Monsanto's (NYSE:MON) research and development pipeline update this week will be every bit as important as the fiscal year 2015 first quarter earnings report it releases at the same time. Investors can gauge where the biotech is headed from the discussion of its research and development priorities, and its pipeline remains the single most important factor for gauging where it's headed.
We already know earnings are expected to be lackluster compared to the year ago period, so the most important thing I'll be looking for will be how many new products have moved into the R&D pipeline.
Monsanto's record-breaking year
Last year it had a record 29 advancements in its pipeline, 13 of which were completely new platforms. And with five product launches, there was a record number of projects graduating from the R&D pipeline. That included technologies like its Intacta RR2 Pro soybeans and the FieldScripts variable rate seeding program in corn.
While the soybean technology is still mired in negotiations with Brazilian farmers over whether distributors should act as royalty collectors for the biotech, the problems are expected to be resolved sooner rather than later. As they have patent protection on them well into the next decade, Monsanto will come to own the future of soybeans in Brazil.
Similarly, FieldScripts is intended to help farmers with precision planting schemes, though it has met some resistance because there's not enough data yet to confirm it's profitable for them to do so. Under certain circumstances it might be, but DuPont has already leapt to the forefront by mapping tens of millions of acres of farmland. Still it suggests it's an area ripe for further exploitation.
How much is Monsanto spending on R&D?
The biotech spends quite a sum on developing next-generation technologies. Expenses in 2014 were more than $1.7 billion, a 12.5% increase over the year before, largely as a result of acquiring The Climate Corp., a big data climate modeling specialist that predicts the weather and sells crop insurance to farmers based on that information.
But Monsanto's R&D efforts are typically focused on improving second- and third-generation traits, trait-stacking solutions in seeds, yield and productivity tools, and also on developing new pipeline products. R&D expenses assumed 11% of net sales in 2014.
What to look for in the coming years
Pipeline advancements keep advancing. In 2012 there were 18 that advanced and last year there were 29.
We should hear more this year about Monsanto's RR2 Xtend soybeans and Bollgard II XtendFlex for cotton, two technologies that were identified as "groundbreakers" last year and just received a recommendation from the USDA they be fully deregulated.
The dicamba-tolerant soybeans, however, likely won't be available until 2016 because China has suspended approval of imports of genetically modified soybeans. Chinese regulators cited "low public acceptance" of GMOs as the reasons for holding approval in abeyance, marking the first time it has used public opinion in its decision-making process. Syngenta was responsible for 1 million tonnes of U.S. corn getting rejected because it contained the biotech's MIR162 trait that was never approved.
Look for updates also on last year's discovery phase projects, including its biopesticide platform featuring Monsanto's BioDirect technology.
Due to the blowback it's received over GMOs, the biotech wants to leverage its experience in genomics to develop molecules found in nature that have common components of the food we eat and our environment. No doubt it believes there will be broader public acceptance of its seeds if they aren't creating organisms that can't possibly occur in nature.
Monsanto's first quarter earnings shouldn't contain many positive surprises considering the uncertainty within the agricultural markets as corn and soybean prices remain pressured and farmer planting intentions still unsettled. Financial headwinds notwithstanding, the R&D pipeline ought to be as strong as ever and I'll be looking to see how many new technologies are added and advancing when Monsanto provides its update.
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