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Biotech / Medical : Monsanto Co. -- Ignore unavailable to you. Want to Upgrade?

To: Dan Spillane who wrote (2201)	6/22/1999 10:57:00 PM
From: Bindusagar Reddy	Read Replies (2) \| Respond to of 2539

Nice report on Monsanto from analyst Larry Smith. He is one of the very few analysts, who understand Monsanto's business well, including the future strategy and strategic vision of Monsanto. Here it is Monsanto: Scientific Paper Says Genetically Modified Plants May Be Safer; Buy Sutro & Co. RATING: Buy June 22, 1999 10:19am EDT 22-Jun-99 Sutro & Co. (D. Larry Smith (212) 557-3361) MTC 12-Month Price Target: $76 D. Larry Smith (212) 557-3361 lsmith@sutro.com Edward R. Vanacore (212) 557-3363 evanacore@sutro.com Monsanto Co. (MTC/NYSE - $40 11/16) Scientific Paper Prepared By The United Kingdom Department Of Health Leads Us To The Conclusion That Genetically Modified Plants May Produce Safer Food Products Than Those Produced By Traditional Plant Breeding Techniques: Buy Maintained 52-Week Range Shares Outstanding/Market Cap $64 - $33 _ 648 Mil $27.5 Bil Historical P/E Long-Term Dividend 3-Year Projected Range Debt/Capital /Yield Growth Rate 65x - 20x 59.5% $0.12 0.3% 42% 1Q 2Q 3Q 4Q YEAR P/E PrvEst.Street 12/98A $0.32 0.43 0.13 0.05 $0.93 43.8x 12/99E $0.16 0.43 0.19 0.23 $1.02 40.7x 12/00E NA NA NA NA $1.35 30.1x Overview Of the Agricultural Biotechnology Controversy In Europe, particularly in the United Kingdom, there is widely publicized consumer resistance to genetically modified plants used to produce food products. In this note, we have excerpted certain comments from a May 1999, paper by the United Kingdom Department of Health, entitled "Health Implications Of Genetically Modified Foods", which undertook a comprehensive review of the issues affecting the use of genetically modified foods. We found the paper to be well reasoned and informative and its conclusions and observations overwhelmingly suggest to us, that the furor in Europe is based on ignorance and has almost no basis in science. We think that a careful reading of this paper would lead a reasonable person to conclude that genetically modified foods should be safer than those produced through traditional plant and animal breeding techniques that have been used for over 10,000 years by humans. Monsanto has taken a bold strategic move that has positioned the company at the forefront of agricultural biotechnology. It has a clear leadership position in the development of plants with new and desirable traits, and through an aggressive acquisition program, has acquired a stable of seed companies that gives the company downstream influence over the marketing of these new plants. There is no question that Monsanto will be a major beneficiary if agricultural biotechnology gains widespread acceptance. However, Wall Street is currently viewing Monsanto's position in agricultural biotechnology as a negative. This stems from consumer (not scientific) resistance to food products resulting from genetically engineered plants in Europe. Investment Thesis We believe that based on the science, genetically modified foods should be safer than foods produced by traditional plant breeding techniques that have been in use for thousands of years. While the European hysteria has created uncertainty that has penalized the stock of Monsanto in the short term, we think that in the long term, science will triumph and the leadership position that Monsanto has carved out will be seen as a powerful engine of growth for the company. It is difficult to project how long it will take for our view to be proven correct. We acknowledge that there is a very small chance that science does not win out over the unreasoned emotion that is currently carrying the debate in Europe. Also, the news media is now in a frenzy to produce sensational reports on this issue, which poses the potential for articles that can negatively affect the stock. The recent experience with media coverage of a highly flawed study by Cornell University which implied that Bt corn posed a danger to the Monarch butterfly is an example. We think that for those investors who have the stomach to ride through the current turbulence, Monsanto will emerge as a premier growth stock based on the outlook for its agricultural biotechnology business and its explosive growth potential for pharmaceuticals stemming from its leadership position in the development and marketing of COX-2 inhibitors. We reiterate our Buy on the stock. Key Points Made By The UK Department Of Health Report: "Health Implications Of Genetically Modified Foods" In May of 1999, United Kingdom Department of Health produced a paper, which examined the processes involved in genetic manipulation of food. Some of the key observations in the report were as follows: _ Many of the issues raised by critics about the risks of foods resulting from genetic modification of plants are equally applicable to foods produced by conventional means of plant breeding. _ There is no evidence to suggest that the genetic modification technologies used to produce food are inherently harmful. _ Humans have been altering the genetic make-up of plants for centuries to produce higher yields, to modify the content of protein, starch or lipid and to confer resistance to disease. For example, seeds have been genetically altered by exposing them to radiation, which causes mutations in their DNA the outlook for its agricultural biotechnology business and its explosive growth potential for pharmaceuticals stemming from its leadership position in the development and marketing of COX-2 inhibitors. We reiterate our Buy on the stock. Key Points Made By The UK Department Of Health Report: "Health Implications Of Genetically Modified Foods" In May of 1999, United Kingdom Department of Health produced a paper, which examined the processes involved in genetic manipulation of food. Some of the key observations in the report were as follows: _ Many of the issues raised by critics about the risks of foods resulting from genetic modification of plants are equally applicable to foods produced by conventional means of plant breeding. _ There is no evidence to suggest that the genetic modification technologies used to produce food are inherently harmful. _ Humans have been altering the genetic make-up of plants for centuries to produce higher yields, to modify the content of protein, starch or lipid and to confer resistance to disease. For example, seeds have been genetically altered by exposing them to radiation, which causes mutations in their DNA that lead to new characteristics, which can then be selected and bred. (Sutro comment: Intuitively, one would judge that the purposeful insertion of one or a small number of genes would be less likely to produce an undesirable outcome than zapping the DNA of plants with radiation.) _ The difference between traditional plant breeding practices and the new approach of genetic modification is that genetic modification can produce plant and animal changes in a more reasoned and predictable manner. _ Genetic modification enables single or small groups of well defined genes to be isolated and transferred to plants as opposed to traditional plant breeding techniques in which many thousands of genes are crossed at the same time. (Sutro comment: The new technique of genetic modification would intuitively seem safer than historical breeding techniques). _ Genetically modified yeasts which contain their own enzymes for breaking down sugar to produce more alcohol have been in use for some time in brewing beer. (Sutro comment: The British population has been exposed to beer which is genetically modified for some time.) _ People are constantly exposed to foreign DNA from the food they eat and from micro-organisms in the environment and those living on their skin, in their digestive tracts and in their respiratory tracts. DNA is not a toxic chemical and consumption does not have direct toxic effects. _ Plants typically contain 20,000 to 40,000 genes and the function of the majority of these genes is not understood. Traditional plant breeding increase human exposure to some of the products of these genes in a random way as opposed to genetic modification of which introduce single or small groups of genes whose functions are well understood. (Sutro comment: This argues that genetically modified plants may be safer than traditional plant breeding techniques.) _ The human intestinal tract is an efficient digestive system and DNA is rapidly broken down into pieces too small to be functional. The issues raised in connection with genetically modified foods are equally applicable to foods produced by conventional means.