FMC: Shares Plunge as Short Seller Says Generic Competition Is Hitting Market Early

On Sept. 7, a short seller released a report asserting that FMC’s FMC diamide products, which generated 36% of revenue in 2022, have begun to see competition from generic producers. FMC’s first diamide molecule went off patent last year. This report is in contrast to FMC management’s prior statements that the company should not see the first generic sales until 2026 at the earliest because the company has key process manufacturing patents that will protect the premium diamide sales after the molecule patents expired.

After reviewing the report, we updated our forecast to include a more rapid impact from the diamide patent expirations, which will weigh on FMC’s sales and profits over the next several years. In particular, the report noted that generic competitors have been granted new product registrations in India and China, which combined for a little less than 10% of companywide sales last year. Our 10-year explicit forecast for FMC had always assumed diamide patent expirations would weigh on revenue growth and profits, but we had previously expected this would begin in 2026.

While we agree with the report’s conclusion about the patent expirations being felt sooner, we disagree with the extent of the impact on FMC. The report suggests diamide prices could fall 80%. However, FMC’s diamide strategy includes licensing the molecule to major crop chemical partners and developing new formulations that are more effective than the original version. We continue to think this will soften the impact of generic products on FMC’s results.

Having updated our model for our lower medium-term outlook, we’ve reduced our fair value estimate to $120 per share from $135. Our narrow moat rating is unchanged. We also reduced our Capital Allocation Rating to Standard from Exemplary as we think FMC’s balance sheet will remain weak in the coming years. Further, we changed our Morningstar Uncertainty Rating to High from Medium to reflect a wider range of outcomes for FMC going forward.