Waves in Biotech Industry Mergers and Acquisitions Gordon Rausser, Robert Gordon Sproul Distinguished Professor University of California, Berkeley ICABR Conference May 31, 2017

First Wave: Largely 1990’s Second Wave: Currently Ongoing Third Wave: 2020 and Beyond

First Wave: Largely 1990’s Monsanto One of most successful pivots in history of corporate America. Why? 1993 Merges with Gargiulo 1995-1997 Flurry of acquisitions Spinoff of Solutia (chemical operations) 1993: Monsanto and Gargiulo joined forces to produce a genetically altered tomato. 1995-1997: A flurry of acquisitions greatly increased Monsanto’s presence in life sciences, quickly compensating for the revenue lost from the spinoff of Solutia (chemical operations)

First Wave: Largely 1990’s Monsanto 1996 Aquires Agracetus Purchases an interest in Calgene (Calgene acquired in 1997) 1997 Original Monsanto purchases Asgrow agronomics Original Monsanto purchases Holden’s Foundation Seeds LLC and Corn States Hybrid Service LLC Original Monsanto spins off industrial chemical and fibers business as Solutia Inc. 1996: The original Monsanto acquires the plant biotechnology assets of Agracetus and purchases an interest in Calgene, another biotech research company. 1997: The original Monsanto purchase Holden’s Foundation Seeds LLC and Corn States Hybrid Service LLC, a supplier of high quality foundation seed for the cornseed industry. The original Monsanto maintains Holden’s/Corn States’ policy of broadly licensing seed companies’ elite corn germplasm and trait technologies.

First Wave: Largely 1990’s Monsanto 1998 Original Monsanto purchases DeKalb Genetics Corp and Cargill’s foreign seed business. 2000 New Monsanto Company, based on the previous agricultural division of Pharmacia, incorporated as a stand-alone subsidiary of the pharmaceutical company. Two remaining businesses (agriculture and pharmaceuticals) separated as Monsanto Company merges with Pharmacia & Upjohn Inc. Agricultural products business incorporated as Monsanto Company subsidiary, Monsanto Ag Company. Pharmacia & Upjohn become subsidiary of Monsanto Company, which changes name to Pharmacia Corporation. 2000: Pharmacia itself eventually becomes a subsidiary of Pfizer in 2003. The agricultural products business was incorporated as a Monsanto Company subsidiary in February 2000, named Monsanto Ag Company.

First Wave: Largely 1990’s Monsanto 2002 New Monsanto Company spins out Pharmacia; now separate Monsanto Company (was agricultural subsidiary) Purchases regional firms and the large fruit and vegetable company, Seminis Purchases Delta and Pine Land (cotton) In August 2003, Pharmacia Corporation distributed its remaining holding in the new Monsanto Company to its shareholders through a tax-free stock dividend.

First Wave: Largely 1990’s Novartis / Syngenta 1996 Novartis formed by the merger of: Geigy Sandoz Laboratories Ciba 2000 Syngenta formed by the merger of: Novartis Agribusiness Zenec Agrochemicals 1996: Novartis was formed by the merger of three Swiss companies: Geigy, which has roots back to 1758 Sandoz Laboratories, which was founded in 1876 Ciba, founded in 1884. Ciba and Geigy had merged in 1971 and had concentrated mainly on crop protection in its agro division, Sandoz more on seeds. 2000: Syngenta, based in Switzerland, was formed by the merger of Novartis Agribusiness and Zenec Agrochemicals. Its roots are considerably older.

First Wave: Largely 1990’s Monsanto

First Wave: Largely 1990s Syngenta

First Wave: Largely 1990’s DuPont Pioneer 1991 Pioneer purchases 2 million shares in partnership with Mycogen Seeds; sold the shares in 1998. 1996 Pioneer acquires 20% stake in Sunseeds Co. in exchange for vegetable seed operation. 1997 DuPont acquires 20% stake in Pioneer; form Optimum Quality Grains LLC 1999 DuPont purchases remaining 80% of Pioneer for $7.7 billion 1991: Pioneer purchases 2 million shares and establishes a partnership with Mycogen Seeds to develop Bt insect resistance in corn, sorghum, soybean, canola, sunflower, and other seeds. Pioneer sold the shares in 1998. Pioneer becomes the number one brand of soybeans in North America. 1996: Pioneer acquires 20% stake in Sunseeds Co. (a hybrid vegetable seed producer) in exchange for Pioneer’s vegetable seed operation. 1997: DuPont acquires a 20% stake in Pioneer and the companies form a joint venture called Optimum Quality Grains LLC 2013: DuPont agrees to pay Monsanto Co at least $1.75 billion in a new licensing deal and both companies have agreed to dissolve their bitter legal battles over rights to technology for genetically modified seeds.

First Wave: Largely 1990’s Dow Chemical / Dow Elanco Plant science component of Eli Lilly and Co., following life science strategy of Novartis, Monsanto and others. 1989 Joint venture formed between Dow and Eli Lilly 1997 Dow buys out Lilly’s interest; becomes Dow AgroSciences Subsequently acquires Mycogen Seeds, Brazil Seeds and Rohm and Haas Ag Chemicals business Dow Elanco slowly emerging in competitive seed and ag chemical space

First Wave: Largely 1990’s

First Wave: Largely 1990’s

First Wave: Largely 1990’s

Personal Lens on 1990s Consolidation Activities in Plant and Animal Biotechnology Rausser GC, Small AA, Yoo SJ. 1996. “Intellectual Property Rights and Market Structure in Agricultural Biotechnology.” Department of Agricultural and Resource Economics Working Paper No. 799, UC Berkeley. Rausser GC, Scotchmer S, Simon LK. 1999. “Intellectual Property and Market Structure in Agriculture.” Department of Agricultural and Resource Economics Working Paper No. 880, UC Berkeley. Marco AC, Rausser GC. 2002. “Mergers and Intellectual Property in Agricultural Biotechnology.” In Economic and Social Issues in Agricultural Biotechnology, Evenson RE, Santaniello V and Zilberman D, eds., 119-35. Wallingford, UK and New York: CABI Publishing. Graff GD, Rausser GC, Small AA. 2003. “Agricultural Biotechnology’s Complementary Intellectual Assets.” Review of Economics and Statistics, 85(2):349-63. Marco A, Rausser G. 2008. “The Role of Paten Rights in Mergers: Consolidation in Plant Biotechnology.” American Journal of Agricultural Economics, 90(1):133-51. Marco AC, Rausser GC. 2011. “Complementarities and Spillovers in Mergers: An Empirical Investigation Using Patent Data.” Economics of Innovation and New Technology, 20(3):207-31.

Second Wave: The Last Few Years ChemChina – Syngenta: Value $43 billion 2017 Both U.S. and Europe have approved merger 90% of shareholders have approved Currently only merger in Second Wave having achieved regulatory approval

Proposed Mergers Bayer – Monsanto: Value $66 billion shared vision of integrated agricultural offerings and delivering enhanced solutions for growers creates leading innovation engine for next generation of farming $128 per share in all-cash transaction, 44% premium to Monsanto shareholders, aggregate value of $66 billion. significant value creation, expected annual synergies ~$1.5 billion after Y3; additional synergies from integrated solutions in future years committed to retaining strong presence in U.S. combined business’ global Seeds & Traits and North American commercial headquarters in St. Louis. expected accretion to core EPS in 1st full year after closing expected double-digit percentage accretion in 3rd full year.

Proposed Mergers Bayer – Monsanto: Value $66 billion promised President-elect Trump $8 billion US investment if merger clears regulatory approvals Bayer CEO promised to add 3,000 jobs at Monsanto, keeping headquarters in St. Louis after the deal completed, Trump spokesman Sean Spicer said in January. Planned merger is the biggest ever in agriculture

Proposed Mergers DuPont – Dow Chemical: Value $130 billion a “merger of equals,” Dow and DuPont investors equal shares of combined company DowDuPont proposed to split after 18-24 months into: agriculture, including seeds and pesticides materials, including coatings, plastics and industrial chemicals specialty products, including chemicals key to the electronics, biosciences and health industries The companies will stage a “merger of equals,” giving Dow and DuPont investors equal shares of the combined company, in an all-stock deal expected to finalize in late 2016, with dual headquarters in Midland, MI and Wilmington, DE. The resulting company, DowDuPont, will be split after 18-24 months via tax-free spinoffs into three independent public companies

Third Wave: 2020 and Beyond Given the possibility of three large players in the ag biotech industry, there will be significant incentives for numerous startups to engage in “entry for merger” Analogous to enterprise (SAS) and pharmaceutical industry Fundamental implication: Syngenta/Chinachem, Bayer/Monsanto, and Pioneer/Dow Elanco will establish major strategic activities in acquisitions of startups that have incremental value to their core businesses New agriculture and food industry technology entrants have begun in earnest over last five years and will be dramatically advanced by concentration of three big players