Patent Cliffs and Innovation
The COVID vaccine was created within a few weeks. It took almost a year to set up raw material supply chains, manufacturing capacity and know-how, and deliver the vaccines in people’s arms. Deploying any product at scale in an economically efficient manner is not a trivial task.
—
In edition 157. A Needle in a Haystack, we had talked about the challenges with finding new modes of action for herbicides. We have hardly seen any new herbicides with new modes of action in the last 30 years. The patents on many of these herbicides, and other chemical products are expiring.
Many companies are running towards a “patent-cliff” as many products will go off-patent in the next few years.
This is also a common problem in the pharmaceutical industry.
“A patent cliff is a colloquialism to denote the potential sharp decline in revenues upon patent expiry of one or more leading products of a firm. A patent cliff is when a firm's revenues could "fall off a cliff" when one or more established products go off-patent, since these products can be replicated and sold at much cheaper prices by competitors.”
Pharmaceutical companies have followed different strategies to mitigate or delay the impact of “patent cliffs.”
For example, Johnson & Johnson struck an agreement with competitors to delay the introduction of biosimilars. It was J&J’s first strategic move to delay the impact of a “patent cliff” by a couple of years.
In the case of AbbView and Humira (patents had expired by 2016), Abbvie submitted 250 patent applications for various indications, and created a patent curtain, which was difficult to breach by generic product makers till 2023.
In the case of agrochemicals, more than 20 active ingredient patents will expire by 2030 and create an opportunity for generic off-patent products. These products are cheaper and so are very important for global south economies.
Today, generic producers make up about 30% of the global pesticide market, with a higher preference for fungicides and pesticides compared to herbicides.
It is interesting to note that about 2/3rd of the off-patent molecules are not adopted due to their limited market, difficulty in manufacturing, and unavailability of key intermediates.
Creating generic products, and scaling production is unlike flipping a switch. It can take a few years. Inventor companies try to extend the business life of off-patent products, without sacrificing margins too much and proactively plan to introduce generics faster than anyone else in the market.
Just like pharma companies, inventor agrochemical companies deploy different methods to extend the cliff out, or have a slow ramp down from the cliff.
Inventor companies will develop cheaper and efficient processes to manufacture the same molecules which are going off-patent. Manufacturing processes can be patented to reduce the blow from the patent cliff.
Process patents provide inventors with versatility and potentially broader protection, allowing them to cover multiple variations or applications of their innovative method or process. However, they may be challenging to enforce if others manage to achieve the same outcome using a different process.
Product patents offer more straightforward enforcement, safeguarding the actual invention itself. Yet, they may be susceptible to potential design workarounds or variations that avoid infringement claims, and are not useful once the active ingredient goes off-patent.
Off-patent products provide new commercial opportunities for manufacturers but also create challenges in terms of how quickly they can bring the product to market in a cost-effective and profitable manner in a potentially crowded market.
“Value Innovation” at ADAMA of Syngenta
ADAMA is an off-patent industry leader with a vertically integrated business with a global reach and strength in emerging markets, with access to and unique positioning in China for raw material procurement and manufacturing, and has access to valuable collaborations through the Syngenta Group.
According to the 2023 Annual Report from ADAMA (The Group),
“ADAMA is a global leader in crop protection, engaging in the development, manufacturing and commercialization of a wide range of crop protection products, that are largely off-patent. The Group provides solutions to farmers to combat weeds, insects and disease, and sells its products in over 100 countries, through approximately 60 subsidiaries worldwide. The Group's business model integrates end-customer access, regulatory expertise, state-of-the art global R&D, production and formulation facilities, thereby providing the Group a significant competitive edge and allowing it to launch new and differentiated products that meet local farmers and customer needs in key markets.”
The outgoing CEO of ADAMA, Steve Hawkins (he is going to be President of the overall Crop Protection division of Syngenta) recently talked about a new organizational structure and strategy for off-patent active ingredients, with a focus on three areas.
During / after the pandemic ADAMA realized there was a large middle segment which values effective products which are not completely commoditized at a lower cost. Their retooled approach leverages this key insight, which they are calling as “value innovation.”
1. Geographic & customer focus with partnerships
ADAMA has brought its marketing, supply chain, and product groups closer to understand their strategic crop segments for value customers, who will benefit the most from products coming off patents.
The integrated approach across different functions within ADAMA helps them with proactive planning of customer needs by geography and crop. It allows them to find the right local partnerships for marketing, procurement, production, and go to market activities. This includes value conscious growers in the global south and other parts of the world.
Due to this they can be faster to market, with a portfolio of high-value differentiated formulations.
2. Portfolio focus
For off-patent products, ADAMA brings unique mixtures and formulations to the market, and not necessarily new active ingredients. This works well for the middle segment customer, which is a big segment of the market. This will be the midsize farmer, who probably finds it challenging to afford the on-patent products, but does not want to sacrifice in terms of efficacy and quality of the product. The creation of mixtures and formulations is a key part of ADAMA’s strategy.
“Aiming to provide distinct benefits to farmers and enhance the sustainability of the business, in addition to the ongoing efforts to expand existing product registrations to additional crops and regions, a key portion of the Group’s strategy involves the deliberate shift of its product offering towards more innovative and value-added solutions. Such solutions include higher-margin, higher-value complex off-patent products, unique mixtures and formulations as well as innovative, novel products that are protected by patents and other intellectual property rights.
As evidence of this effort, the Group has significantly increased the proportion of unique mixtures and formulations in its R&D pipeline over the last several years. Over the coming years, as this shift in the pipeline towards more differentiated and innovative solutions starts to be reflected in the Group’s commercial offering, it is expected to be a significant driver of growth in profitability.”
ADAMA spends resources to bring unique mixtures and formulations to market, and focuses less on new active ingredients alone. These products offer high ROI with obvious benefits to growers like improved efficacy, usability, and sustainability.
3. Production, Procurement and Distribution Network Optimization
Based on the unique needs of each customer and geographic segment, ADAMA balances their procurement activities for raw materials and manufacturing capacity for production.
The upfront planning and optimization helps to build up local production to raise the responsiveness to customers, or to help access off-patent AIs, while keeping the cost of goods low. This could be through expansion of the product portfolio and purchasing low cost raw materials. ADAMA’s access to China procurement and manufacturing capacity is a huge asset within ADAMAs supply chain network.
Managing your supply chain and being efficient with it is a massive competitive advantage. Supply chain and infrastructure moats are even harder for your competitors to breach as they take serious investment and time to build. For example, the massive supply chain infrastructure built by Amazon is a huge asset and a moat, which is extremely difficult to breach for any of their competitors.
4. Registration and IP protection
ADAMA has to plan ahead and develop or obtain registrations for off-patent active ingredients. Any delay in developing or obtaining registrations for products, delayed penetration into markets and growth of competitors that focus on off-patent active ingredients will be a challenge for ADAMA.
Final Thoughts
Innovation is not just about building new products and deploying them to markets. Innovation is also about managing your entire product and services portfolio throughout its lifecycle, understanding your changing customer needs and changing customers, and aligning your company to service the right set of customers with the right offerings at the right price.
PS: Steve Hawkins is being replaced as CEO by Gal Hili, and Steve Hawkins is going up to the President of Crop Protection for the entire Syngenta group. I don’t anticipate huge changes in strategy and approach for ADAMA based on this change.
Network abstraction
In the last closer look edition, we had looked at IoT devices, and the need for network connectivity. Adoption of IoT will require ubiquitous network connectivity and a low cost to enable a large number use cases. If you are a solution provider, based on IoT devices, you want easy access to the network to enable two way data flows.
With a soil moisture sensor, you want the sensor to be able to communicate to your irrigation system to let it know when, where, and how for how long it should be turned on. You ideally don’t want to worry about the intricacies of data connectivity, differences depending on which type of network you are connecting to, or the reliability of the network. You don’t want to make product or operational changes based on the type of network you are connecting to.
For example, when Amazon Kindle first launched, they provided a service called WhisperSync. The price of the service was bundled into the device, and you as a consumer didn’t have to worry about where, how, and what your Kindle device was connecting to get you an e-book in less than 60 seconds.
AquaSpy is a provider of soil intelligence solutions (through soil moisture sensors) to help you manage irrigation in your fields. Initially they faced challenges in offering a fully wireless, and seamless solution for soil moisture monitoring. AquaSpy uses NB-IOT (Narrow Band-IoT) designed to work in challenging environments such as below ground. Due to low power requirements, these devices offer extended battery life (5+ years).
They needed a connectivity solution to provide consistent coverage in rural and remote areas.
They have partnered with TEAL to alleviate this problem. TEAL is a provider of network connectivity solutions.
“TEAL OneChip provides native connectivity to AT&T, T-Mobile and Verizon with access to connect onto thousands of networks in 196 countries. TEAL’s Standard or Embedded eSIM is compatible with any device and connectivity is managed via TEAL’s Aurora Connectivity Management Platform.”
TEAL abstracts out all the network connectivity details for a company like AquaSpy, by using a technology called eSim. You might have used eSims during any international travel. eSIM is a virtual SIM card, and it automatically connects to the best available network depending on the location of your phone. TEAL does the same for AquaSpy to provide consistent carrier coverage seamlessly.
Final Thoughts
If you can make the interface between two systems seamless, and abstract out all the details and complexity for the other party, it can lead to better adoption
GenAI assistants proliferate but humans-(still)-in-the-loop
Having a GenAI assistant has become a minimum requirement. If you have a decent sized proprietary dataset, and you want your team, and your customers to have easy access to the data, then GenAI provides a way to summarize information and a different user experience.
Taranis has announced a new GenAI model called Ag Assistant, which was trained on a library of more than 500 million leaf level data points, collected by Taranis. The assistant also contextualizes information from weather maps, machinery data, data from crop input companies, and other sources. The Ag Assistant is multimodal, which means it can look at data in different modes - for example, text, images, etc.
According to Taranis,
“Rather than an agronomist spending hours and days during the growing season manually walking and scouting fields, reviewing seed hybrid information, weather history and forecast, herbicide label information, and identified weed control, Ag Assistant will immediately generate a detailed, expert-level agronomy report to the agronomist that analyzes those factors and more to provide a targeted control recommendation for the specific field and farm in question.”
It is interesting to note that almost all GenAI assistants within agrifood have been targeted towards agronomists, or customer support. This speaks to the types of decisions which customers make, and the amount of confidence (or lack thereof) companies have in these GenAI assistants. The assistants are being used to make processes and people of different organizations more efficient and act as an input into decisions. They are not being used as decision support tools, yet!
Final Thoughts
I believe we will see human-in-the-loop approaches for the near future, when it comes to business applications.