258 PUB-BR 2005-09-01 Agrochemical Industry Research and Development Expenditure (Sept 2005) - Philips McDougall

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    Agrochemical R&D Expenditure

    Phillips McDougall

    Agrochemical Industry Research andDevelopment Expenditure.

    A Consultancy Study for CropLife International

    September 2005

    Phillips McDougallSuite 2Vineyard Business CentreSaughlandPathheadMidlothianEH7 5XPUnited KingdomTel :44 1875 320 611Fax :44 1875 320 613

    E-mail :[email protected]

    Phillips McDougall 1 September 2005

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    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

    McDougall

    Copyright2005

    Suite 2

    Vineyard Business Centre,Saughland,PathheadMidlothian EH37 5XP

    For private circulation only. The information in

    this report constitutes our best judgement at thetime of publication, but it is subject to change.Phillips McDougall does not accept any liabilityfor any loss, damage or any other accidentarising from the use of the information in thisreport.

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    Agrochemical R&D Expenditure

    Executive Summary

    This study presents the results of a survey of the leading crop protectioncompanies 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 disciplinesinvolved, namely chemistry, biology, human risk assessments,environmental risk assessment and regulatory.

    What proportion of the industry R&D budget is spent on studiesundertaken by external organisations

    The total staff headcount involved in agrochemical product R&D and howthat headcount is split between the various R&D disciplines.

    Ten companies were surveyed and the aggregated total cost of industry R&Dexpenditure in 2004 was found to be $2250 m., a value equivalent to 7.5% ofthe agrochemical sales of the companies surveyed. The following figure outlineshow this total value was split amongst the main R&D activities:

    Agrochemical Industry R&D Expenditure by R&D Phase

    705.2

    506.8

    558.7

    397.2

    82.1

    0

    500

    1000

    1500

    2000

    2500

    Patents

    Re-registration

    Manging Existing

    Business - excluding

    re-registration

    New Product

    Development

    Discovery

    Total $2250 m.

    $m.

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

    budget.

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    Agrochemical R&D Expenditure

    R&D Expenditure by Scientific Discipline and Activity

    684.9

    708.1

    320.4

    174.9

    279.6

    82.1

    0

    500

    1000

    1500

    2000

    2500

    Patents

    Regulatory

    Environmental

    risk assess ment

    Human Health

    risk assess ment

    Biology

    Chemistry

    $m.

    Total $2250 m.

    Overall, the most significant scientific and regulatory activity was biology-basedstudies with $708.1 m., followed by chemistry ($684.9 m.), human health riskassessment ($320.4 m.), regulatory activities ($279.6 m.), environmental riskassessment ($174.9 m.) and patents ($82.1 m.).

    The results of the company survey into determining the proportion of overallR&D budget, excluding registration fees, that was devoted to external studiesrevealed that in 2004, $361.1 m. was targeted at external studies. The mostimportant areas for this expenditure, based on value, were biology-basedstudies.

    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

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    Agrochemical R&D Expenditure

    The results of the companies surveyed indicated that the total headcountemployed 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

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    Agrochemical R&D Expenditure

    Background

    In 2002, Phillips McDougall undertook a study on behalf of the European CropProtection Association (ECPA) and CropLife America that was designed todetermine the level of expenditure involved in the discovery, development andregistration of a new conventional chemical crop protection product. Whilst thisstudy provided information on the costs involved in bringing a new agrochemicalactive ingredient from the initial discovery process to the market place, it wasnot designed to provide information on the overall level of R&D expendituremade 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 ofthe level of annual overall expenditure made by the agrochemical industry onresearch and development, but also provide details of the number of staffinvolved in the overall R&D process.

    Study Scope

    As outlined above, this current study was designed to measure two main factorsassociated with the R&D process in the agrochemical industry. Firstly, the levelof financial investment made by companies and secondly the number of staffinvolved 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 agrochemicalindustry to the research and development process as it relates toagrochemicals 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, andmanaging the existing business.

    Identify how the R&D budget is allocated according to the key disciplinesinvolved, 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 agrochemicalproduct 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, whichwas sent to the following group of companies that were considered to berepresentative of the industry:

    The questionnaire that was sent to the companies is outlined in Appendix 1 ofthis report.

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    Agrochemical R&D Expenditure

    As detailed in Appendix 1, the questionnaire was designed so that the data incompany responses would be based on the specific R&D functions rather thanreflecting individual company organisations.

    The companies included in the survey were:

    BASF Bayer CropScience Dow AgroSciencesDuPont FMC Monsanto

    Makhteshim Agan Nufarm Sumitomo Chemical

    Syngenta

    Each company was sent a questionnaire and on receipt of their response, theresults were added to a database in which each company was allocated a codenumber. For those companies reporting their expenditure in non-US dollarterms, the values were converted to US dollar equivalents using average yearexchange rates as follows:

    Average Year Exchange Rates to the US Dollar (2004):Euro: 0.805Yen: 108.11Australian Dollar: 1.36The results of each company, in US dollar terms, were subsequentlyaggregated so that a collective total was produced to represent the overallagrochemical industry.

    Study Definitions

    The overall scope of the R&D process within the agrochemical industry

    encompasses both the discovery of new agrochemical products and theresearch, developmental and regulatory processes associated in managing andmaintaining the commercial and regulatory status of the products of eachcompany following their introduction.

    Typically, the R&D process for new products can be split between the discoveryprocess and product development. Both these stages involve a number ofrelated scientific and regulatory disciplines that are designed to determine therelative efficacy of the product, whilst ensuring that the new active ingredientsatisfies the various tests established by regulatory bodies to demonstrate thatthe product is safe from both a human and environmental viewpoint.

    In addition to the various studies associated with new product discovery, theagrochemical industry undertakes a significant amount of research anddevelopment aimed at maintaining and developing the existing product portfolio.Some of these studies will be undertaken to extend the application and use ofthe product following launch to other crop pest situations or to other countrymarkets. Increasingly, a number of studies are also being undertaken to satisfythe re-registration requirements of regulatory bodies such as the EU and the USEPA.

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    Agrochemical R&D Expenditure

    Definitions of the various disciplines and stages included in the overall R&Dprocess for the agrochemical industry were included as footnotes to thequestionnaire that was sent to each company. A copy of the questionnaire isincluded as Appendix 1 of this report.

    The definition of R&D Expenditure and the main R&D phases that were includedas categories in the questionnaire were:

    R&D Expenditure (scope): The total 2004 expenditure on all research anddevelopment activities relating to agrochemicals for both crop protection andnon-agricultural uses. This covers R&D related to conventional crop protectionin agriculture, pest control, industrial and consumer applications, public healthand lawn and garden use. It also includes salaries and all other staff-relatedcosts, as well as costs related to R&D administration, rent, supplies, equipment,materials, etc. Activities carried out (for the purpose of agrochemicaldevelopment) within the corporation, but outside the crop protectionorganisation (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 thirdparties was included. Depreciation costs related to R&D assets are alsoincluded. Capital expenditure on R&D is excluded.

    Discovery: All the R&D activities associated with the discovery of newagrochemical active ingredients up to the start of new product development.

    New Product Development: Starts at the point when a company commits anew active ingredient to full development, generally marked by the decision tocommence long-term toxicity tests. It ends with the registration and launch of aproduct in a major crop market (generally an OECD country).

    Managing Existing Business: All product development activities following thelaunch of a new active ingredient into a major market.

    - Re-registration/registration maintenance: refers to any activities orstudies that must be undertaken in response to the requirements of registrationauthorities in order to maintain a products registration.

    - Other: includes activities required to satisfy regulatory requirements forregistration 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 thecorporation (for those companies having R&D capacities outside crop protectiondivisions) are considered internal expenditure and are therefore excluded.

    Headcount: Lists the number of FTEs (Full Time Equivalents) by R&D activityand by total in the empty fields. Someone working part-time is counted as afraction of an FTE. Where contractors are working as part of internal teams orare part of operational expenditure, they are included as FTEs. Wherecontractors are treated as external expenditure, they are excluded as aheadcount, but their costs are accounted for in the total and the % externalexpenditure (see External expenditure above).

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    Agrochemical R&D Expenditure

    Synthesis: Laboratory-based synthesis, including combinatorial chemistrybased methods, of new candidate products, analogues, metabolites andradiolabelled products. Does not include process chemistry.

    Sample and Compound Logistics: The storage, retrieval and archiving ofchemical libraries for the purpose of discovery.

    Chemistry - Other: Miscellaneous chemistry-based activities, such ascomputer modelling, structure-activity relationships (target-site), etc.

    Field Biology: Includes field efficacy work, but excludes field demonstrationtrials done for commercial purposes.

    Laboratory Biology: Includes high-throughput screening, genomics (forproduct 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, soilmetabolism, environmental fate, environmental modelling, water monitoring.These activities include the preparation of the report and the writing ofsubmission documents.

    Registration activities: All activities associated with product registration andre-registration, including the generation of product overview summaries andtheir compilation. Influence activities related to regulation and registration areexcluded.

    Patents: Includes activities to write, file and maintain patents. Excludeslitigation costs and other legal costs, such as trademark filing.

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    Agrochemical R&D Expenditure

    Study results

    Part 1: Research and Development Expenditure - 2004

    This section was designed to determine the total expenditure on all researchand 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 companiessurveyed. As outlined in the study design, all the responses of the companieswere aggregated and the results of this are displayed in the table on page 11.

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

    30003

    2250

    0

    5000

    10000

    15000

    20000

    25000

    30000

    35000

    Sales R&D

    $ million

    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 tencompanies in the same year.

    This value is, however, not indicative of individual companies as there wasconsiderable variation between the responses of the various companies withseven companies having an R&D expenditure over 6% of their sales value,while the R&D expenditure of the remaining three companies was equivalent toless than 5% of their agrochemical sales. As a result, it may be moremeaningful to update the report by also highlighting the data for the group ofseven companies with R&D expenditure greater than 6% of sales, as they are

    better indicators of companies with meaningful discovery programmes.

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    Cumulative Total Research and Development Expenditure for the Agrochemical Industry ($m$ million Manage E

    DiscoveryNew ProductDevelopment Other

    Synthesis 207.9 10.5 4.6

    Process Research and Development 29.7 49.1 35.9

    Formulation Technology 10.7 42.5 66.0

    Chemistry Product Chemistry and Analytical Studies 79.6 24.4 19.5

    Compound Logistics 17.6 0.4 1.3

    Other 41.2 1.0 1.4

    Total 386.7 127.9 128.7

    Greenhouse Biology 99.6 24.1 11.2

    Biology Field biology 31.8 174.8 164.1

    Laboratory Biology 153.1 1.9 3.5

    Total 284.5 200.8 178.8

    Human Mammalian Toxicity 18.1 37.3 28.2Health Residue Including Field and Analytical Phase 4.1 45.3 47.6

    Risk Other 1.5 10.4 12.1

    Assessment Total 23.7 93.0 87.9

    Environmental Ecotoxicology 4.9 16.2 26.9

    Risk Other 3.9 25.5 17.0

    Assessment Total 8.8 41.7 43.9

    EU Registration Fees 0.0 3.6 7.7

    Regulatory US Registration Fees 0.0 5.0 6.2

    Registration Activities 1.5 34.8 105.5

    Total 1.5 43.4 119.4 Sub Totals 705.2 506.8 558.7

    Patents

    Grand Total

    Phillips McDougall 11

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    Agrochemical R&D Expenditure

    R&D Expenditure Split By R&D Phase

    According to the results presented on page 11, the highest proportion ofagrochemical industry R&D expenditure in 2004 was devoted to new productdiscovery and development, which represented just over 53.8% of the total.

    In contrast to this, the costs associated with maintaining and developing theexisting product portfolio and business, including product re-registration, wereequivalent to 42.5% of the total industry R&D budget.

    The following table summarises the relative allocation of industry R&D cost splitbetween 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

    New Product Development 506.81212.0

    22.553.8

    Costs of managing existingbusiness excluding re-registration

    558.7 24.8

    Re-registration 397.2

    955.9

    17.7

    42.5

    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 devotedto 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 wasequivalent to $558.7 m.

    New product development costs were $506.8 m., while the total costsassociated with product re-registration in 2004 were $397.2 m, equivalent to17.7% of the overall industry budget for R&D, or 1.3% of the total agrochemicalsales of these companies last year.

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    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 totalindustry R&D budget is devoted to the process of new product discovery anddevelopment. Within this, the most significant sectors in terms of expenditurewere chemistry- and biology-based research programmes for new productdiscovery, followed by biology-based studies for product development.

    Expenditure on New Product Discovery and Development (2004) Split ByResearch Activity

    386.7

    284.5

    23.7 8.8 1.5

    93.0

    41.7 43.4

    200.8

    127.9

    0

    50

    100

    150

    200

    250

    300

    350

    400

    450

    Chemistry Biology Human Health

    Risk Assessment

    Enviromental Risk

    Assessment

    Regulatory

    Discovery New Product Development

    $m.

    Expenditure on New Product Discovery and Development (2004) Split ByResearch ActivityExpenditure Chemistry Biology Human

    Health riskAssessment

    EnvironmentalHealth risk

    Assessment

    Regulatory Total

    Discovery

    % of total 54.8 40.3 3.4 1.3 0.2 100

    New Productdevelopment

    % of total 25.2 39.6 18.4 8.2 8.6 100

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    Agrochemical R&D Expenditure

    R&D Costs Associated with Managing the Existing Business

    Industry expenditure on R&D activities associated with managing the existingbusiness, including product re-registration, were $955.9 million, or 42.5% oftotal industry R&D in 2004.

    Expenditure on Managing the Existing Business (2004) - Spit By ResearchActivity

    128.7

    87.9

    43.941.6 44.0

    115.8

    80.5

    115.3

    119.4

    178.8

    0.0

    20.0

    40.0

    60.0

    80.0

    100.0

    120.0

    140.0

    160.0

    180.0

    200.0

    Chemistry Biology Human Health

    Risk Assessment

    Enviromental Risk

    Assessment

    Regulatory

    Managing Existing Business -Other Re-regis tration$m.

    Expenditure on Managing the Existing Business (2004) Split By ResearchActivityExpenditure Chemistry Biology Human

    Health riskAssessment

    Environmental

    Health riskAssessment

    Regulatory Total

    ManagingExistingBusiness -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&Dexpenditure on managing the existing business is mainly focussed on chemistryand biology-based studies. However, the other activities associated with humanhealth and environmental risk assessment and registration are also significantareas of expense.

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    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&Dexpenditure 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

    Regulatory 12.4%

    Biology 31.5%

    EnvironmentalRisk Assessment

    7.8%

    Chemistry 30.4%

    Patents 3.7%

    Human Health

    Risk Assessment14.2%

    Total = $2250 m.

    Biology-based studies, which include laboratory, greenhouse and field-basedresearch, accounted for 31.5% of total industry R&D expenditure, representingthe most significant investment area, closely followed by chemistry-basedactivities (30.4%). Thereafter, human health risk assessment (14.2%) and

    regulatory studies (12.4%) represented the next most cost intensive areas ofR&D.

    Although biology-based studies overall represented the area with the highestlevel of R&D investment in 2004, within these broad categories the activity thatattracted the highest level of R&D expenditure was field biology-based studieswith costs of $413 m., equivalent to 18.4% of the total R&D expenditure, forboth new products in development and those in the existing product line.

    Thereafter, the next leading area on the basis of cost was registration activitieswith $229.1 m., closely followed by chemical synthesis with $223.3 million.

    Phillips McDougall 15 September 2005

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    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

    Chemistry Product Chemistry and Analytical Studies 134.2

    Compound Logistics 19.5

    Other 44.1

    684.9

    Greenhouse Biology 136.1

    Biology Field biology 413.0

    Laboratory Biology 159.0

    708.1

    Human Health Mammalian Toxicity 123.1

    Risk Assessment Residue Including Field and Analytical Phase 143.0

    Other 54.3

    320.4

    Environmental Ecotoxicology 84.6

    Risk Assessment Other 90.3174.9

    EU Registration Fees 24.7

    Regulatory US Registration Fees 25.8

    Registration Activities 229.1

    279.6

    Patents 82.1 82.1

    Total 2250.0 2250.0

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    Agrochemical R&D Expenditure

    External R&D Expenditure

    As discussed in the Study Scope, one of the survey questions was targeted atdetermining the proportion of overall R&D expenditure that is devoted to workundertaken by external bodies. This includes costs for R&D activitiesoutsourced to contractors and contract organisations, work carried out by jointventures, alliances and through research agreements with third parties. Thisdata 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&Dundertaken by third parties.

    All of the ten companies surveyed returned responses containing quantitativedata, however not all of the company responses were complete in that they didnot 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 shownin the following table:

    Proportion of Agrochemical R&D Expenditure Devoted to External StudiesTotal$m.

    ExternalExpenditure

    $m.

    % ofTotal

    Number ofResponses

    Synthesis 223.3 32.0 14.3 8

    Process Research andDevelopment

    129.9 16.8 12.9 8

    Formulation Technology 133.9 3.3 2.5 8

    Chemistry Product Chemistry and

    Analytical Studies

    134.2 5.3 3.9 8

    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

    Mammalian Toxicity 123.1 11.2 9.1 8

    Residue Including Fieldand Analytical Phase

    143.0 53.4 37.3 8

    Other 54.3 12.7 23.4 8

    HumanHealthRisk

    AssessmentTotal 320.4 77.3 24.1 10

    Ecotoxicology 84.6 30.2 35.7 8

    Other 90.3 27.1 30 8

    EnvironmentalRiskAssessment

    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 inthe above table.

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    Agrochemical R&D Expenditure

    In total, $361.1 million or 16.4% of the overall industry R&D budget wasattributable to activities undertaken by external organisations. Within this resultthe categories with the highest level of external R&D expenditure were biologyand studies undertaken for human health risk assessment.

    Agrochemical Industry Research and Development Expenditure (2004) -External Expenditure Split By Scientific Discipline and Activity

    Total = $361.1 m.

    Chemistry 17.4%

    Biology 27.8%

    Registration 7.8%

    Patents 9.7%

    Human Heath RiskAssessment 21.4%

    Environmental RiskAssessment 15.9%

    As outlined in the table on page 17, within these summary categories the mostimportant areas from a cost perspective were field biology ($64.1 m.) followedby 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 inpatents (43%), environmental risk assessment (33%) and human riskassessment (24%).

    Agrochemical Industry Research and Development Expenditure (2004) -External Studies Share of Overall Expenditure by Scientific Discipline andActivity (%)

    9.214.2

    24.1

    32.8

    12.3

    42.6

    0

    10

    20

    30

    4050

    Chemistry

    Biology

    HumanRisk

    Enviromental

    Risk

    Registration

    Patents

    %

    Phillips McDougall 18 September 2005

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    Registration Fees

    As indicated above, registration fees represent another area of externalexpenditure for the agrochemical industry. The results of the survey indicatedthat in 2004, company expenditure on registration fees for the EU and the USAwas $50.5 m.

    Agrochemical Industry Research and Development Expenditure (2004) Registration Fees

    Expenditure DiscoveryNew ProductDevelopment

    Manage ExistingBusiness

    Total

    OtherRe-

    registration

    EURegistrationFees $m.

    0 3.6 7.7 13.4 24.7

    USRegistrationFees $m.

    0 5.0 6.2 14.6 25.8

    Total $m. 0 8.6 13.9 28.0 50.5

    % 0 17.0 27.5 55.5 100

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    Part 2 - Research and Development Staff Numbers

    The following table summarises the overall survey results for staff numbersemployed by the companies in agrochemical research and development. Asoutlined 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 operationalexpenditure, were included as FTEs. However, where contractors are treated asexternal expenditure, they were excluded from the headcount numbers.

    The following table gives the aggregated result of the companies surveyed. Intotal, nine responses were received. However, these results are believed to beindicative of the agrochemical industry.

    Agrochemical Industry R&D Headcount (2004)

    Headcount

    Total % of Total

    % of Total

    R&DExpenditure

    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. Ofthis total, 38.1% were employed in biology-based activities followed by 28.1% inchemistry.

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    Discussion

    This study was undertaken to determine two key factors associated with theR&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 agrochemicalindustry was $2250 m. in 2004, equivalent to 7.5% of the overall sales total. Ifthe costs associated with managing the existing business and patents areexcluded, then the results of the study demonstrated that in 2004 the industrydevoted $1212 million to new product discovery and development, a valueequivalent 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 innew product discovery and development, in part reflecting recent trends in theindustry towards alternative approaches, such as GM crop technology, to cropprotection. The commercial advent of herbicide tolerant and insect resistanttransgenic crops in 1996 significantly expanded the crop protection choiceavailable to growers of several key field crops. Since that time severalcompanies have shifted the focus of their R&D programmes by reducing theirexpenditure 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 productdiscovery programme, preferring to utilise other methods to enhance theirproduct portfolios such as product acquisition and licensing, joint ventures andgeneric product manufacture.

    Commercially, the most significant area of the R&D process in the agrochemicalindustry is new product discovery and development with over half of the R&Dbudget targeted at this area. Within this, new product discovery costs were themost significant at 31.3% of the overall R&D costs. The two most significantcomponents of agrochemical product discovery were chemical synthesis andlaboratory biology. These two scientific disciplines accounted for 51.1% of theoverall cost of new product discovery.

    In terms of overall value, the R&D activity that incurred the highest cost both inthe discovery programme and overall expenditure was that of chemicalsynthesis as it relates to new product discovery. This result in itself willundoubtedly reflect the importance of chemical research to the discoveryprocess for new agrochemical products, and also in part the technical advancesthat have taken place in recent years. The last ten-year period has beencharacterised by a number of important developments that have aided thechemical discovery stage, notably the use of genomics to identify suitableproduct candidates, and the introduction of combinatorial chemistry, which hasresulted in a significant increase in the number of products being subject to

    biological screening. These processes are typically cost intensive and will be asignificant contributory factor towards R&D expenditure.

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    Agrochemical R&D Expenditure

    Similarly, the relatively high costs of laboratory biology will reflect not only thenumber of biological assays utilised in the screening process by the industry,but also the use of increasingly sophisticated and cost intensive methods, suchas high-throughput screening, for biological testing.

    Industry expenditure on new product development represented 22.5% of theoverall R&D budget. Within this, the most significant cost areas were biology-based studies followed by chemistry. However, not unexpectedly, regulatorytesting for both human health and environmental risk assessment were alsosignificant costs centres. Overall the new product development sector thatattracted the highest investment was field biology studies, reflecting theimportance of field efficacy studies in product development. Field biologystudies were also major areas of expenditure for the industry in terms of theR&D programme targeted at managing the existing business and re-registration.As a result, field biology emerged as the scientific and regulatory sector with thelargest overall R&D budget.

    Although expenditure by the industry on R&D is equivalent to 7.5% of theoverall sales total in 2004, much of the budget is targeted at regulatory activitiesassociated with managing the existing product line. Clearly, part of this will bedevoted to exploring new opportunities for the existing product line such as newcrop/pest sectors or additional geographic markets. However, a significantportion of this expenditure will be targeted at maintaining the regulatory status ofmany of the companies product portfolio. This is exemplified by the fact that thecosts associated with re-registration activities associated with managing theexisting product line exceeds those utilised for chemistry research for newproduct discovery.

    One of the factors that will have contributed to the high R&D costs associatedwith managing the existing business is the advent of product re-registrationsystems in the EU and the USA. The EU re-registration scheme has beenongoing since the introduction of Council Directive 91/414/EC in 1992. TheFood Quality Protection Act (FQPA) in the USA in 1996 introduced therequirement for re-registration through a 15-year review cycle. As a result,product re-registration costs incurred by the industry were $397.2 million in2004, equivalent to 17.7% of the overall industry R&D budget. Although many ofthe R&D studies undertaken to support product re-registration in the EU arebelieved to have been completed, the on-going requirement in the USAsuggests 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. Asoutlined above, in absolute numbers, the highest level of individual externalR&D expenditure is incurred in undertaking field biology studies; howeverexternal expenditure within each scientific discipline and activity was highest inpatents, environmental risk assessment and human risk assessment. Clearly,much of this external expenditure will be targeted at specialist contract researchcompanies.

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

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    Appendix 1: Company Questionnaire

    Questionnaire on behalf of CropLife International

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    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&Dexpenditure 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 theindustry, and hence representative of the overall industry.

    The following graph outlines the mean value and variance (as measured byaverage absolute deviation) within the results of the survey on overall industryR&D expenditure in 2004.

    R&D Expenditure for the Agrochemical Industry - 2004

    Survey Results (Mean and Average Absolute Deviation)

    0

    50

    100

    150

    200

    Chemistry Biology Human Risk

    Assessment

    Environmental Risk

    assessment

    Regulatory Patents

    Mean value = 28AVEDEV = 23.6

    Mean value = 68.4AVEDEV = 58.2

    Mean value = 70.8AVEDEV = 57.7

    Mean value = 32AVEDEV = 24.9

    Mean value = 17.6AVEDEV = 13.9

    Mean value = 8.2AVEDEV = 8.9

    0

    20

    40

    60

    80

    100

    120

    140

    160

    Discovery New Product

    Development

    Other Re-registration Patents

    $m.

    $m.

    Mean value = 8.2AVEDEV = 8.9

    Mean value = 70.5AVEDEV = 64.6

    Managing Existing Business

    Mean value = 40.6AVEDEV = 31.9

    Mean value = 58.1AVEDEV = 39.4Mean value = 47.5

    AVEDEV = 39.9

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