ARE BIO-DERIVED PRODUCTS A PRACTICAL ANSWER FOR SUSTAINABLE AGRICULTURE? DR. DAVID N. DUNCAN CHIEF EXECUTIVE OFFICER FBSCIENCES, INC.

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1 ARE BIO-DERIVED PRODUCTS A PRACTICAL ANSWER FOR SUSTAINABLE AGRICULTURE? DR. DAVID N. DUNCAN CHIEF EXECUTIVE OFFICER FBSCIENCES, INC. COLLERVILLE, TN

2 The Challenge

3 SOURCE: Agriculture and the Green Economy, Farming First

4 SOURCE: Agriculture and the Green Economy, Farming First

5 Industry Challenge: Sustainable Agriculture Sustainability is not a particular end state, but rather progress towards four primary goals: 1. producing enough to satisfy human needs; 2. protecting the natural resource base; 3. profitability for the value chain 4. increasing quality of life for farmers, farm workers, and society as a whole. SOURCE: Toward Sustainable Agriculture in the Twenty-First Century, National Academy of Sciences, 2010

6 Sustainable Agriculture Agriculture represents solutions and practices, focused on farmer needs and knowledge sharing. Sustainability is a moving target farmers in different geographies and farming systems are already adapting they will need support to continuously improve. To make agriculture both environmentally sound and economically dynamic we need to achieve more crop yield per unit of water, per acre of land, per measure of inputs.

7 Can This Be Done With Sustainable Solutions Like Bio-Based Products?

8 Overview What are bio-based products? Driving forces behind development of natural products Challenges for bio-based product commercialization Examples of commercial success Conclusion

9 What Are Bio-Based Products? Defined by the 2002 US Farm Bill, bio-based products are commercial or industrial products composed in whole, or in significant part, of biological products, renewable agricultural materials (including plant, animal, and marine materials), or forestry materials.

10 2 Primary Types Biochemical Microbial Plant Growth Regulators Bacteria Insect Growth Regulators Fungi Organic Acids Plant Extracts Pheromones Minerals/Other 37% 63% Protozoa Viruses Yeast Biopesticides are used in food crops, turf and ornamentals, forage and pastureland, public health, and forestry SOURCE: Biological Crop Chemistry Primer: Green Shoots through Green Products; Piper Jaffray; 27, Aug 2013

11 Rapid Proliferation Number of bio-derived products rapidly expanding Various products have been developed to manage a variety of important agricultural pests and diseases As of early 2013 Approximately 400 US EPA registered active ingredients Over 1250 actively registered bio-pesticide products

12 Market Analysis 2012 bio-derived market estimated at $3 billion Projected growth between 15% and 20% over the next five years Studies undertaken surrounding the growth of the bioderived market often vary significantly Variation due to diversity of product category itself: microbes, biochemicals, plant growth regulators, insect growth regulators, beneficials, essential oils, pheromones, minerals, etc

13 Estimated Geographical Breakdown of the 2012 Global Biopesticide Market 25% 40% 20% 10% Rest of World = 5% SOURCE: Agrow World Crop Protection News

14 Market Analysis

15 Driving Forces Behind Natural Products

16 Demand for Safer, More Nutritious Food Driving Forces Behind Natural Products 70% of all consumers: What is driving the trend? A desire to eat healthier and know more about where food is produced Many consumers perceive benefits of organic even though there is still confusion about the definition Demographics: women, cooks & millennials SOURCE: FoodThink Research, Sullivan Higdon & Sink, July 2013

17 Environmental Concerns Driving Forces Behind Natural Products Residues Injury to non-target plants and animals Product movement into the surrounding environment Water quality Air quality Deteriorating soil conditions TREND: More established application of Integrated Pest Management (IPM) and Integrated Crop Management (ICM) concepts

18 Regulation Driving Forces Behind Natural Products Food Quality Protection Act (FQPA) standardizes the tolerances for pesticide residues in all types of food, and looks at all types of health risks; unanimously passed by US Congress in 1996 Heightened consumer awareness of residue issues Increased regulatory hurdles for manufacturers which can drive more effective compounds from the market

19 Cost to Agribusiness to Develop a Chemical Pesticide Driving Forces Behind Natural Products The cost of discovery, development, and registration to bring a new pesticide A.I. to market exceeds $250M, not including the capital cost associated with highly specialized production facilities.

20 Cost to Agribusiness to Develop a Chemical Pesticide Driving Forces Behind Natural Products

21 Challenges For Bio-Based Product Development & Commercialization

22 Competitive Agricultural Sector Requires Cost-Effective Production Methods Challenges for Bio-Based Products 1975* Corn: $1-2/bu Profit per acre: $ Corn: $8/bu Profit per acre: $162 History has shown profits in agriculture can disappear quickly, consequently cost control and efficiency are paramount. *$ adjusted for inflation Profit data from USDA

23 Distribution Channel Expectations Challenges for Bio-Based Products Distributors and Retailers: Sales and Margins They prefer products that work on a wide variety of crops control a broad spectrum of pests are formulated for easy handling and storage provide excellent value for the investment sell quickly and provide a reasonable profit opportunity (low overhead/high demand) Some bio-based products have limited spectrum of pests, specific storing instructions (light and temperature), and shorter shelf-lives.

24 Farmer Expectations Challenges for Bio-Based Products Return on investment based on yields and quality Many factors impact yield results and crop quality Annual fluctuation in yields and prices Ease of use: easy to mix, flexible timeframe for application, easy to apply Exceeding customers needs and expectations is mandatory for the success of any new technology

25 Perceptions of Inferior Quality Challenges for Bio-Based Products Emerging/little-known product category Bio-derived product performance directly tied to environmental factors Temperature Soil conditions Moisture availability Water conditions Life span of living components

26 Regulation Challenges for Bio-Based Products Traditional chemical mindset of regulatory bodies can be challenging Market development is shackled in markets that are naturally receptive to bio-based products, namely Europe and Asia

27 Advances in Bio-Based Products

28 Advantages The cumulative proposition offered by bio-derived products has become better understood: resistance management benefits residue management benefits enhanced yield and crop quality labor management benefits enhanced control when used alongside chemical products farmers becoming more receptive to trialing and implementing biopesticides. 0-Day Pre-Harvest Interval <4 Hour Restricted Entry Interval (REI)

29 Examples of Commercial Success

30 Merger & Acquisition Activity Examples of Commercial Success Novozymes acquires TJ Technologies BASF acquires Becker Underwood Syngenta acquires Pasteuria Biosciences Monsanto launches BioDirect platform (RNAi) Bayer acquires Agraquest Valent Biosciences acquires Pace International

31 AgraQuest Examples of Commercial Success Global supplier of innovative biological pest management solutions based on natural microorganisms Product portfolio includes Serenade, Rhapsody, Sonata and Ballad fungicides and Requiem insecticides Sold in diverse market segments such as fruits and vegetables, broad-acre crops, post-harvest protection, turf Acquired by Bayer in 2012 for ~$500m Several new pipeline products, which include acaracides, fungicides and nematicides are under development

32 Marrone Bio Innovations Examples of Commercial Success Provider of bio-based pest management and plant health products for the agricultural and water treatment markets Designed to be used as substitutes for, or in conjunction with, conventional pesticides Product portfolio includes Regalia for plant disease control and Grandevo for insect and mite control Agreement with Syngenta for distribution of Regalia in Africa, Europe and Middle East and FMC in Latin America Announced IPO in July 2013 FY2012 revenue $7.14m IPO at $14-17/share ($67.62m-$82.11m)

33 Pasteuria Bioscience, Inc. Examples of Commercial Success Biological nematicides based on Pasteuria, a natural soil microbe that infects harmful nematodes Naturally Effective/Highly Selective Convenient & Cost Effective Acquired by Syngenta in 2012 for aggregate payments of $86m + $27m (deferred) + $10m (option) payments Acquisition accesses broad platform for most major markets, including a seed treatment product for Soybean Cyst Nematode (SCN)

34 FBSciences, Inc. Examples of Commercial Success Plant-derived, proprietary platform works within plant to improve crop yield and quality through better plant health and physiology Independent field trials around the world to establish efficacy on virtually any crop applied at any time from pre-plant through early reproductive growth stages High unit activity Multiple delivery methods including seed treatment No known compatibility issues Improves performance of other a.i. s Scalable & low-cost production Company primed for an exit

35 Conclusion Natural bio-based products are not only practical solutions today.but will see accelerated growth and become mainstream in meeting the goals of sustainable agriculture

36 ARE BIO-DERIVED PRODUCTS A PRACTICAL ANSWER FOR SUSTAINABLE AGRICULTURE? DR. DAVID N. DUNCAN CHIEF EXECUTIVE OFFICER FBSCIENCES, INC. COLLERVILLE, TN