Unlike your local public library, libraries at scientific companies tend to be very secretive -- no one outside the company knows what's in them. Of course, we're not talking about books. There are chemical compounds or seeds with different genetic traits in there, so it's understandable that the companies might be a little secretive. When Monsanto (NYSE:MON) and BASF (NYSE:BF) decided to show each other their crop genetics libraries as part of their $1.5 billion research and development deal, it wasn't clear what the companies might find.
They could have discovered that the two companies had been researching the same genes responsible for trait formation -- after all, the companies have been working for years at discovering traits for producing bigger, stronger, and more productive plants. Instead, it appears that their libraries are quite different -- there is less than a 10% overlap in the discovered genes -- leading to the likelihood of a very productive collaboration.
The long-term collaboration was designed to develop corn, soybean, cotton, and canola plants with increased yields under less than perfect conditions such as droughts. The first decade of plant biotechnology has been about discovering ways to deal with weeds and bugs, but it's clear that the next decade will be about developing plants that produce consistently under less than ideal conditions.
By combining genes that control different traits into one plant, the companies can produce more productive plants in a shorter time than they could have on their own. The companies believe that the first products from the collaboration will make it to market in the first half of the next decade.
Since Monsanto has the bigger sales force, it will be responsible for the marketing of any products that come out of the collaboration. The companies will split the revenue 60% to 40%, with Monsanto getting the larger portion.
The deal may partially be in response to Pioneer Hi-Bred's collaboration with Syngenta (NYSE:SYT), which was announced last year. Pioneer Hi-Bred, a DuPont (NYSE:DD) subsidiary, and Syngenta will combine corn and soybean traits developed independently to produce plants with better yields. Earlier this year, DuPont also announced plans to reinvest $100 million into Pioneer Hi-Bred's seed trait program, mainly by increasing the number of employees working on research and development. Things are certainly heating up in the plant biotech industry.
Any products that are developed from the joint venture are many years away from increasing sales at either company, so it's hard for investors to put a value on the venture. But long-term investors should take it as a sign that Monsanto and BASF are putting their capital to good use.
Want to know the latest drug stock we've picked for the Fool's market-beating Rule Breakers newsletter? You can take a look at all our recommendations, as well as our message boards and exclusive content, with a 30-day free trial.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool's disclosure policy is rock solid.
