Program for Biosafety Systems – http://pbs.ifpri.info/
Implications of Biosafety Regulatory Costs
and Time Delays on R&D
J...
Three basic issues related to investments
and regulatory costs and benefits
1. Recuperating an amount of investment
return...
Issue #1. Recuperating a fixed amount
of return over time
Model 1. A simplified “typical”
biotechnology developer
• Invests US$ 136 million in a new GM crop
• Endures an average ti...
Marginal loss of net cash flow from delays in
regulatory approval process (IRR = 20%)
0.0
10.0
20.0
30.0
40.0
50.0
1 2 3 4...
Issues and Implications
• Regulatory delays have a negative impact on
returns to investments
• With a 20% rate of return, ...
Issue #2. Recuperating an investment
with increases in cost of compliance or
delays in the onset of benefits
Case study 1. Model investor case
study (continued)
• Investor conducts investment of 136 million US$
with a desired perio...
NPV with increasing time to onset of
benefits
(120,000,000)
(100,000,000)
(80,000,000)
(60,000,000)
(40,000,000)
(20,000,0...
Impact of risk and uncertainty on the
stream of benefits over time
• What happens to the riskiness of
investments as the o...
Risk impacts and the stream of
benefits
-120
-100
-80
-60
-40
-20
0
20
40
1 2 3 4 5 6 7 8
ValuesinMillions
Years after the...
Impact of risk and uncertainty in the
stream of benefits
• Dispersion around net benefits increases over
time => Investmen...
Case study 2. Net benefits from the
adoption of GE crops in the Philippines
Bt
eggplant
MVR tomato Bt rice PRSV resistant
...
Contrasting baseline net benefit levels from GE
crop adoption with higher costs in the Philippines
Notes: 1) Source: Bayer...
Contrasting benefit levels from GE crop adoption
with larger regulatory lags in the Philippines
Notes: 1) Source: Bayer, N...
Issues and implications
• Regulatory costs are not likely to have a significant impact
on the returns to investment
• Exce...
Issue #3. Regulatory and knowledge
cost/benefit tradeoffs
Cost and benefit tradeoffs
• Learning process - gains in knowledge through
increased experimentation and/or inclusion of
s...
Case study 3. The case of fungal
resistant bananas in Uganda
• Ex ante study – used the real
options approach
• Conclusion...
Potential implications for decision
making (1)
• Gain more and/or better information about
technology impacts for decision...
Potential implications for decision
making (2)
• Additional requirements will increase the cost of
regulatory compliance
•...
Time to change and develop functional
biosafety and decision making systems
“To continue making things as we have done unt...
SOCIO-ECONOMIC CONSIDERATIONS IN BIOTECHNOLOGY
REGULATION
Edited by:
• Karinne Ludlow, Monash University, Australia
• Stua...
José Benjamin Falck-Zepeda,
Ph.D.
Senior Research Fellow / Leader Policy Team Program for
Biosafety Systems
IFPRI
2033 K S...
Food safety issue RISK scientific RISK socially constructed RISK modern RISK political
High cholesterol foods High Moderat...
Upcoming SlideShare
Loading in …5
×

Jose Falck-Zepeda presentation at the 2013 ABIC conference in Calgary Canada

415 views

Published on

My presentation at the 2013 Agricultural Biotechnology International Conference (ABIC) in Calgary Canada, September 2013. Here I discuss the issues related to recuperating an investment in agricultural biotechnologies' return over time and recuperating such investment with increases in cost of regulatory compliance or delays on the onset of benefits of a potential GM biotechnology. I also discuss the regulatory and knowledge cost/benefit tradeoffs and potential implications especially for public sector research in developing countries.

Published in: Technology, Business
  • Be the first to comment

Jose Falck-Zepeda presentation at the 2013 ABIC conference in Calgary Canada

  1. 1. Program for Biosafety Systems – http://pbs.ifpri.info/ Implications of Biosafety Regulatory Costs and Time Delays on R&D José Falck Zepeda Senior Research Fellow International Food Policy Research Institute - Program for Biosafety Systems (IFPRI - PBS)
  2. 2. Three basic issues related to investments and regulatory costs and benefits 1. Recuperating an amount of investment return over time 2. Recuperating an investment with increases in cost of regulatory compliance or delays on the onset of benefits 3. Regulatory and knowledge cost/benefit tradeoffs
  3. 3. Issue #1. Recuperating a fixed amount of return over time
  4. 4. Model 1. A simplified “typical” biotechnology developer • Invests US$ 136 million in a new GM crop • Endures an average time for regulatory approval of 48 months (Phillips McDougall 2011) • Financial implications of a 20% rate of return – Require a total NPV of US$ 27.2 million – Each year of delay represents an NPV of US$ 22.7 million Source: Smyth, McDonald and Falck-Zepeda, 2013
  5. 5. Marginal loss of net cash flow from delays in regulatory approval process (IRR = 20%) 0.0 10.0 20.0 30.0 40.0 50.0 1 2 3 4 5 6 7 8 9 10 11 12 13 Marginal Loss (%) Years Source: Smyth, McDonald and Falck-Zepeda, 2013 Threshold If IRR is 50% then threshold closer to 4 years!!!
  6. 6. Issues and Implications • Regulatory delays have a negative impact on returns to investments • With a 20% rate of return, expect year 6 of regulatory delay to be the trigger point for suspending investment in new R&D projects • Current regulatory approvals taking 48 months implies that the upper boundary has likely been reached Source: Smyth, McDonald and Falck-Zepeda, 2013
  7. 7. Issue #2. Recuperating an investment with increases in cost of compliance or delays in the onset of benefits
  8. 8. Case study 1. Model investor case study (continued) • Investor conducts investment of 136 million US$ with a desired period of recovery of 10 years • Investor requires a 20% rate of return on investment in real terms – NPV of the investment is 27.2 million dollars – Require a stream of nominal payments of 38.9 million per year • Allow same number of payments and value of each payment, but increase time to onset of the benefits
  9. 9. NPV with increasing time to onset of benefits (120,000,000) (100,000,000) (80,000,000) (60,000,000) (40,000,000) (20,000,000) - 20,000,000 40,000,000 0 1 2 3 4 5 6 7 8 9 NPV(US$) Year after onset of benefits NPV Keeping same number of payments + rate or return (20%)
  10. 10. Impact of risk and uncertainty on the stream of benefits over time • What happens to the riskiness of investments as the onset of benefits is pushed over time? • Repeat NPV calculation for the “model” investor using @RISK to conduct simulation through repeated iterations
  11. 11. Risk impacts and the stream of benefits -120 -100 -80 -60 -40 -20 0 20 40 1 2 3 4 5 6 7 8 ValuesinMillions Years after the onset of benefits 5% - 95% +/- 1 Std. Dev. Mean
  12. 12. Impact of risk and uncertainty in the stream of benefits • Dispersion around net benefits increases over time => Investment returns become riskier • Note that we have the ability to characterize recovery path and its parameters… • What happens if investor cannot make a determination of the NPV? – Likelihood that an investment will not be made increases due to uncertainty
  13. 13. Case study 2. Net benefits from the adoption of GE crops in the Philippines Bt eggplant MVR tomato Bt rice PRSV resistant papaya Net Benefits baseline (NPV in US$) 20,466,196 16,748,347 220,373,603 90,765,793 Effect of increasing cost or time of compliance Source: Bayer, Norton and Falck Zepeda (2008)
  14. 14. Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines Notes: 1) Source: Bayer, Norton and Falck Zepeda (2008), 2) Baseline values for each technology expressed in millions US$ using a discount rate for the estimation of Net Present Value = 5%, 3) Change in Net benefits defined as the total benefits estimated using the economic surplus minus total regulatory costs.
  15. 15. Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines Notes: 1) Source: Bayer, Norton and Falck Zepeda (2008), 2) Baseline values for each technology expressed in millions US$ using a discount rate for the estimation of Net Present Value = 5%, 3) Change in Net benefits defined as the total benefits estimated using the economic surplus minus total regulatory costs.
  16. 16. Issues and implications • Regulatory costs are not likely to have a significant impact on the returns to investment • Exception are organizations that have budget/financial constraints – National research organizations in developing countries – International research systems developing public good products – Small private firms in developing countries • Regulatory delays have a significant negative impact on net returns – Impact on the number and type of technologies – More “higher return” products and less public good products?
  17. 17. Issue #3. Regulatory and knowledge cost/benefit tradeoffs
  18. 18. Cost and benefit tradeoffs • Learning process - gains in knowledge through increased experimentation and/or inclusion of socioeconomic in decision making are possible • Delays may have a positive impact if it helps avoid potential negative impacts • Face the issue of irreversibility – Costs and benefits that may not be ever reversed – One foundation of the precautionary principle/approach and regulatory protocols such as the Cartagena Protocol on Biosafety
  19. 19. Case study 3. The case of fungal resistant bananas in Uganda • Ex ante study – used the real options approach • Conclusions – If approval delayed, forego potential annual (social) benefits of +/- US$200 million – Maximum total development costs cannot exceed US$108 million. – Even considering irreversibility, adoption still benefits Uganda Citation: Kikulwe, E., J. Wesseler and J. Falck-Zepeda. 2008. Introducing a Genetically Modified Banana in Uganda: Social Benefits, Costs, and Consumer Perceptions. IFPRI Discussion Paper 767, Environment and Production Technology Division, International Food Policy Research Institute, Washington, D. C. USA. Copyright Kikulwe © 2009
  20. 20. Potential implications for decision making (1) • Gain more and/or better information about technology impacts for decision making - may support valuable technologies • Need to balance gains in information, additional costs & effort, and impacts on innovation • Potential for introducing uncertainty that can lead to an unworkable system
  21. 21. Potential implications for decision making (2) • Additional requirements will increase the cost of regulatory compliance • Potentially regulatory delays will likely cause a – reduction in the number of technologies especially those released by the public sector and crops/traits of a public good nature – some public sector institutions may not be able to deploy technologies due to fixed costs necessary to enter market
  22. 22. Time to change and develop functional biosafety and decision making systems “To continue making things as we have done until now is not an option: we must develop a shared vision between agriculture and environment agendas and move towards a paradigm shift” “We must face the challenges with technology, not ideology…including developing proper governance and regulatory processes that work” From a declaration of scientists at the 2012 Central American Conference on Agriculture and Environment (CIAA)
  23. 23. SOCIO-ECONOMIC CONSIDERATIONS IN BIOTECHNOLOGY REGULATION Edited by: • Karinne Ludlow, Monash University, Australia • Stuart J. Smyth, University of Saskatchewan, Canada, and • José Falck-Zepeda, International Food Policy Research Institute, USA Discusses 15 methodological areas ranging from impacts on producers and society and environment to trade, indigenous knowledge and ethical/equity. Includes also discussions on background and issues related to decision making. Springer Editors Spring 2014
  24. 24. José Benjamin Falck-Zepeda, Ph.D. Senior Research Fellow / Leader Policy Team Program for Biosafety Systems IFPRI 2033 K Street NW Washington, DC 20006-1002 USA j.falck-zepeda@cgiar.org Brief bio/pubs: http://www.ifpri.org/staffprofile/jose-falck-zepeda Blog: http://socioeconomicbiosafety.wordpress.com/ Follow me on Twitter: @josefalck
  25. 25. Food safety issue RISK scientific RISK socially constructed RISK modern RISK political High cholesterol foods High Moderate Moderate Low - moderate Foods high in sugar High Moderate Moderate - high Moderate High sodium foods Moderate Low Moderate Low Dead mouse in beverage bottle Low – high High High Low Dead frog in package of frozen vegetables Low – moderate High High Low E-coli in hamburgers High Low Moderate Low Salmonella High Low Moderate Low Mycotoxins High Moderate High - moderate Low Filth and extraneous materials (insect fragments, stones, twigs, rodent manure) High High High Low GM foods Low High High High

×