Post-Patent Report
1 September 2009 Population growth, rising crop prices, improved yields, and increased availability of agricultural land have all driven agrochemical production growth over the last few years, says Nigel Uttley, managing director of Enigma Marketing Research. As the crop protection sector grows, the percentage of sales going to post-patent and generic chemicals has also increased, causing producers to look for ways other than low prices to set themselves above their competitors.
Generic products’ share of sales continued to increase in 2008, according to data by Phillips McDougall. The research consultancy cites proprietary companies losing share for a number of off-patent products, resulting in the products becoming generic, as a key factor. Phillips McDougall’s data shows that generics overtook proprietary off-patent products in 2002 and have run with the majority market share ever since.
Farm Chemicals International asked some of the reigning Top 10 post-patent agrochemical companies how they stay on top year after year. What is Gowan’s secret? “People with passion,” says Juli Jessen, CEO. Gowan, which has been among of the top ten suppliers of post-patent chemicals worldwide for years, manufactures and sells both generic crop protection products and those still under patent. Gowan is passionate about both types of products, Jessen says. “Though most of our products are not patent protected, we improve them and aggressively protect this intellectual property.”
These proprietary off-patent products — those that have no patent protection, but also have no generic competition — don’t comprise the largest market share but have a greater value-to-volume ration than generics. “All the major R&D companies have sales in all three sectors [proprietary, proprietary post-patent, and generic],” Uttley says. Companies such as Bayer CropScience “will have relatively small sales of generic products but are heavily dependent on maintaining market share in the proprietary off-patent sector.”
In fact, most companies work in more than one division, says Uttley, although “there are many hundreds of small generic companies which operate exclusively in the generic sector.” These smaller generic companies can be outcompeted by such larger companies as Makhteshim Agan (MAI), Nufarm, Cheminova, and United Phosphorus, Uttley explains. “They have gained credibility with the multinationals and now are in a position to negotiate license deals, including access to registration data, for products soon to become off-patent.”
Cheminova Marketing Director Kurt Pedersen Kaalund says: “We have examples of proprietary chemistries that we have developed in the market,” along with those the company has gained through acquisitions. However, “The vast majority of our business is in active ingredients in a post-patent situation,” he explains. “In some cases we have proprietary formulation technology that allows us to differentiate the products even after patent expiry.”
Staying On Top
Market changes can come fast and furious. Chinese glyphosate capacities, for example, which rose steadily over the past 10 years, suffered a market glut in 2008, resulting in a large price drop. But prices have since improved, due partially to a demand increase and partly to the Chinese government increasing glyphosate’s export rebate. Glyphosate is the top generic agrochemical product on the market and the major product from many manufacturers, including Denmark-based Cheminova. Smartly, however, Cheminova has wide support in other areas: “Our single biggest product is glyphosate,” says Kaalund, “but today we have a wide portfolio of insecticides and fungicides and also selective herbicides that we sell around the world.”
Such a range of products is important with so much competition; perennial top-ranked MAI has the widest product portfolio with more than 110 active ingredients. “In the last year we have accelerated our investment in new products and led the industry in the number of products launched,” says Ron Zakai, investor relations manager for MAI. “We have introduced eight active ingredients and launched 14 formulations. We have also received 161 new registrations for products worldwide — an increase of 54% compared to 2007.”
MAI expects more good things to come: “There are various competitive products on a global basis with annual sales of between $4 and $5 billion that will come off-patent in the next five years,” confides Zakai. “We have acquired access to 2,4-D, which is a strategic global herbicide that has experienced consistent growth in demand in recent years. This growth is expected to intensify with the planned introduction of 2,4-D-resistant traits by leading global seed manufacturers in the coming years.”
All top-selling companies continue to grow their portfolios. “Last year we introduced a record of seven new active ingredients into our portfolio, and this year we’ll be adding additional products,” Kaalund says.
Gowan also has added a new product — Gavel, acquired from Dow AgroSciences in 2008, will be sold in the US “with related brands around the world for the first time this season,” explains Jessen. The company’s products are well diversified, however: “The Gowan Group continues to invest around the world, including a fertilizer terminal that will open this fall in the deepwater port at Guaymus, Sonora, Mexico and the expansion of Gowan Italia.”
Expansion is key for several of the Top 10 companies. Nufarm Australia “has traditionally grown through geographic expansion and portfolio expansion,” says Group General Manager Agriculture Brian Benson. “This has continued in the past year with expansion into Greece and Hungary. Nufarm also expanded its seeds presence with [Lefroy Seeds] acquisition in Australia.”
MAI invested $35 million in a 2008 environmental upgrade to its Israel plants and launched new operations in India. “We have launched a business unit in Canada and established our Asian direct presence to enhance focus on Thailand, Vietnam and Philippines,” says Zakai.
Such acquisitions are another step to staying at the top of the industry. Cheminova increased its stake in the German Stahler company from 50%, acquired a year ago, to 75% this year. MAI has “strengthened our position in Central Europe by acquiring two companies,” says Zakai. One is Polish agrochemical group Rokita-Agro, along with Magan Yu, a Serbian agrochemical distributor. “The acquisitions are expected to add a strategic product (2,4-D) and extend our strength in the rapidly growing Central European market,” Zakai says.
In a changing market, remaining profitable means rolling with those changes. Remaining at the top of the market can require staying ahead of the changes. “Nufarm ensures it continues … to supply our traditional portfolio of products whilst also continuously developing new products as molecules come out of patent/data protection,” describes Benson. “The development of ‘incremental value’ in the portfolio by creating mixtures and developing new delivery systems and formulations is also a critical part of remaining relevant to the customer.” In other words, the companies who consistently grow and adapt to stay relevant in the market reap the benefits.
Full Service Providers
Another way large post-patent producers are staying relevant and delivering more market share is through heightened customer service. “Customer service is a very important element in our business,” says MAI’s Zakai. “Our business success is a combination of our wide branded off-patent product offering, known and proven quality, and customer service. Quality and customer service are two important factors to allow sustainability and continuous growth in this business. We believe that offering a competitive price, high-quality products and providing customer service are key for MAI.”
Nufarm’s Bensen agrees. “Customer service is critical,” he says. “Product quality is something that all Top 10 companies must commit to if they are to remain in the Top 10. In the post-patent marketplace every company must be price competitive, but Nufarm strives to deliver ‘value for money’ as opposed to purely the lowest price. Value for money is a function of a number of things including quality products, innovative products that meet the customers needs, ease of transaction, quality service and advice, good logistics and delivery time, good financial systems and invoicing correctly. Nufarm values itself on being a ‘full service company.’”
This balance between competitive pricing, quality products, and good customer service have done the Top 10 well. Says Cheminova’s Kaalund: “We believe in our success coming from our development.” Cheminova has a regulatory side and sales and marketing side. “The latter is obviously where the customer service element becomes part,” Kaalund says, “But our ability to develop competitive manufacturing processes and differentiated formulations is as important as our customer service.”
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