TEACHING NOTE FOR:
FARMING PHARMACEUTICALS:
VENTRIA BIOSCIENCE AND THE CONTROVERSY
OVER PLANT-MADE MEDICINES
Theme/Concept Chapter
Stakeholder analysis 1
Stakeholder engagement 2
Government regulation 7
Influencing the political environment 8
Managing and regulating technology 12
Case Synopsis
with a firestorm of opposition from a wide range of stakeholders, including environmentalists,
food safety activists, consumer advocates and rice farmers. The case presents the hurdles faced
Discussion Questions
2. What groups have a stake in Ventria’s actions? Identify the relevant stakeholders
3. What options might emerge from a dialogue between Ventria and its relevant
stakeholders?
4. If Ventria chooses to employ a political action strategy, how might it go about
influencing relevant regulators?
5. If Ventria chooses not to engage in dialogue or political action (or dialogue and
6. What do you think Ventria should do now, and why?
Discussion Questions and Answers
1. What is the problem facing Scott Deeter and Ventria?
directors, hired an experienced CEO (Scott Deeter), and attracted investment from angel investors
and two venture capital funds. When the case opens in 2004, the next step for Ventria is to
problem facing Deeter at the end of the case is: How can the company best proceed to
commercialize Lactiva and Lysomin? The matter is made more urgent by the likely need to
2. What groups have a stake in Ventria’s actions? Identify the relevant stakeholders and
for each, state its interests and sources of power.
TEACHING TIP: DEFINITIONS
The instructor may wish to begin this discussion by reviewing the relevant concepts. These are:
Stakeholder: person and groups that affect, or are affected by, an organization’s decisions,
policies, and operations. Market stakeholders are those that engage in economic transactions with
the company as it carries out its primary purpose of providing society with goods and services.
Nonmarket stakeholders are people and groups who—although they do not engage in direct
economic exchange with the firm—are nonetheless affected by or can affect its actions.
Stakeholder interests: the nature of each group’s stake. What are their concerns, and what do
they want from their relationship with the firm?
Stakeholder power: the ability to use resources to make an event happen or to secure a desired
outcome. There are four types of stakeholder power: voting power, economic power, political
power, and legal power.
The instructor may wish to create three columns on the board and work through this question one
stakeholder at a time, as follows:
Stakeholder
Interests
Sources of Power
Investors, including angel
investors William Rutter and
Pablo Valenzuela and venture
capital funds HealthCare
Ventures and Vista Ventures.
The amount of their investment
is not explicitly revealed in the
case. However, data in the case
permits some very rough
estimates. At the time of the
case, Ventria had been operating
for 11 years. If students plug in
biotechnology industry averages
($66K salary + $130K R&D per
employee × 20 employees × 11
years), investment in the venture
through 2004 might have been
roughly $43 million. The case
indicates that 85 per cent of the
firm’s funding has come from
members of the board or their
organizations.
The investors’ main interest
is to earn a significant rate of
return on their private
investment, through an initial
public offering (stock sale to
the public) or through
Ventria’s acquisition by a
larger firm. Presumably, in
order for either of these to
occur, the technology must
be successfully
commercialized or at least be
far enough along that the
company can convince
others that it can be
commercialized. Several of
the investors are themselves
scientists and/or
entrepreneurs; they may have
an inherent intellectual
interest in the technology and
a desire to see it succeed.
The investors have very
substantial power over
Ventria managers, because
they control the ongoing
financial viability of the firm.
Deeter has ongoing contact
with several major investors
through his participation on
the board of directors.
Ventria managers and
employees.
Managers and employees
wish the company to
succeed, because their jobs
depend on it. Some of the
top executives, including
Deeter, have probably been
given an equity stake in the
firm, although the case does
compensation package. (His
earlier involvement in
Managers and the board are
the key decision-makers in
the case. Lower-level
employees are unlikely to
have much power.
Rice farmers and millers. This
stakeholder group is comprised
of around 2,000 California rice
farmers, mostly family farms,
and several large agribusiness
firms with interests in rice
milling and processing
operations in California.
The rice farmers’ and
millers’ main interest is the
commercial viability of the
California rice crop. They
are particularly concerned
with customers’ perception
of the quality and purity of
the state’s rice. Since 40 per
cent of the crop is exported,
they are especially concerned
about the perception of
foreign customers, who they
perceive as highly sensitive
to quality issues. They want
to avoid any risk of
contamination of food rice
by pharmaceutical rice.
Some farmers may have a
secondary interest in
obtaining a higher price for
their product by growing a
specialty or value-added
product.
The case implies that
California rice farmers and
millers have significant
political power. The state of
California has legitimized
their interests through the
creation of a California Rice
Commission, which has a
legislatively mandated
advisory board comprised of
farmers, millers, and public
representatives. The
advisory board has a right to
review production protocols
for any new strains of rice
with a “commercial impact”
and to recommend to the
Secretary of Agriculture
whether or not to approve
them. The farmers are well-
organized through their trade
association. The $500
million-a-year rice industry
is politically well-connected
and influential in California.
Environmentalists. Several
environmental organizations
appear to be mobilized around
the issue of plant-made
pharmaceuticals. These include
Friends of the Earth (a national
organization) and Environment
California (a state-based
organization).
Environmentalists’ main
interest is the health of
ecosystems. The case
suggests they are particularly
concerned with potential
accidental crossbreeding of
pharmaceutical rice with
existing weed species,
creating noxious “super
weeds.”
Environmentalists arguably
have weak influence in this
situation. They have no legal
power to block Ventria’s
production. However, they
may be able to augment their
power in alliance with the
rice industry and consumer
and food safety activists.
reactions, or autoimmune
environmentalists.
Rice customers. California rice
is sold domestically for food, pet
food, and beer. Forty percent of
the crop is exported, mainly to
Asia.
Rice customers, particularly
in Asia, are concerned about
the safety and purity of the
rice. Asian customers are
particularly concerned to
avoid contamination by
pharmaceutical plants.
The power of rice customers
rests in their ability to block
the importation of California
rice if they believe it to be
contaminated.
Government regulators. The case
discusses three federal regulatory
agencies with authority over
genetically modified crops: the
FDA, the EPA, and the USDA
(APHIS). At the state level, the
Calif. Dept. of Agriculture issues
permits for GM crops, and the
California Rice Commission has
authority over the protocols for
strains of rice deemed to have a
commercial impact.
Federal government
regulators are concerned
with carrying out their
mandates to protect the
environment and to assure
the safety of food and
medicines. State regulators
are concerned with following
state law and coordinating
with federal mandates.
Regulators may also be
concerned about the reaction
to their decisions by
politically active
constituents.
Regulators hold significant
power in the case through
their ability to approve or
deny permits to enable field
tests and commercial-scale
production.
Instructor prompt: Based on your analysis, how are these stakeholders likely to form
coalitions (alliances to pursue a common interest)?
Instructor prompt: Can you identify any stakeholder groups that might be potential allies of
Ventria that are not represented in the case?
3. What options might emerge from a dialogue between Ventria and its relevant
stakeholders?
issues of common concern. There, they attempt to describe their core interests and concerns,
define a common definition of the problem, invent innovative solutions for mutual gain, and
concerns of all parties to develop solutions that none of them, acting alone, could have
envisioned or implemented.
distance between fields of pharmaceutical and food rice, procedures for segregation and
containment, third-party monitoring and inspection, and genetic testing of rice stores.
TEACHING TIP: ROLE PLAY
4. If Ventria chooses to employ a political action strategy, how might it go about
influencing relevant regulators?
grassroots mobiliation. However, the company faces a coalition of formidable adversaries in
California, most prominently the rice industry (supported by environmentalists and food safety
5. If Ventria chooses not to engage in dialogue or political action (or dialogue and
political action are unsuccessful), what other options does the company have?
Ventria has two other possible options.
economic development. However, Ventria would still face the same federal regulatory
requirements. National opponents (e.g. Friends of the Earth, Consumers Union) presumably
WAIT: It could also simply wait until the next year and then try again to gain regulatory approval
in California. This option would not entail the high transaction costs of moving. Arguably, the
backers would be unlikely to support this approach. Because of the high burn rate, the costs of
6. What do you think Ventria should do now, and why?
In summary, Ventria has four main options:
Epilogue
In mid-2004, in the wake of the California Secretary of Agriculture’s decision to reject the
emergency status for Ventria’s protocol review, the company began seriously exploring
alternative locations for commercial planting and processing.
1
In November 2004, Ventria announced that it had decided to move to Missouri. The
company negotiated a partnership with Northwest Missouri State University, in which the
university agreed to provide the company with $5 million in operating capital. In exchange,
Ventria agreed to become the anchor tenant in a new Center of Excellence for Plant Biologics and
to grant the university a 4 percent equity stake in the company. The university’s president, Dean
Hubbard, joined Ventria’s board as an unpaid member.
2
Before the company could carry out this course of action, however, it once again ran into
to major buyers.
3
In March 2005, Riceland Foods, based in Arkansas — the nation’s largest
miller and marketer of rice — asked the USDA to turn down Ventria’s request for permits in
4
one of the most prominent companies in Missouri. Ventria scrambled to reach a deal with the
beer-maker to lift its boycott if Ventria agreed to move its fields 120 miles away from commercial
food rice production. But, once again, the window for planting had passed. “Déjà vu all over
like for us.”
6
In January 2006, Ventria announced that it had abandoned its plans to move to Missouri
after the university was unable to produce the funding it had promised. (The state legislature
7
country commissioner.
8
Ventria told officials in Kansas that growers there would earn between
$150 and $200 more per acre growing biotech rice than they would growing commodity crops.
That attracted the interest of Kansas Governor Kathleen Sebelius and Secretary of Agriculture
1
“Biotech Firm Seeks Friendlier Fields Afar,” Sacramento Bee, June 10, 2004.
2
Relaxed Climate,” St. Louis Post-Dispatch, December 2, 2004;
3
“Healing Rice Steams Farmers,” Southeast Missourian, February 13, 2005; “Rice Farmers Hear from Ventria,
Voice Concerns,” Daily Statesman, March 2, 2005.
4
5
“Brewery May Shun Rice From Missouri,” St. Louis Post-Dispatch, April 12, 2005; “Beer Giant Foams at Biotech
Rice Plan,” Sacramento Bee, April 13, 2005.
6
“Firm Races Against the Clock,” St. Louis Post-Dispatch, April 24, 2005.
7
8
“Kansas Opens Arms to Ventria’s Biotech Rice,” Sacramento Bee, June 13, 2006.
pharmaceutical proteins would be isolated, purified and packaged. Junction City offered an
incentive package of $5.5 million in loans that would convert to grants if the company met its
9
contract with local farmers to grow its rice the following spring, with the goal of eventually
ramping up to 30,000 acres of production.
approval of Ventria’s plan for commercial–scale production, conditional on the company’s
adoption of an emergency management plan, specific testing procedures and external auditing.
10
combination of isolation distance, production practices, and rice biology make it
extremely unlikely that this rice would impact the U.S. commercial rice supply.
11
for diarrhea.
12
In November 2007, a review article published in the Journal of Infection
recognized Ventria’s products for their benefit to children suffering from acute diarrhea.
13
media. Under some conditions, Ventria’s researchers concluded, rice–based human lactoferrin
and lysozyme could be as (or more) effective and potentially safer than some animal-derived
9
Factory,” International Herald Tribune, October 6, 2006.
10
“USDA Backs Production of Rice with Human Genes,” Washington Post, March 2, 2007.
11
“Finding of No Significant Impact and Decision Notice,” APHIS,
12
“A Breakthrough for Second Leading Killer of Children Under Five — A Medical Food for Acute Diarrhea,” May
1, 2006, press release issued by Ventria Bioscience.
13
Luis A. Marcos and Herbert L. DuPont, “Advances in Defining Etiology and New Therapeutic Approaches in
media. By 2007, Ventria had secured several contracts from biopharmaceutical companies for
Lactiva and Lysomin to process their products. On the basis of projected sales of lysozyme and
lactoferrin for cell culture applications, Ventria expected to be in the black in 2008.