn't make a very good sense to actually make that level of investment to bring the product to the market. So an overly strenuous regulatory environment was negative to new chemistry as well as old. But you're seeing this coming in China and India with a lot of older broad volume products being removed from the market as well. I mean we're a long, long way away from the kind of European environment. And you've got a similar situation in Brazil, the move to the more risk-based, hazard-based environment, but it doesn't simply so much movement as a kind of reregistration involving chemistries at the present moment in time. It's more to do with newer chemistry coming to the marketplace. So that's how we see it from there. It's definitely a much more challenging regulatory environment which might actually ramp up in the United States if the registration review program gets accelerated.

We're also saying, obviously, a stricter regulatory environment. The timeline and the costs have increased to register a product. And so well, the safety issue now starts earlier in the development process. So our development also within the development with our partners, toxicity tests and other tests that look at safety and e fade are pushed much earlier in the development process. And also, it spurs us to go after chemistries that will have lower dose rates. So we know that's very important. So we want to have chemistries that work at very low dose rates so there's more effect with less chemical in the environment.

This is definitely what the Europeans want, yes.

Yes. So what a number of activities which are happening in Europe is also that a number of organizations are trying to work for a kind of fast track for biological solutions in order to get approval in the EU in order to support the green transition because as you're rightly stating, Steve, there are some very ambitious targets in Europe in terms of avoiding use of pesticides. But it is a bit like there isn't much tools in the tool box then for farmers to secure yield and secure that they still can make a living. So that's some of the activities which are ongoing in order to secure that there are food for farmers.

Yes. As an aspiration, I think that Europe asks us to really think differently about what we're doing. And again, the hazard versus risk perspective that we bring to reviewing molecules is a challenge because we would like to think that risk plays a much larger role in the decisions around the safety of the molecules than hazard alone. But aspirations like that require new approaches. And I continue to believe that R&D centric innovation-based companies are going to be the beneficiaries of this aspiration or of this challenge, for us to find new ways to bring new products to the market that meet the goals that the European unions defined.

And maybe a question for Kathy and Doug. How do you go about trying to identify new modes of action or new molecules that are synthetic, that have either a greater -- either a greater focus on the targets or greater potency of that target? How are you going about it differently now than maybe you had in the past?

Go ahead, Doug.

Sure. So our whole approach at AgPlenus is a target-based approach. We start with the target that we want to attack. The biological pathway and the protein within that pathway that we want to bind the chemistry to. So we necessarily -- we pick a pathway that is not preserved in humans or higher males. So that, in a sense, should give it a leg up in terms of its safety profile. And then we use -- through our parent company, Evogene, we have an enormous database of chemistries, a 3 billion molecule virtual database of synthesizable chemistries that we run a virtual screen on in order to identify chemicals that can bind to and impact that protein of interest, that target for us, so our whole focus on new MOAs is starting with the target. And that's very different from the traditional development process that big ag takes, which is really called spray and pray, where they take their actual physical chemistries on thousands and thousands of plants, hundreds of thousands of plants, and see what works, see what kills the plant or the tiny little plant, and then they try and elucidate the MOA after that. So we start with the MOA. It's a huge advantage that we have. We use computational biology, artificial intelligence, machine learning to identify chemistries and optimize those. And so we necessarily go after targets that are only in plants, so they'll presumably be safer once they're developed.

Wow, usually, I hear the seed guys use the spray and pray (sic) [ pay ] term. I don't know if I'll hear from the chemistry guys. We are very focused on new modes of action and passionate about them, and it's been how Dupont and then FMC has been able to compete in a market where we are not the largest and not the largest organization. And I believe in the ingenuity and the imagination of our chemists to think about how to create new molecules the world has never seen in order to control pests. But what we've done is we've invested in mode of action screens. And so when we find biology that we think is -- and I'll use the word interesting, we have specific criteria for a molecule and its performance for us to even invest a day in it. So when we have molecules that we think are interesting, and we pursue them, we will then go put it through a mode of action screen. If we find that it doesn't trip any of the known modes of action, then we designate it as an unknown mode of action. From then, we'll then both go after the chemistry, can we broaden the spectrum, can we lower the use rate, can we find specificity? At the same time, we're investing in understanding that mode of action. We have a dual effort to know whether or not the biology we're seeing is interesting enough for us to continue working on it because we know whether or not we have an unknown mode of action that we're investing in as well.

And maybe Matthew, I'll tap into -- Tina, you want to add to that? Go ahead.

I just wanted to add that also on the biological side, understanding the mode of action, I believe, is very important because that is exactly how -- as we talked about earlier, we're going to secure that the biologicals are having the same kind of efficacy as the chemistry has been having because that's one of the areas where biologicals historically have been lagging behind. So that's one of the things which we are very determined in order to secure that we do understand scientifically what is it that the products are delivering and why is it dysfunctioning because that's going to secure that we have new modes of action.

So maybe I'll just give my last question to you, Matthew. You've been following this space for a long time. How would you characterize the pace of innovation or maybe the level of effort on innovation. The 4 other panelists that are on here with you all have various degrees of collaborations with other companies. Is that helping? We've seen consolidation, for sure, at the top level, the number of big R&D-focused big ag companies have certainly consolidated, but we have more collaboration clearly right on this screen. Would you say that the level of effort is getting more productive? Or are we still slipping behind in the pace of new molecule discovery?

Well, we've seen a little bit of a pickup in the last couple of years and a number of introductions. But I mean actually, what we track is the products going out of -- research and into development. And I think we are still on the chemical side in the declining kind of situation. If you look over the 15 years from 2005 to 2020, we have 129 new active ingredients enter development, which sounds like a high number. But over the same period of time, 196 active ingredients went off patent. And so you've got a shortfall of 67 in the replacement of the patented agrochemicals, which are actually on the marketplace. Now clearly, that doesn't mean to say the market is getting more generic. There's a lot of more issues from that and you're losing a lot of products at the back end from reregistration issues, particularly kind of in the European market. But as you said, consolidation of the industry in the chemical side, in particular, has had an impact on this. I mean clearly, the research budgets are getting stretched. I mean the costs go up. But then we have seeds and traits, which you're taking a chunk out of that. And now we've got biologicals and biostimulants taking another chunk out of that. So as you say, it has to be a holistic view, and it's actually getting the spread of your R&D investment across all the areas where you have expertise or where you think the growth is going to be is there. So it's easier to kind of track this from a chemicals point of view because they're very identifiable. From a pure chemistry side, we're definitely kind of falling behind from where we are, and the market is becoming kind of more and more kind of off patent. But it's -- we've been through a slump in the industry when -- I mean Kathy's ex-kind of companies and what actually you had to do to get a product out of research into development in both of your previous kind of elements quite -- footprint is particularly hard, particularly when you're in a slump in the marketplace, maybe now in a period of more sustained kind of growth, which looks, and I'm quite optimistic for 2021 and 2022. And so for the corporate kind of position, if you have the guy head to justify the expenditure to take the products kind of through the development process, hopefully, will probably -- hopefully come a little bit more easy. So whether they're a biological or a chemical, it doesn't matter as long as they do the job.

Well, very good. Listen, we're out of time, but I'm grateful to all of you for joining me on this discussion. My best to all of you. Wish you all continued progress this year. I look forward to staying in touch and hearing updates from you. But you have a nice day, and I'm grateful to you for joining me today. Thank you.

Thank you for the invitation.

Thank you, Steve.

Thanks for listening in as well.

Thank you. Bye.

Thanks a lot.