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Dow Chemical Slips as EPA Withdraws Approval of Enlist Duo

Shares of Dow Chemical DOW slipped yesterday as the U.S. Environmental Protection Agency ("EPA") is seeking court clearance to revoke the registration of the chemical giant’s Enlist Duo herbicide that is designed to be used in genetically engineered corn and soybeans.

The EPA has asked the Ninth Circuit Court of Appeals to vacate the former’s registration of the Enlist Duo herbicide. The EPA said that, based on new information, Dow’s new herbicide is more toxic to surrounding plants than it had earlier anticipated. Dow secured the registration approval for the herbicide from the EPA in Oct 2014 for use in six U.S. states. The EPA approved the weed killer in nine more states in March this year.

Dow’s shares sagged roughly 2.7% to close at $51.92 yesterday.

Enlist Duo, a proprietary combination of a new choline salt of 2,4-D and glyphosate, is expected to control and help prevent further development of herbicide-resistant weeds. It has also been optimized for on-target application using Dow’s proprietary Colex-D Technology.

Enlist Duo is a companion herbicide to the Enlist corn and soybean traits. The Enlist traits are part of the Enlist weed control system that combines innovative traits and herbicides to meet challenging weed control issues. Farmers in the U.S. require new tools to address significant weed control problems. The occurrence of resistant weeds has more than doubled since 2009, challenging farmers’ ability to produce healthy crops.

However, the Enlist system has been heavily criticized by various groups including the Center for Food Safety for potentially causing adverse effects on health and environment. Critics have warned that planting of Enlist corn will lead to a significant rise in use of 2,4-D herbicide, thereby triggering health threats.

Conservation groups including Center for Food Safety and Earthjustice have taken legal actions against the EPA, challenging the registration approval of Enlist Duo and the agency’s failure to consider the effects of the herbicide on threatened and endangered plants and animals protected under the Endangered Species Act.

Dow, however, said that it remains confident in the extensive data supporting Enlist Duo and is working with the EPA to assure that the new herbicide’s conditions of registered use will continue to protect the environment, including threatened and endangered plant species. The company expects that the issues will be resolved in the next few months.

Dow also mentioned the possibility of some changes to use conditions on the existing label of Enlist Duo. It does not see a long-term cancellation of the Enlist Duo registration based on its ongoing talks with the EPA. The company is optimistic that Enlist Duo will be available for the 2016 U.S. crop season. Dow expects the Enlist system to deliver blockbuster market opportunity.

Dow currently holds a Zacks Rank #2 (Buy).

Other companies in the chemicals space worth considering include Celanese Corporation CE, Innospec Inc. IOSP and Stepan Company SCL, all sporting a Zacks Rank #1 (Strong Buy).

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DOW CHEMICAL (DOW): Free Stock Analysis Report
CELANESE CP-A (CE): Free Stock Analysis Report
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STEPAN CO (SCL): Free Stock Analysis Report
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