September 11, 2008

Your biotech investment: leave home without it

Filed under: Strategy — Nicola Rowe @ 6:10 am

Green biotechnology, which is biotechnology applied to plants, holds out hope for the bottom billion. As the United Nation Economic Commission for Africa points out, “Rapid developments in science allow […] scientists to modify the very building blocks of life—the genes themselves.” So urgent is the situation in Africa that the potential upside can be measured, not just in dollars, but in human lives. Closer to home, plant tissue culture, plant genetic engineering and plant molecular marker assisted breeding offer higher yields for first-world farmers. And you’re probably already eating hybrid tomatoes.


But while you may feel the difference in your wallet at the grocery store, what does it mean for your portfolio? Should you invest directly in a green technology venture?


First, the time from idea to market realisation is about the same time for green biotechnology applications as for red biotechnology products: fifteen to twenty years. So you’re looking at a long-term return on investment – if you can obtain any return at all: uncertainties increase as your time horizon extends. But the higher return you’ll want compensate for that risk may not eventuate. A survey of applications made for regulatory approval in one English-speaking country showed that most were for variants on existing lines of fruit and root vegetables. This means that the likelihood of the product succeeding is greater – it is easier to adapt than to create – but it also means that the target product will be competing in the same market space as the crop it replaces. You’ll want to ask yourself how likely it is that a new variant of, say, potato can create additional demand, and how much of the existing potato market it’s likely to cannibalise. Often, the answer will be: not much.


Even if you do manage, a decade and a half out, to hit on a winning potato brand, you’ll still have to manage product stigma. How genetic modification will be viewed in fifteen years is anyone’s guess. Wizard’s blessing or devil’s curse? Right now, the odds look even.


If you don’t mind a roulette wheel with a low-chip load and a twenty-year spin cycle, green biotech may be for you. Otherwise, let others reap, and seed your own funds elsewhere.


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