May 20, 2011 | Jeremy Ogul

One of the greatest problems confronting farmers today is how to control plant disease and pests while minimizing environmental impact and remaining profitable. When synthetic chemical pesticides were first developed in the early 20^th century, they were embraced as a less harmful solution to the highly toxic inorganic chemicals (sulfur, lead and arsenic) that humans had been using to kill insects on their crops for the past 4,500 years. However, evidence pointing to the environmental damage and adverse human health effects caused by the synthetic chemical pesticides that fueled the Green Revolution continues to mount.

AgraQuest, a biotechnology company that develops biological and low-chemical pest management products, believes that it has the solution: Biopesticides.

To learn more about AgraQuest’s goals, the market opportunity for its biopesticides and the company’s history, I recently spoke with Global Marketing Director Sara Reiter.

AgraQuest, headquarted in Davis, Calif., sees itself as having an important role in helping to address the problems presented by a projected world population of 9 billion people by 2050. “We think that biopesticides – because they have an impact on yield and because they offer some really unique benefits in terms of your ability to get back into a field after it’s been treated, or safety to your field workers – we think they definitely have a play in that push to feed 9 billion people,” Reiter said.

Biopesticides, said Reiter, have a green advantage over conventional synthetic pesticides for the following reasons: they persist in the environment for less time; they are targeted to only kill certain organisms while “missing” beneficial insects; and they are usually not derived from petroleum like most synthetic chemical pesticides.

According to Reiter, biopesticides also have a cost advantage from a business perspective. Whereas a new active ingredient (pesticide, fungicide, herbicide) in conventional agriculture could cost $240 million and take 10 years to develop, Reiter estimated that a new biopesticide generally costs $15 to $20 million and takes to four to five years to develop. “We have the potential to really move a lot faster, and we have the potential to aim at some smaller markets and still have what we would consider a valuable offering without having to be a product that’s focused on the monolithic crops like corn and soybeans,” she said.

AgraQuest Products

AgraQuest’s leading product is a biofungicide called Serenade. It contains a unique, patented strain of a bacteria known as Bacillus subtilis that produces molecules known as lipopeptides that work together to kill a variety of diseases, including fire blight, bortyrtis, sour rot, rust, sclerotinia, powdery mildew, bacterial spot and white mold. Serenade is sold in 26 countries. Different versions of the Serenade product can be used with high-value fruits and vegetables, including grapes, tomatoes, peppers, lettuce, potatoes, melons, pumpkins and beans. AgraQuest offers another biofungicide called Sonata, sold in eight countries, and a bioinsecticide called Requiem. AgraQuest manufactures its products at a company-owned facility in Tlaxcala, Mexico.

In order to be sustainable, farmers have to be able to continue to profit from their work. AgraQuest makes this a high priority in deciding what products to bring to market. Reiter said AgraQuest has set a “high hurdle” to only introduce products that can be used as easily as conventional pesticides. This means that during the development process, the company abandons any product that would need to be refrigerated or could only be applied at certain temperatures, for example. The products AgraQuest brings to market are also all generally priced equivalently to conventional options.

Market Opportunity

Reiter said AgraQuest’s total market is all of global agriculture. So far, though, AgraQuest product adoption rates have been greatest among high-value fruit and vegetable producers whose consumers have become increasingly pesticide-conscious when making purchasing decisions related to fresh produce. “You can understand why someone who is consuming a fresh piece of produce may be more interested in its pesticide levels or buying organic,” Reiter said. “They may not care, for example, what kinds of pesticides were applied to their wheat when they’re making their bread decisions.”

AgraQuest Sales Data

Market research company Cropnosis estimates AgraQuest’s annual sales at $30 million a year, a number Reiter said was pretty close to accurate. Last year was AgraQuest’s first profitable year.

How AgraQuest Got Started

Observing the way natural products chemistry had revolutionized the pharmaceutical industry, AgraQuest’s founders in 1995 decided to apply the same philosophy to developing crop protection products. “Back at that period of time, the company began an exercise to scour the earth to look for what we call beneficial bacteria or beneficial microbes that could be used to create biopesticides,” Reiter said. They started with about 20,000 different microbes and discovered and patented hundreds of leads. From 2000 to 2005, AgraQuest focused on developing its first two fungicides for organic agriculture, later moving into products for conventional farms. Around 2008, the company began growing rapidly as more of its products received regulatory approval for use in the commercial market. Reiter said hiring growth has been fueled over the past few years by a steady flow of talent from the nearby University of California, Davis.

Company Structure

The company has two divisions: agrochemical and BioInnovations. About 80 percent of sales come from the agrochemical division, which offers products that can be used with or in place of conventional pesticides on food crops. In the U.S. and Mexico, AgraQuest has a sales force in the form of a distributed channel that sells to growers. In the rest of the world, sales are made through exclusive partners depending on geography.

The BioInnovations division uses AgraQuest’s knowledge of biopesticides and finds other applications for it outside of food. BioInnovations products are targeted to things like seed treatment, turf, ornamental flower production and animal nutrition. “The BioInnovations group gives us an avenue to put those technologies into ancillary markets,” Reiter said. “It’s a mechanism to keep our ag teams focused exclusively on ag, but to continue to repurpose these valuable technologies into related markets.”

Research and Development Partnerships

AgraQuest’s growth has also been aided by partnerships with several major players in the biopesticide and agrochemical space. “We are in partnership with Bayer CropScience, BASF and Monsanto on several different deals whereby they’re gaining some access to some of our technologies or they’re selling some of our technologies for us in other parts of the world,” Reiter said. “Our partnership with Monsanto is a research and development relationship based on the idea of putting biopesticides into seed treatment technologies in their key crops.”

The Future

In March, AgraQuest announced that it had raised $17.7 million in a financing round. While still a privately held, venture-capital backed startup, AgraQuest is moving toward an IPO within the next few years. “In about five years I think we’ll be a $300 million company. I think we’ll probably be out and a publicly held company by then,” Reiter said. Growth will be fueled by 12 new biopesticide leads already at various points in AgraQuest’s development pipeline. Reiter estimated that four or five of those products would be commercially available within five years, and all 12 of them to be commercially available within the next decade.

As biopesticide use increases, the hope is to see less disease, fewer pests, higher yields, and less toxic agricultural runoff – all while allowing farmers to increase profits. As Reiter said, it’s a “high hurdle,” but with that population figure of 9 billion people looming, it’s one that desperately must be achieved.