Arcadia Biosciences: Seeds of Change

Group 8

Current Scenario

Arcadia is a small biotech firm compared to its competitors Has four proprietary technologies in advanced development NUE, Salt tolerance, Water use efficiency and enriched safflower oil Company yet to breakeven. Goal of achieving profitability in 4-5 years Need to plan out the future strategy for the company by studying the 3 options Eric Ray has.

Three Options
I.

II.

III.

Commercializing enriched safflower oil for use in nutritional supplements and functional foods License traits for nitrogen use efficiency, salt tolerance, and water use efficiency to large seed companies/ Acquiring seed companies Claim carbon credits in China from reduced agricultural emissions due to NUE trait

Commercializing Enriched Saffola Oil

The central issue is whether the business line is to be divested, or additional investments are made to continue the business line under Arcadia Possible Market Size: Unclear. A possible estimate might be the 6 million Americans who purchase GLA-oil products Issues: Selling will fetch immediate Financial Returns with low risk Divestiture from non-core business will lead to increased focus Continuation of business may need additional investments which is difficult as the target is to breakeven quickly Recommendation: Sell this business to breakeven quickly, as further investment may fetch lucrative price but is very risky.

Proprietary Seed Traits

The central issue is whether the seed trait licenses are to be sold to large seed companies (Monstanto) or whether Arcadia should acquire seed companies & market product themselves Issues: Currently, most of their revenues & anticipated revenues are from licensing & development activities ,totaling about $14 million A small 80-person strong company might find it difficult to market the product themselves competing with big seed houses Recommendation: Licensing of Seed Traits to breakeven early. After that, they could look for strategic alliance partner to tap this growing market.

Carbon Credit Business: Pros

Huge Carbon Market Potential: China is worlds largest producer of rice by volume. In addition, due to intensive use of synthetic fertilizers, rice yields are among highest in the world.

Market Potential Estimation:

Rice farmers apply average of 180 kg of nitrogen fertilizer per hectare
Total amount of fertilizer used is 5400 million kg Impact in terms of global warming 460350 million units of Carbon credit Assuming :
Average carbon price as $17.09/mt CO2 equivalent (Current Prices) Chinese Government would assign 50% of resulting CER to Arcadia The methodology will be used in 40% of the total rice farming land

This gives a market size of around $1.57 billion

Carbon Credit Business: Pros

CDM Implementation Issues-Proving Additionality: - Barrier Analysis: The Chinese govt. gives subsidies to synthetic fertilizers , which could constitute a barrier to the adoption of NUE rice. This can be used as proof of additionality. - Investment Analysis: NUE rice seeds are slightly costlier than the conventional seeds, possibly constituting a financial barrier. Exact analysis could not be done due to the lack of price data The Chinese govt. recently has announced that GM crops are strategically important for their agricultural innovation

Carbon Credit Business: Cons

CDM Approval & Continuation Risk:

Methodology is not yet approved by CDM executives

It is unlikely that, they will get credit ahead of protocols 2012 expiration

and there is uncertainty regarding the successor treaty Country Risk:

Chinese governments continued authorization of foreign firms to source carbon credit in

China. This might be at risk in case emission limits are imposed on China in a post-2012
treaty

Chinese officials had to authorize planting of GM rice

Marketability Risk:

Rice consumers had to find the final product palatable There is price risk in volatile carbon market, leading to historically unstable returns

Recommendations
Among the 3 options that Eric Ray has and the need to achieve profitability in the next few years, we believe that licensing of the traits would be the best option to focus on. The safflower oil has potential in the near future, but a sale would lead to instant cash flow and a small team of 80 people may not be able to successfully focus on more than one business Carbon credits Promising, uncertainty and may be viable after the new treaty. As of now focusing primarily on this will be risky

Thank You