Agrochemical R&D Expenditure

Phillips McDougall

Agrochemical Industry Research and

Development Expenditure.

A Consultancy Study for CropLife International

September 2005

Phillips McDougall
Suite 2
Vineyard Business Centre
Saughland
Pathhead
Midlothian
EH7 5XP
United Kingdom
Tel :44 1875 320 611
Fax :44 1875 320 613
E-mail :phillipsmcdougall@dial.pipex.com

Phillips McDougall 1 September 2005

 Agrochemical R&D Expenditure

Contents
Section Page

Executive Summary 3-5

Background, Study Scope and Methodology 6-9

Study Scope 6

Study Definitions 7

Study Results Part 1 10-19

Research and Development Expenditure – 2004 10

Results of Survey 11

R&D Expenditure Split By R&D Phase 12

R&D Costs of New Product Discovery and Development 13

R&D Costs Associated with Managing the Existing Business 14

R&D Expenditure Split By Scientific Discipline and Activity 15

External R&D Expenditure 17

Study Results Part 2 20

Research and Development Staff Numbers 20

Discussion 21-23

Appendix 1 – Company Questionnaire 24-29

Appendix 2 – Study Variance 30

Phillips Suite 2 For private circulation only. The information in

McDougall Vineyard Business Centre, this report constitutes our best judgement at the
Saughland, time of publication, but it is subject to change.
Copyright Pathhead Phillips McDougall does not accept any liability
2005 Midlothian EH37 5XP for any loss, damage or any other accident
arising from the use of the information in this
report.
 Agrochemical R&D Expenditure

Executive Summary
This study presents the results of a survey of the leading crop protection
companies in order to determine:
The overall level of expenditure devoted by the agrochemical industry to
the research and development process.
The proportion of R&D budget that is targeted at new product discovery,
development and managing the existing business including re-
registration costs.
How the R&D budget is allocated according to the key disciplines
involved, namely chemistry, biology, human risk assessments,
environmental risk assessment and regulatory.
What proportion of the industry R&D budget is spent on studies
undertaken by external organisations
The total staff headcount involved in agrochemical product R&D and how
that headcount is split between the various R&D disciplines.
Ten companies were surveyed and the aggregated total cost of industry R&D
expenditure in 2004 was found to be $2250 m., a value equivalent to 7.5% of
the agrochemical sales of the companies surveyed. The following figure outlines
how this total value was split amongst the main R&D activities:
Agrochemical Industry R&D Expenditure by R&D Phase
$m.
2500
Total $2250 m.
82.1
Patents
2000 397.2

Re-registration

1500 558.7
Manging Existing
Business - excluding
re-registration
1000 506.8 New Product
Development

Discovery
500
705.2

The highest level of R&D expenditure in 2004 was incurred in new product
discovery followed by the R&D costs involved in managing the existing business
(excluding re-registration costs). Re-registration costs incurred by the ten
companies surveyed were equal to $397.2 m., or 17.7% of the total R&D
budget.

Phillips McDougall 3 September 2005

 Agrochemical R&D Expenditure

R&D Expenditure by Scientific Discipline and Activity

$m.
2500

Total $2250 m.
82.1

2000 279.6

174.9 Patents

320.4 Regulatory
1500
Environmental
risk assessment
Human Health
risk assessment
708.1
1000 Biology

Chemistry

500

684.9

Overall, the most significant scientific and regulatory activity was biology-based
studies with $708.1 m., followed by chemistry ($684.9 m.), human health risk
assessment ($320.4 m.), regulatory activities ($279.6 m.), environmental risk
assessment ($174.9 m.) and patents ($82.1 m.).
The results of the company survey into determining the proportion of overall
R&D budget, excluding registration fees, that was devoted to external studies
revealed that in 2004, $361.1 m. was targeted at external studies. The most
important areas for this expenditure, based on value, were biology-based
studies.
Agrochemical R&D Expenditure Spent on External Studies
Sector Value ($m.)
Chemistry 63.0
Biology 100.4
Human Risk Assessment 77.3
Environmental Risk Assessment 57.3
Registration Activities 28.1
Patents 35.0
Total 361.1

Phillips McDougall 4 September 2005

 Agrochemical R&D Expenditure

The results of the companies surveyed indicated that the total headcount
employed in agrochemical industry research and development, based on FTEs,
was 8890 in 2004.
Agrochemical Industry Headcount
Headcount
(FTEs)
Chemistry 2501
Biology 3383
Human Risk Assessment 1094
Environmental Risk Assessment 583
Regulatory 1210
Patents 119

Total 8890

Phillips McDougall 5 September 2005

 Agrochemical R&D Expenditure

Background
In 2002, Phillips McDougall undertook a study on behalf of the European Crop
Protection Association (ECPA) and CropLife America that was designed to
determine the level of expenditure involved in the discovery, development and
registration of a new conventional chemical crop protection product. Whilst this
study provided information on the costs involved in bringing a new agrochemical
active ingredient from the initial discovery process to the market place, it was
not designed to provide information on the overall level of R&D expenditure
made by the agrochemical industry or how the industry R&D budget is invested.
This current study was designed to provide not only a greater understanding of
the level of annual overall expenditure made by the agrochemical industry on
research and development, but also provide details of the number of staff
involved in the overall R&D process.
Study Scope
As outlined above, this current study was designed to measure two main factors
associated with the R&D process in the agrochemical industry. Firstly, the level
of financial investment made by companies and secondly the number of staff
involved in the overall agrochemical R&D sector.
For the financial investment component of the study, the main aims were:
Determine the level of expenditure devoted annually by the agrochemical
industry to the research and development process as it relates to
agrochemicals for crop and non-crop use.
Measure the proportion of the R&D budget that is targeted at the different
R&D phases: new product discovery, new product development, and
managing the existing business.
Identify how the R&D budget is allocated according to the key disciplines
involved, namely chemistry, biology, human health risk assessment,
environmental risk assessment and regulatory/registration.
For the staff numbers, the principal aim of the study was to:
Determine the total number of individuals involved in agrochemical
product R&D.
Identify how the total R&D headcount is split according to the various
R&D disciplines as noted above.
Methodology
The results of this study are based on the responses to a questionnaire, which
was sent to the following group of companies that were considered to be
representative of the industry:
The questionnaire that was sent to the companies is outlined in Appendix 1 of
this report.

Phillips McDougall 6 September 2005

 Agrochemical R&D Expenditure

As detailed in Appendix 1, the questionnaire was designed so that the data in

company responses would be based on the specific R&D functions rather than
reflecting individual company organisations.
The companies included in the survey were:
BASF Bayer CropScience Dow AgroSciences
DuPont FMC Monsanto
Makhteshim Agan Nufarm Sumitomo Chemical
Syngenta

Each company was sent a questionnaire and on receipt of their response, the
results were added to a database in which each company was allocated a code
number. For those companies reporting their expenditure in non-US dollar
terms, the values were converted to US dollar equivalents using average year
exchange rates as follows:
Average Year Exchange Rates to the US Dollar (2004):
Euro: 0.805
Yen: 108.11
Australian Dollar: 1.36
The results of each company, in US dollar terms, were subsequently
aggregated so that a collective total was produced to represent the overall
agrochemical industry.
Study Definitions
The overall scope of the R&D process within the agrochemical industry
encompasses both the discovery of new agrochemical products and the
research, developmental and regulatory processes associated in managing and
maintaining the commercial and regulatory status of the products of each
company following their introduction.
Typically, the R&D process for new products can be split between the discovery
process and product development. Both these stages involve a number of
related scientific and regulatory disciplines that are designed to determine the
relative efficacy of the product, whilst ensuring that the new active ingredient
satisfies the various tests established by regulatory bodies to demonstrate that
the product is safe from both a human and environmental viewpoint.
In addition to the various studies associated with new product discovery, the
agrochemical industry undertakes a significant amount of research and
development aimed at maintaining and developing the existing product portfolio.
Some of these studies will be undertaken to extend the application and use of
the product following launch to other crop pest situations or to other country
markets. Increasingly, a number of studies are also being undertaken to satisfy
the re-registration requirements of regulatory bodies such as the EU and the US
EPA.

Phillips McDougall 7 September 2005

 Agrochemical R&D Expenditure

Definitions of the various disciplines and stages included in the overall R&D
process for the agrochemical industry were included as footnotes to the
questionnaire that was sent to each company. A copy of the questionnaire is
included as Appendix 1 of this report.
The definition of R&D Expenditure and the main R&D phases that were included
as categories in the questionnaire were:
R&D Expenditure (scope): The total 2004 expenditure on all research and
development activities relating to agrochemicals for both crop protection and
non-agricultural uses. This covers R&D related to conventional crop protection
in agriculture, pest control, industrial and consumer applications, public health
and lawn and garden use. It also includes salaries and all other staff-related
costs, as well as costs related to R&D administration, rent, supplies, equipment,
materials, etc. Activities carried out (for the purpose of agrochemical
development) within the corporation, but outside the crop protection
organisation (for those companies having R&D centres/capacities outside crop
protection divisions) were also included. Corporate research programmes,
expenditure on joint ventures, alliances, and research agreements with third
parties was included. Depreciation costs related to R&D assets are also
included. Capital expenditure on R&D is excluded.
Discovery: All the R&D activities associated with the discovery of new
agrochemical active ingredients up to the start of new product development.
New Product Development: Starts at the point when a company commits a
new active ingredient to full development, generally marked by the decision to
commence long-term toxicity tests. It ends with the registration and launch of a
product in a major crop market (generally an OECD country).
Managing Existing Business: All product development activities following the
launch of a new active ingredient into a major market.
- Re-registration/registration maintenance: refers to any activities or
studies that must be undertaken in response to the requirements of registration
authorities in order to maintain a product’s registration.
- Other: includes activities required to satisfy regulatory requirements for
registration in non-OECD countries, and line extensions of existing products.
External Expenditure: Includes costs for activities outsourced to contractors
(see also Headcount below), carried out through joint ventures, alliances and
research agreements with third parties. Activities carried out within the
corporation (for those companies having R&D capacities outside crop protection
divisions) are considered internal expenditure and are therefore excluded.
Headcount: Lists the number of FTEs (Full Time Equivalents) by R&D activity
and by total in the empty fields. Someone working part-time is counted as a
fraction of an FTE. Where contractors are working as part of internal teams or
are part of operational expenditure, they are included as FTEs. Where
contractors are treated as external expenditure, they are excluded as a
headcount, but their costs are accounted for in the total and the % external
expenditure (see External expenditure above).

Phillips McDougall 8 September 2005

 Agrochemical R&D Expenditure

Synthesis: Laboratory-based synthesis, including combinatorial chemistry

based methods, of new candidate products, analogues, metabolites and
radiolabelled products. Does not include process chemistry.
Sample and Compound Logistics: The storage, retrieval and archiving of
chemical libraries for the purpose of discovery.
Chemistry - Other: Miscellaneous chemistry-based activities, such as
computer modelling, structure-activity relationships (target-site), etc.
Field Biology: Includes field efficacy work, but excludes field demonstration
trials done for commercial purposes.
Laboratory Biology: Includes high-throughput screening, genomics (for
product discovery), molecular biology, combinatorial chemistry, biochemistry,
profiling, etc.
Human health risk assessment - Other: Includes animal metabolism,
operator exposure and dietary risk assessment. These activities include the
preparation of the report and the writing of submission documents.
Environmental risk assessment - Other: Includes plant metabolism, soil
metabolism, environmental fate, environmental modelling, water monitoring.
These activities include the preparation of the report and the writing of
submission documents.
Registration activities: All activities associated with product registration and
re-registration, including the generation of product overview summaries and
their compilation. Influence activities related to regulation and registration are
excluded.
Patents: Includes activities to write, file and maintain patents. Excludes
litigation costs and other legal costs, such as trademark filing.

Phillips McDougall 9 September 2005

 Agrochemical R&D Expenditure

Study results
Part 1: Research and Development Expenditure - 2004
This section was designed to determine the total expenditure on all research
and development activities relating to agrochemicals for both crop protection
and non-crop protection uses made by the companies involved.
Responses to the questionnaire were received from all the ten companies
surveyed. As outlined in the study design, all the responses of the companies
were aggregated and the results of this are displayed in the table on page 11.

R&D Expenditure and Sales Total of Agrochemical Companies - (2004)

$ million
35000 30003
30000
25000
20000
15000
10000
5000 2250
0
Sales R&D

As shown in the above figure, the survey revealed that the agrochemical
industry devoted $2250 m. to agrochemical research and development in 2004.
This value is equivalent to 7.5% of the overall sales total for these ten
companies in the same year.
This value is, however, not indicative of individual companies as there was
considerable variation between the responses of the various companies with
seven companies having an R&D expenditure over 6% of their sales value,
while the R&D expenditure of the remaining three companies was equivalent to
less than 5% of their agrochemical sales. As a result, it may be more
meaningful to update the report by also highlighting the data for the group of
seven companies with R&D expenditure greater than 6% of sales, as they are
better indicators of companies with meaningful discovery programmes.

Phillips McDougall 10 September 2005

 Agrochemical R&D Expenditure

Cumulative Total Research and Development Expenditure for the Agrochemical Industry ($m.) -2004
$ million New Product Manage Existing Business
Discovery
Development Other Re-registration Total
Synthesis 207.9 10.5 4.6 0.3 223.3
Process Research and Development 29.7 49.1 35.9 15.2 129.9
Formulation Technology 10.7 42.5 66.0 14.7 133.9
Chemistry Product Chemistry and Analytical Studies 79.6 24.4 19.5 10.7 134.2
Compound Logistics 17.6 0.4 1.3 0.2 19.5
Other 41.2 1.0 1.4 0.5 44.1
Total 386.7 127.9 128.7 41.6 684.9
Greenhouse Biology 99.6 24.1 11.2 1.2 136.1
Biology Field biology 31.8 174.8 164.1 42.3 413.0
Laboratory Biology 153.1 1.9 3.5 0.5 159.0
Total 284.5 200.8 178.8 44.0 708.1
Human Mammalian Toxicity 18.1 37.3 28.2 39.5 123.1
Health Residue Including Field and Analytical Phase 4.1 45.3 47.6 46.0 143.0
Risk Other 1.5 10.4 12.1 30.3 54.3
Assessment Total 23.7 93.0 87.9 115.8 320.4
Environmental Ecotoxicology 4.9 16.2 26.9 36.6 84.6
Risk Other 3.9 25.5 17.0 43.9 90.3
Assessment Total 8.8 41.7 43.9 80.5 174.9
EU Registration Fees 0.0 3.6 7.7 13.4 24.7
Regulatory US Registration Fees 0.0 5.0 6.2 14.6 25.8
Registration Activities 1.5 34.8 105.5 87.3 229.1
Total 1.5 43.4 119.4 115.3 279.6
Sub Totals 705.2 506.8 558.7 397.2 2167.9
Patents 82.1
Grand Total 2250.0

Phillips McDougall 11 September 2005

 Agrochemical R&D Expenditure

R&D Expenditure Split By R&D Phase

According to the results presented on page 11, the highest proportion of
agrochemical industry R&D expenditure in 2004 was devoted to new product
discovery and development, which represented just over 53.8% of the total.
In contrast to this, the costs associated with maintaining and developing the
existing product portfolio and business, including product re-registration, were
equivalent to 42.5% of the total industry R&D budget.
The following table summarises the relative allocation of industry R&D cost split
between these various product life cycle stages:
Agrochemical Industry R&D Expenditure Split by R&D Phase (2004)
R&D Activity Expenditure ($m.) % of Total
Discovery 705.2 31.3
1212.0 53.8
New Product Development 506.8 22.5
Costs of managing existing 558.7 24.8
business excluding re-registration 955.9 42.5
Re-registration 397.2 17.7
Patents 82.1 82.1 3.7 3.7
Total 2250 2250 100.0 100.0

The highest level of R&D expenditure within the above categories was devoted
to new product discovery, which was valued at $705.2 m., equivalent to 31.3%
of the total. This was followed by expenditure associated with the costs of
managing the existing business (excluding re-registration costs), which was
equivalent to $558.7 m.

New product development costs were $506.8 m., while the total costs
associated with product re-registration in 2004 were $397.2 m, equivalent to
17.7% of the overall industry budget for R&D, or 1.3% of the total agrochemical
sales of these companies last year.

Phillips McDougall 12 September 2005

 Agrochemical R&D Expenditure

R&D Costs of New Product Discovery and Development

In total, the results of the survey outlined that $1212 m. or 53.8% of the total
industry R&D budget is devoted to the process of new product discovery and
development. Within this, the most significant sectors in terms of expenditure
were chemistry- and biology-based research programmes for new product
discovery, followed by biology-based studies for product development.
Expenditure on New Product Discovery and Development (2004) Split By
Research Activity
$m.
Discovery New Product Development

450
386.7
400
350
284.5
300
250 200.8
200
127.9
150
93.0
100
41.7 43.4
50 23.7 8.8 1.5
0
Chemistry Biology Human Health Enviromental Risk Regulatory
Risk Assessment Assessment

Expenditure on New Product Discovery and Development (2004) Split By

Research Activity
Expenditure Chemistry Biology Human Environmental Regulatory Total
Health risk Health risk
Assessment Assessment
Discovery
% of total 54.8 40.3 3.4 1.3 0.2 100
New Product
development
% of total 25.2 39.6 18.4 8.2 8.6 100

Phillips McDougall 13 September 2005

 Agrochemical R&D Expenditure

R&D Costs Associated with Managing the Existing Business

Industry expenditure on R&D activities associated with managing the existing
business, including product re-registration, were $955.9 million, or 42.5% of
total industry R&D in 2004.
Expenditure on Managing the Existing Business (2004) - Spit By Research
Activity

$m. Managing Existing Business -Other Re-registration

200.0
178.8
180.0
160.0
128.7 119.4
140.0
115.8 115.3
120.0
100.0 87.9
80.5
80.0
60.0 41.6 44.0 43.9
40.0
20.0
0.0
Chemistry Biology Human Health Enviromental Risk Regulatory
Risk Assessment Assessment

Expenditure on Managing the Existing Business (2004) Split By Research

Activity
Expenditure Chemistry Biology Human Environmental Regulatory Total
Health risk Health risk
Assessment Assessment
Managing
Existing
Business -
Other
% of total 23.0 32.0 15.7 7.9 21.4 100
Re-
registration
% of total 10.5 11.1 29.1 20.3 29.0 100

As with the new product discovery and development process, industry R&D
expenditure on managing the existing business is mainly focussed on chemistry
and biology-based studies. However, the other activities associated with human
health and environmental risk assessment and registration are also significant
areas of expense.

Phillips McDougall 14 September 2005

 Agrochemical R&D Expenditure

R&D Expenditure Split By Scientific Discipline and Activity

The following figure presents the results of the survey on the overall R&D
expenditure total in 2004 split by the various scientific disciplines and activities,
irrespective of the phase of the R&D process in which they are undertaken.
Agrochemical Industry Research and Development Expenditure (2004) -
Split By Scientific Discipline and activity

Patents 3.7%
Regulatory 12.4%

Environmental Chemistry 30.4%

Risk Assessment
7.8%

Human Health
Risk Assessment
14.2%

Biology 31.5%

Total = $2250 m.

Biology-based studies, which include laboratory, greenhouse and field-based

research, accounted for 31.5% of total industry R&D expenditure, representing
the most significant investment area, closely followed by chemistry-based
activities (30.4%). Thereafter, human health risk assessment (14.2%) and
regulatory studies (12.4%) represented the next most cost intensive areas of
R&D.
Although biology-based studies overall represented the area with the highest
level of R&D investment in 2004, within these broad categories the activity that
attracted the highest level of R&D expenditure was field biology-based studies
with costs of $413 m., equivalent to 18.4% of the total R&D expenditure, for
both new products in development and those in the existing product line.
Thereafter, the next leading area on the basis of cost was registration activities
with $229.1 m., closely followed by chemical synthesis with $223.3 million.

Phillips McDougall 15 September 2005

 Agrochemical R&D Expenditure

Agrochemical Industry Research and Development Expenditure (2004)

Split By Scientific Discipline and activity
$m. Total $m.
Synthesis 223.3
Process Research and Development 129.9
Formulation Technology 133.9 684.9
Chemistry Product Chemistry and Analytical Studies 134.2
Compound Logistics 19.5
Other 44.1
Greenhouse Biology 136.1
Biology Field biology 413.0 708.1
Laboratory Biology 159.0
Human Health Mammalian Toxicity 123.1
Risk Assessment Residue Including Field and Analytical Phase 143.0 320.4
Other 54.3
Environmental Ecotoxicology 84.6 174.9
Risk Assessment Other 90.3
EU Registration Fees 24.7
Regulatory US Registration Fees 25.8 279.6
Registration Activities 229.1
Patents 82.1 82.1
Total 2250.0 2250.0

Phillips McDougall 16 September 2005

 Agrochemical R&D Expenditure

External R&D Expenditure

As discussed in the Study Scope, one of the survey questions was targeted at
determining the proportion of overall R&D expenditure that is devoted to work
undertaken by external bodies. This includes costs for R&D activities
outsourced to contractors and contract organisations, work carried out by joint
ventures, alliances and through research agreements with third parties. This
data were included in the preceding section covering total industry expenditure,
but has been broken out for analysis in this section to show the cost of R&D
undertaken by third parties.
All of the ten companies surveyed returned responses containing quantitative
data, however not all of the company responses were complete in that they did
not contain data on all the scientific and regulatory sub-categories. As a result,
sub category aggregated values were calculated on a pro rata basis.
The actual number of responses for each scientific and regulatory category and
sub category, and the aggregate values of the company responses are shown
in the following table:
Proportion of Agrochemical R&D Expenditure Devoted to External Studies
Total External % of Number of
$m. Expenditure Total Responses
$m.
Synthesis 223.3 32.0 14.3 8
Process Research and 129.9 16.8 12.9 8
Development
Formulation Technology 133.9 3.3 2.5 8
Chemistry Product Chemistry and 134.2 5.3 3.9 8
Analytical Studies
Compound Logistics 19.5 0.1 0.5 8
Other 44.1 5.5 12.5 8
Total 684.9 63.0 9.2 10
Greenhouse Biology 136.1 4.2 3.1 8
Biology Field biology 413.0 64.1 15.5 8
Laboratory Biology 159.0 32.1 20.2 8
Total 708.1 100.4 14.2 10
Human Mammalian Toxicity 123.1 11.2 9.1 8
Health Residue Including Field 143.0 53.4 37.3 8
Risk and Analytical Phase
Assessment Other 54.3 12.7 23.4 8
Total 320.4 77.3 24.1 10
Environmental Ecotoxicology 84.6 30.2 35.7 8
Risk Other 90.3 27.1 30 8
Assessment
Total 174.9 57.3 32.8 10
Regulatory Registration Activities 229.1 28.1 12.3 8
Patents 82.1 35.0 42.6 10
Total - Excluding Registration fees 2199.5 361.1 16.4 10

As registration fees are by definition an external activity, they are not included in
the above table.

Phillips McDougall 17 September 2005

 Agrochemical R&D Expenditure

In total, $361.1 million or 16.4% of the overall industry R&D budget was
attributable to activities undertaken by external organisations. Within this result
the categories with the highest level of external R&D expenditure were biology
and studies undertaken for human health risk assessment.
Agrochemical Industry Research and Development Expenditure (2004) -
External Expenditure Split By Scientific Discipline and Activity

Patents 9.7%
Chemistry 17.4%
Registration 7.8%

Environmental Risk
Assessment 15.9%

Biology 27.8%

Human Heath Risk

Assessment 21.4%

Total = $361.1 m.

As outlined in the table on page 17, within these summary categories the most
important areas from a cost perspective were field biology ($64.1 m.) followed
by residue studies associated with human health risk assessment ($53.4 m.)
and patents ($35.0 m.).
External expenditure within each scientific discipline and activity was highest in
patents (43%), environmental risk assessment (33%) and human risk
assessment (24%).
Agrochemical Industry Research and Development Expenditure (2004) -
External Studies’ Share of Overall Expenditure by Scientific Discipline and
Activity (%)

50 42.6
40 32.8
30 24.1
% 14.2
20 12.3
9.2
10
0
Human Risk

Enviromental
Chemistry

Registration

Patents
Biology

Risk

Phillips McDougall 18 September 2005

 Agrochemical R&D Expenditure

Registration Fees
As indicated above, registration fees represent another area of external
expenditure for the agrochemical industry. The results of the survey indicated
that in 2004, company expenditure on registration fees for the EU and the USA
was $50.5 m.
Agrochemical Industry Research and Development Expenditure (2004) –
Registration Fees
New Product Manage Existing
Expenditure Discovery Total
Development Business
Re-
Other
registration
EU
Registration 0 3.6 7.7 13.4 24.7
Fees $m.
US
Registration 0 5.0 6.2 14.6 25.8
Fees $m.
Total $m. 0 8.6 13.9 28.0 50.5
% 0 17.0 27.5 55.5 100

Phillips McDougall 19 September 2005

 Agrochemical R&D Expenditure

Part 2 - Research and Development Staff Numbers

The following table summarises the overall survey results for staff numbers
employed by the companies in agrochemical research and development. As
outlined in the questionnaire, company responses were based on the number of
FTEs (Full Time Equivalents) by R&D activity and by total in each company.
Part-time employees were counted as a fraction of an FTE. In addition,
contractors working as part of internal teams or as part of operational
expenditure, were included as FTEs. However, where contractors are treated as
external expenditure, they were excluded from the headcount numbers.
The following table gives the aggregated result of the companies surveyed. In
total, nine responses were received. However, these results are believed to be
indicative of the agrochemical industry.
Agrochemical Industry R&D Headcount (2004)
Headcount % of Total
Total % of Total R&D
Expenditure
Chemistry 2501 28.1 30.4
Biology 3383 38.1 31.5
Human Risk Assessment 1094 12.3 14.2
Environmental Risk Assessment 583 6.6 7.8
Regulatory 1210 13.6 12.4
Patents 119 1.3 3.7
Total 8890 100 100

In total, the R&D headcount for staff in the companies surveyed was 8890. Of
this total, 38.1% were employed in biology-based activities followed by 28.1% in
chemistry.

Phillips McDougall 20 September 2005

 Agrochemical R&D Expenditure

Discussion
This study was undertaken to determine two key factors associated with the
R&D process in the agrochemical industry:
The overall investment made by the companies in research and
development and the key components of this investment.
The total staff employed by companies involved in research and
development.
The results of this study reveal that the R&D budget for the agrochemical
industry was $2250 m. in 2004, equivalent to 7.5% of the overall sales total. If
the costs associated with managing the existing business and patents are
excluded, then the results of the study demonstrated that in 2004 the industry
devoted $1212 million to new product discovery and development, a value
equivalent to 4.0% of the sales total of the companies surveyed.
As outlined in Appendix 2, there was, however, considerable variability between
company responses, with some companies having only a limited programme in
new product discovery and development, in part reflecting recent trends in the
industry towards alternative approaches, such as GM crop technology, to crop
protection. The commercial advent of herbicide tolerant and insect resistant
transgenic crops in 1996 significantly expanded the crop protection choice
available to growers of several key field crops. Since that time several
companies have shifted the focus of their R&D programmes by reducing their
expenditure on conventional agrochemical research and expanding their in-
house transgenic crop R&D effort.
Another factor contributing to the study variability will have been the fact that
several companies in the industry have only a very limited new product
discovery programme, preferring to utilise other methods to enhance their
product portfolios such as product acquisition and licensing, joint ventures and
generic product manufacture.
Commercially, the most significant area of the R&D process in the agrochemical
industry is new product discovery and development with over half of the R&D
budget targeted at this area. Within this, new product discovery costs were the
most significant at 31.3% of the overall R&D costs. The two most significant
components of agrochemical product discovery were chemical synthesis and
laboratory biology. These two scientific disciplines accounted for 51.1% of the
overall cost of new product discovery.
In terms of overall value, the R&D activity that incurred the highest cost both in
the discovery programme and overall expenditure was that of chemical
synthesis as it relates to new product discovery. This result in itself will
undoubtedly reflect the importance of chemical research to the discovery
process for new agrochemical products, and also in part the technical advances
that have taken place in recent years. The last ten-year period has been
characterised by a number of important developments that have aided the
chemical discovery stage, notably the use of genomics to identify suitable
product candidates, and the introduction of combinatorial chemistry, which has
resulted in a significant increase in the number of products being subject to
biological screening. These processes are typically cost intensive and will be a
significant contributory factor towards R&D expenditure.

Phillips McDougall 21 September 2005

 Agrochemical R&D Expenditure

Similarly, the relatively high costs of laboratory biology will reflect not only the
number of biological assays utilised in the screening process by the industry,
but also the use of increasingly sophisticated and cost intensive methods, such
as high-throughput screening, for biological testing.
Industry expenditure on new product development represented 22.5% of the
overall R&D budget. Within this, the most significant cost areas were biology-
based studies followed by chemistry. However, not unexpectedly, regulatory
testing for both human health and environmental risk assessment were also
significant costs centres. Overall the new product development sector that
attracted the highest investment was field biology studies, reflecting the
importance of field efficacy studies in product development. Field biology
studies were also major areas of expenditure for the industry in terms of the
R&D programme targeted at managing the existing business and re-registration.
As a result, field biology emerged as the scientific and regulatory sector with the
largest overall R&D budget.
Although expenditure by the industry on R&D is equivalent to 7.5% of the
overall sales total in 2004, much of the budget is targeted at regulatory activities
associated with managing the existing product line. Clearly, part of this will be
devoted to exploring new opportunities for the existing product line such as new
crop/pest sectors or additional geographic markets. However, a significant
portion of this expenditure will be targeted at maintaining the regulatory status of
many of the companies’ product portfolio. This is exemplified by the fact that the
costs associated with re-registration activities associated with managing the
existing product line exceeds those utilised for chemistry research for new
product discovery.
One of the factors that will have contributed to the high R&D costs associated
with managing the existing business is the advent of product re-registration
systems in the EU and the USA. The EU re-registration scheme has been
ongoing since the introduction of Council Directive 91/414/EC in 1992. The
Food Quality Protection Act (FQPA) in the USA in 1996 introduced the
requirement for re-registration through a 15-year review cycle. As a result,
product re-registration costs incurred by the industry were $397.2 million in
2004, equivalent to 17.7% of the overall industry R&D budget. Although many of
the R&D studies undertaken to support product re-registration in the EU are
believed to have been completed, the on-going requirement in the USA
suggests that this sector will be a key part of R&D costs in the longer term.
Industry R&D expenditure on external studies, excluding registration fees, at
$361.1 m., is clearly a significant part (16.0%) of the overall R&D budget. As
outlined above, in absolute numbers, the highest level of individual external
R&D expenditure is incurred in undertaking field biology studies; however
external expenditure within each scientific discipline and activity was highest in
patents, environmental risk assessment and human risk assessment. Clearly,
much of this external expenditure will be targeted at specialist contract research
companies.

Phillips McDougall 22 September 2005

 Agrochemical R&D Expenditure

The final component of this study focussed on the R&D headcount, which was
shown to be 8890 FTEs for the companies surveyed. Taking account of the fact
that 16.4% of industry R&D costs, excluding registration fees, are devoted to
external studies, this results in the average level of industry R&D expenditure on
each employee on internal R&D studies being equivalent to just over $206,000.

Phillips McDougall 23 September 2005

 Agrochemical R&D Expenditure

Appendix 1: Company Questionnaire

Questionnaire on behalf of CropLife International

Phillips McDougall 24 September 2005

 Agrochemical R&D Expenditure

Appendix 2: Industry R&D Expenditure: Survey Variance

The primary aim of this investigation was to determine the overall level of R&D
expenditure made by the agrochemical industry in 2004.
The companies chosen to participate in the survey were those that are
considered to be the most active in overall research and development in the
industry, and hence representative of the overall industry.
The following graph outlines the mean value and variance (as measured by
average absolute deviation) within the results of the survey on overall industry
R&D expenditure in 2004.
R&D Expenditure for the Agrochemical Industry - 2004
Survey Results (Mean and Average Absolute Deviation)

$m. Mean value = 70.5

160 AVEDEV = 64.6
140 Mean value = 58.1
AVEDEV = 39.4
120 Mean value = 47.5
AVEDEV = 39.9 Mean value = 40.6
100
AVEDEV = 31.9
80
60 Mean value = 8.2
AVEDEV = 8.9
40
20
0
Discovery New Product Other Re-registration Patents
Development Managing Existing Business

$m.
200 Mean value = 68.4
AVEDEV = 58.2
Mean value = 70.8
150
AVEDEV = 57.7

Mean value = 28
100 Mean value = 32 AVEDEV = 23.6
AVEDEV = 24.9
Mean value = 8.2
50 Mean value = 17.6
AVEDEV = 8.9
AVEDEV = 13.9

0
Chemistry Biology Human Risk Environmental Risk Regulatory Patents
Assessment assessment

As depicted in the above figure, there was considerable variation between the
survey results of the companies involved, with some companies devoting only
a modest level of expenditure to the overall R&D process. This variability also
extended to the various components of the R&D process.

Phillips McDougall 30 September 2005