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This year's government work report focuses on accelerating the development of new quality productivity, in addition to hydrogen energy, new materials and the low-altitude economy that has been sought after for a while, biomanufacturing is the industry mentioned for the first time in the report. With this popularity, the concept of A-share synthetic biology has performed prominently. On April 30, the last trading day before the "May Day" holiday, the whole sector rose sharply, ranking first in all concept plates.
The concept of pre-holiday fermentation usually retains a certain amount of continuity after the holiday, and this synthetic biology section is no exception. As of the close of trading on May 6, Blue Biotechnology (603739), Shengda Biotechnology (603079), Twining Biotechnology (301301) and other related stocks have continued to gain momentum, and they have recorded several successes.
Twining Biotech stock price chart Source: Wind, compiled by the author
In fact, synthetic biology is not a new concept, since the beginning of the 21st century human beings have made important breakthroughs in DNA engineering, computer technology, etc., synthetic biology has developed into a highly systematic discipline. It is generally accepted that the bioeconomy will be the theme of the Fourth Industrial Revolution.
In this context, of course, there will always be many disruptive opportunities. But at this juncture, it is too early to say that relevant manufacturers are about to usher in a performance explosion.
1. Everything can be synthesized
So what is synthetic biology?
As the name suggests, it is a technology that artificially designs and modifies living organisms to make them a production medium, and ultimately creates artificial bio-based products. To make a figurative analogy, we know that the underlying language of a computer is a binary code combination composed of two numbers, 0 and 1, and synthetic biology is actually a quadruple code combination composed of adenine, guanine, cytosine, thymine and other bases. Humans first find and design a genetic component, and then put this gene into microorganisms, and these microbial cells are transformed into micro-factories to metabolize the target products for humans.
Theoretically, most of the molecules currently produced by chemical or enzyme catalysis can be produced biologically. For example, fuels, plastics and other products may be replaced by bio-based products in the future. The Organisation for Economic Co-operation and Development (OECD) estimates that 20% of petrochemicals can be replaced by synthetic biology in the next 10 years, which is a huge market of $800 billion.
Production steps of synthetic biology products Source: Huaan Securities
Of course, from this stage, the most commercially valuable is the application in the direction of biomedicine, such as drugs such as insulin, as well as active ingredients in skin care products such as squalene, which are all potential tracks. After all, this industry is closer to synthetic biology and is easy to transform. Moreover, the added value of the product is also much higher, and the cost can be better covered at the initial stage. Therefore, the health field has been considered the main "battleground" of synthetic biology, and is expected to account for 35% of its total direct economic contribution.
Second, the domestic traditional production capacity is abundant
China and the United States are major players in the global synthetic biology arena, and the governments of both countries value the potential of this track, with the National Biotechnology and Biomanufacturing Plan issued on both sides of the Taiwan Strait, and the mainland has also issued outline documents such as the 14th Five-Year Plan for the Development of the Bioeconomy. Under the wrestling of major countries, industry investment and financing are very active. Industry data shows that in 2021, startups in the global synthetic biology field received a total of about $18 billion in investment. The investment and financing efforts of relevant domestic listed companies are also very large, China Merchants has invested in Cathay Biotechnology, Huaheng Biotechnology plans to increase the production of succinic acid, malic acid and other projects, and a number of pre-IPO companies such as Jinbo Biotechnology are also queuing up for listing.
In fact, China has always been a big fermentation country, accounting for about half of the world's production capacity. Whether it is antibiotics and other bulk APIs, or all kinds of amino acids and even functional sugar alcohols required in the field of food and feed, they are all produced through fermentation, and the mainland has unique advantages in this regard. On the basis of such a huge traditional fermentation, the development momentum of domestic synthetic biology is also relatively rapid. According to the data of Venture Capital, there are a total of 925 synthetic biology-related enterprises in China, and there are many concept stocks.
Synthetic biology-related listed companies Source: Wind, Zhongyuan Securities Research Institute
The first to bear the brunt is naturally traditional fermentation companies, such as Twining Biotech, a leading company in the field of antibiotic intermediates. According to the public disclosure information of Twining Biotech, a number of its synthetic biological products have been successfully commercialized and entered the production and sales stage. However, judging from the financial report, more than 95% of its operating income still comes from traditional businesses such as erythromycin thiocyanate, cephalosporin intermediates, and penicillin intermediates, and there are very few sources of emerging businesses.
Another force is the former leader in the field of medical cosmetology, such as Bloomage Biotech (688363) and Juzi Biotech (02367), the synthetic biology business of these companies mainly involves recombinant collagen, and this product can be regarded as a relatively definite landing scenario for domestic synthetic biology. Bloomage Biotech entered the market earlier, and the recombinant collagen has been mass-produced and planned, and the recombinant collagen factories of Juzi Biotech and Juyuan Biotech have also been successfully put into production.
Bloomage Biosynthetic Bio-related Products Source: The company's annual report, compiled by the author
In addition, there are pharmaceutical companies like Kanghong Pharmaceutical (002773) that claim to have applied synthetic biotechnology in the development of innovative drugs.
In short, we can see from the performance of relevant listed companies that synthetic biology is indeed a wide range of fields that can be applied in many subdivisions of biomedicine. However, most manufacturers are in the R&D and trial production stage, and there is still a long way to go before large-scale commercialization can be achieved. In the foreseeable period, I am afraid that we cannot expect too much from the incremental revenue that synthetic biology can bring to various manufacturers.
3. Stones from other mountains
The prosperity of a number of domestic synthetic biology concept manufacturers is in stark contrast to the gloom of their counterparts on the other side.
Amyris, Zymergen, and Ginkgo are three synthetic biology companies listed in the United States, and they all encountered great difficulties in 2023. Amyris was once regarded as a leader in the synthetic biology industry, with its stock price peaking at an exaggerated high of $500 per share in 2011. But Amyris finally did not cross the threshold of commercialization, and finally fell in August 2023.
Amyris' business can be summed up as producing oil from its core product, farnesene, and the conversion of sugar cane into oil is undoubtedly a highly topical story. However, there are two difficulties, one is that the output required for chemical products is too large, and the production of 1 liter in the laboratory and the large-scale production of 10,000 liters are two completely different concepts, and the expected output is difficult to achieve; Second, the unit price of chemical products is not high and fluctuates greatly, and Amyris's play is even more uneconomical in the context of declining international oil prices.
But there's still a second half to the story, proving that synthetic biology doesn't have to be a dead end entirely. After the failure of Amyris's exploration, he sold farnesene to its shareholder, Royal DSM, and DSM turned to produce vitamin E from farnesene successfully. Therefore, the application of synthetic biology in the traditional chemical field is not yet mature, but it may be able to hold up a piece of the sky in the field of biomedicine now.
From 2030 to 2040, the direct and indirect impacts of synthetic biology will reach $2000-300 billion per year Source: Mckinsey, Huaan Securities
In the author's opinion, synthetic biology is certainly a general direction with disruptive opportunities. However, at this stage, domestic players are facing the problem of how to choose the right product and achieve large-scale industrial production. At least at this point in time, manufacturers are still in the concept cultivation stage, and we have not yet seen the possibility of any one to stand out.
Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm in buying and selling.