Cathie Anderson

Davis’ Pam Marrone moves past SEC probe, reports big sales growth

Entrepreneurial entomologist Pam Marrone brims with confidence at Sacramento’s Sutter Club over her company’s revenue performance last year when Davis-based Marrone Bio Innovations saw its receipts jump by 43 percent to $14 million.

The company founder and CEO is ready to tell this story, having endured two very difficult years. In September 2014, following the departure of chief operating officer Hector Absi, she had to disclose that her team was looking into an accounting problem that had resulted in the overstatement of revenue. Marrone told me that announcement engulfed her in a government probe that made past business challenges “seem like child’s play.”

Founded in 2006, Marrone Bio Innovations had its initial public offering in August 2013. A year later, Marrone said, she discovered that some distributors had been told the company would buy back product that hadn’t sold, sales that already had been recognized in earnings reports. Before the government arrested and charged Absi with securities fraud, Marrone would endure a three-day grilling by six attorneys from the U.S. Securities & Exchange Commission. That’s not all.

“We burned through a lot of cash,” Marrone said. “We spent $17 million on lawyer fees and auditor fees and the SEC fine of $1.75 million. It’s really such a shame that money couldn’t be used to expand our company. Fortunately, our largest shareholder lent us $40 million.”

While Marrone Bio’s revenue is soaring, profitability continues to elude the Davis-based biotech business. Losses did narrow to $31.1 million in 2016 from $43.7 million in the year-earlier period. Marrone talked with The Bee about moving past the accounting probe and cultivating customers for the company’s biotech products.

Q: What is behind Marrone Bio’s revenue growth?

A: Technology like ours is coming of age. Growers are recognizing the value of these type of products, that they can get a good return on investment. We gave an example in our earnings call of strawberries, and we have examples on alfalfa and rice and tomatoes and many other crops.

But on strawberrries, when the farmers applied Regalia, which is one of our products, they got a $1,400 increase in income with their strawberries, so they got more strawberries per acre. They spent $150 on the product and increased their return by $1,500. So, it was basically a 9-to-1 investment.

Q: Can you explain how they work? Do you have an example?

A: Yeah, so Grandevo is one of our products, and it’s a new species of bacteria that produces insecticidal substances that kill the pests. When you spray it on the bugs, they get enough of it to get a stomach ache and stop reproducing. They eventually die, but it will take 10 days.

That’s very different from spraying pyrethroids (insecticide), which will kill many different bugs. That has a lot of non-target effects. It kills pollinators and bees, so if you spray that, you’ll watch everything die in 48 hours. The growers will say, ‘(Grandevo’s) not killing the bugs.’ You have to educate them and say, ‘Well, they stop eating within a minute. You’ll stop seeing the damage, but then it will take a while for them to die. And, by the way, have you noticed in your field that the bugs aren’t reproducing anymore?’

They have to look broader than just the next 48 hours. Growers also report that they see more good bugs like lady beetles, lacewings, parasitic wasps, predatory mites and bees.

Q: When I think about your company, I think of you in the lab developing every product. Is it you?

A: I actually have not done an experiment in a laboratory since 1987. Most people don’t realize that. They see me as the brainchild behind the science. We have 32 people in R&D in Davis, and they’re the best I’ve ever had. The head of R&D, Amit Vasavada, he’s a microbiologist. He’s had lots of experience in the industrial bio-products industry, fermenting microbes in big vats. We’ve assembled a team, some of whom are right out of UC Davis. The key is finding people who can adapt, be very creative thinkers. They can solve really tough technical problems, and they’re entrepreneurial. Every scientist coming out of school is not like that.

Q: Your company endured a tough period after the accounting failure. What was it like coming through that?

A: We had a lot of competitors go after our people. People’s self-interest comes into play. Those who really believed in the vision and the mission of the company stuck with us. They formed a close team of survivors who said, ‘We’re here for a reason, and we’re going to make this company work.’

It was the worst thing that I had ever gone through in my career. My CFO (Jim Boyd) and I would wake up at 3 o’clock and text each other, ‘You awake?’ We’d talk about all the things we had to do and how we were going to get through this thing.

My husband (Mick Rogers) is a social worker. We have been married 39 years this year. He was very useful in saying, ‘If you don’t do something, you’re going to get depressed.’ I’d roll up on the couch in this ball and say, ‘Oh, woe is me.’

He’d say, ‘Get up off that couch and go swim, or go take the dogs for a walk.’

I did a lot of physical exercise. I was the fittest I’d ever been. It really helped a lot, having a lot of physical exercise – and then having a good support structure of my husband and those loyal, believing employees and the CFO and the general counsel (Linda Moore).

I had to go in front of the SEC for three days. Three days, I had to go testify. You’re basically guilty until proven innocent in a situation like this. They look at me and say, ‘What was your role? And, what’s the tone at top?’

Q: Is that still affecting the company?

A: Our auditors have required us to report our financials a certain way, based upon what happened a couple years ago. A good portion of our revenues are deferred. We don’t get to report them when we actually sell the products.

They are monitoring to be sure there are no givebacks, but we never offered givebacks before that. We never offered inventory protection. But the auditors said there was a period of time we’d have to defer revenue with customers, and as a result, the headline is Marrone’s revenue up 43 percent. Well, not really. Actually, our revenue was up 81 percent, almost double that. We don’t get credit for our real performance.

Q: What advice do you have for people starting in business?

A: I grew up believing that people are good. That is actually bad sometimes in business. I always give people throughout my career the benefit of the doubt, that they’re going to be like me, that they’re going to be thinking about other people in the community first.

Then I realized, ‘No, in business, people are often out for themselves and out for their company. They’re not going to think about what I want.’ And, that’s a tough lesson to learn, so when I go out to talk to young women, I’ll say, ‘Sometimes you’ve got to be a little more skeptical upfront.’

And, the other thing is, it took me a long time to stop apologizing for being a woman, for being a strong person. CEO’s are strong people, and men have a much wider range of acceptable behaviors than women. I think it took me much longer probably until I was in my late 50s, to stop apologizing for being a strong person and standing up.

There are a lot of people who would say, ‘Oh, you’re so strong.’ Then I’d step back and think, ‘Oh, am I too strong? Am I offending somebody?’ Then you don’t make the decisions you want to make. You’re going to compromise. And, that may be the wrong decision.

This conversation has been edited for content, clarity and space.

Cathie Anderson: 916-321-1193, @CathieA_SacBee

Pam Marrone

Title: Founder and CEO of Marrone Bio Innovations

Education: Bachelor’s in entomology from Cornell University, Ph.D. in entomology from North Carolina State University

Honors: Fellow of the American Association for the Advancement of Science, trustee for Cornell University, founding chair of the Biopesticide Industry Alliance, board member for the Association of Applied IPM Ecologists Foundation, member of the board of the Foundation for Food and Agriculture Research

Reading she recommends: Check out the newsletters from compiled on various topics for senior business executives

Age: 60