Magazine Issue 10 - Spring 2000
Biotechnology - From fields to finance

Genetically modified food and crops have generated immense opposition - yet ‘life sciences’ corporations and supermarkets are only one part of the GM story. Klas Ronnback takes a step back to consider the finance interests keeping the biotech ship afloat.

Biotechnology companies are dependent on the financial markets for capital. This dependency takes a number of forms:

Shareholders
Shareholders are technically the owners of the company and stand to make immense profits from its operations. But because of the doctrine of limited liability they are not liable for the risks in releasing GMOs into the ecosystem or onto the market. Major biotech shareholders include:
     
Capital Group Companies Inc.(7.01% of AstraZeneca) Emasan AG (4% of Novartis) FMR Corp. [aka Fidelity Investments] (5.09% of Monsanto) Investor Investments AB (5.14% of Astrazeneca) KPC International NV (13.88% of Aventis) Oppenheimer Group Inc. (5.31% of Monsanto) Wellington USA (5% of Aventis)

Banks
A company can never do without a banker - so these institutions have considerable power. Biotech bankers include:

Barclays Bank (Monsanto) Citibank (AstraZeneca) HSBC Bank Plc (AstraZeneca) National Westminster Bank plc (Monsanto and Novartis )
     
Advisors/brokers
Advisors provide guidance on markets, giving strategic wisdom regarding potential mergers, acquisition targets and other investments. Brokers invest a company’s surplus cash in shares. In the biotech sector, several recent mergers and takeovers have meant a busy time for advisors and brokers, usually in the form of merchant banks. For biotech these include:
     
Credit Suisse First Boston (general advisor and broker for AstraZeneca and DuPont and acted broker for Rhone-Poulenc in the merger with Hoechst to form Aventis )Deutsche Bank (advisor for AkzoNobel in a deal where Hoechst sold off subsidiaries as part of the merger with Rhone-Poulenc) Goldman Sachs Group Inc. (general advisor for AstraZeneca) J.P. Morgan & Co Inc. (advisor and broker for both Hoechst and Rhone-Poulenc on their merger into Aventis) Morgan Stanley Dean Witter & Co (general broker for DuPont)
     
Analysts
Analysts provide information about a company to other potential investors. Their word alone can mean the difference between an investor putting money into a project or disregarding it completely. Analysts can also play a very negative role for the industry. In July 1999, Deutsche Bank issued a report – "Ag Biotech: Thanks, But No Thanks?" – advising investors to sell off their holdings in Pioneer Hi-Bred, as well voicing general scepticism about the long-term propects for the whole agricultural biotechnology sector. Examples of important analysts:
     
Brown Brothers Harriman & Co. Credit Suisse First Boston. Deutsche Bank. ING Barings. J.P. Morgan & Co Inc. Merrill Lynch & Co Inc. Warburg Dillon Read
     
Venture capital
Venture capital describes investments that are more risky than ‘normal’ investments, often meaning cash put into start-up companies. Venture capital is often used in high tech industries where major research and development is needed, such as the biotech industry. According to the BVCA (British Venture Capital Association), many high street institutions are interested in investing in new biotech companies. But there are also smaller investment funds interested – some of which are getting their money from local authorities.
     
Insurance
With an insurance company behind it, a company is more willing to take risks. This is especially important when it comes to GMOs – these new products could well be associated with big risks to the environment or the health of consumers. But with an insurance company to underwrite any potential losses, a company is more likely to forge ahead with bringing new GM products to an early market. Since no-one can say with any certainty what problems GMOs may cause, there is no chance of correctly evaluating risks involved – something the reinsurance company Swiss Re (second biggest in the world) stated in a 1998 report . And on the 17th February this year, Friends of the Earth revealed that UK’s leading farm insurance company – NFU Mutual – will not offer insurance against GM-pollution. Examples of insurance companies:
     
Chubb Insurance Company of Europe, SA (who has been selected as a "BioPurchasing partner" by the Biotechnology Industry Organization) Gerling Insurance Service Co Ltd Miller International Science Unit
     
Commodities trading
Commodities are real things, such as raw materials - as opposed to finance. GM crops are commodities, and so are traded on commodities exchanges around the world. All kinds of futures and options contracts concerning commodities are also handled in the exchanges. One company that is involved in this trading is Cargill Investor Services (CIS) Commodity Group. Two of the biggest crops being genetically manipulated are maize and soybeans. Both these are traded primarily on the CBT (Chicago Board of Trade).
     
Government subsidies
Every year the UK government uses approximately £600 million to fund research in biotechnology (including both agriculture and pharmaceutical research). Much of this is directed to universities and other public institutions, but a substantial amount goes straight to private companies - through programmes such as SMART, LINK, BIO-WISE and the Enterprise Fund. LINK, for example, has a yearly funding of £37 million to private companies. Another way in which the government supports private companies working on GMOs is through start-up support for new businesses.
     
There are also proposals for tax breaks that will benefit life sciences companies, such as the possibility of counting research and development expenditures against tax.

Government funders:
Department of Trade and Industry (DTI)
Research councils, most importantly the Biotechnology and Biology Sciences Research Council, BBSRC.


This is an extract from Corporate Watch’s forthcoming briefing on the finance of genetic engineering.