Ready to Germinate

.K. Narayanan was stunned. “Why do you need VC money? Instead pledge your cars or wives’ jewellery, like we did at Infosys,” he was told. And Narayanan thought that N.S. Raghavan, one of the co-founders, of Infosys, would understand a bunch of bright biotech scientists.

Narayanan and his colleagues — Gautham Nadig and Ganesh Kishore — persisted and Raghavan gave them Rs. 6.5 crore to start Metahelix, an agricultural biotech company, in 2001. “I made a gut call based on their qualifications and experience at Monsanto,” says Raghavan. He might as well add ambition to that quality.

Image: Gireesh GV for Forbes India
LICENSE TO GROW: KK Narayanan, co-founder and MD, Metahelix is targeting 10% market share of cotton seeds in three to five years

After eight years Metahelix is ready to compete and guess who is on the other side of the net? The big daddy of genetically modified seeds, Monsanto. This is the moment of truth for Raghavan’s gut and Narayanan’s execution.

The Rs. 7,000 crore Indian market for agricultural seeds is the fifth largest in the world. Of that, roughly Rs. 2,000 crore is the market for cotton seeds. This is the market Metahelix is targetting. Nadig says a 10 percent market share is what Metahelix will be gunning for in the next three to five years.

Based on today’s market and prices, that would mean Rs. 200 crore in revenue.
Over 90 percent of Metahelix’s target market is transgenic, or genetically modified (GM). And 95 percent of those seeds contain technology from one company — Monsanto. Monsanto is the Coca-Cola of GM seeds business.

Based on proprietary genes derived from the Bacillus Thuringiensis (Bt.) bacteria, Monsanto makes the “secret sauce” or the “concentrate” that makes a seed resistant to bollworms and armyworms, both nasty vermins. It licences the “concentrate” to companies like Rasi, Nuziveedu, Ankur, and Mahyco that are like the local bottling company of Coca Cola. These guys add other features like usage of water, fast breeding time (based on local farmers’ needs) to the concentrate and then handle the distribution and selling of the seed to the farmers.

For example, a hybrid for Andhra Pradesh’s (AP) Telengana district will make do with lesser water (the area is mostly rain-fed), fertilizer (most farmers are poor) while maturing faster (poor farmers prefer quicker yields). In comparison, the hybrid for AP’s coastal districts will mature slower (so they have time to absorb the nutrients over time) and offer better yields (most farmers are rich, and their plots are irrigated).

That’s why even though there are only five commercial Bt. variants in the country (two from Monsanto, one each from JK, Nath and Metahelix), there are over 300 different branded cotton hybrids that are sold. Almost all of these contain the Bt. gene — Monsanto’s in over 90 percent cases — but the variety is in the hybrid features, the localisation as it were.

A Masterstroke
If Metahelix has to take on Monsanto then the battle is clearly split in two phases. The first phase is to come up with a “concentrate” that can rival Monsanto’s. This it has done. It is the first company globally to isolate and use a completely new Bt. gene segment, cry1C, in cotton seed.

Metahelix’s new seed offers protection against both the Lepidoptera and Spodoptera pest families, placing it on a strong footing against first generation Bt. cotton seeds which target only the former pest family.

Metahelix’s seeds have undergone a stringent series of trials across India since 2005. In July, two of Metahelix’s Bt. cotton seeds, 5125Bt and 5174Bt, received official approval for commercial use in central and south India. But the approval was too late for this year’s kharif sowing season.

Conventionally, the way Indian scientist-backed start-ups behave, now would be the time for nerds to give way to the suits who would start looking for distribution tie-ups. Metahelix doesn’t have to do that.

Why? Because it already has a distribution company called Dhaanya Seeds. Dhaanya Seeds is a commercial masterstroke. From a Rs. 3 crore turnover in 2003 the company is now Rs. 80 crore in turnover. It sells “normal” non-Bt. seeds for rice, sunflower, tomato and brinjal.
Dhaanya has provided Metahelix with two strong advantages. It has created the distribution platform for the company’s Bt. cotton seed now that it is ready to be sold. It also provides a steady stream of money to fund R&D. This is where the business acumen of this team shows through.

The Differentiator
When Metahelix started, it needed money to fund its research and clearly angel funding was not enough. So the company started doing contract research — research for other companies. This brought in the cash but diverted company resources away from their own seed research programme. One of the first people to spot this shift was N.S. Raghavan.

“In the early days of outsourcing, we at Infosys refused to agree to GE’s conditions that all the code we generated would be theirs. Even as all other vendors agreed we stood our ground, because we felt that owning some elements of the code was critical for us to build a more robust, re-usable delivery platform,” says Raghavan.

But doing away with contract research meant Metahelix would need to find an alternate revenue source, so that its R&D would not suffer. That’s why Dhaanya Seeds was created. The cash-flow from Dhaanya allowed Metahelix scientists to concentrate on their own R&D. That bore fruit when they became the first company in the world to isolate and use a completely new Bt. gene segment, cry1C, in the cotton seed.

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