Author/Braised under the Stars

EDIT/SPINACH STARIES

typography/kelp seedlings under the stars

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, biological manufacturing is the industry mentioned for the first time in this report. With this heat, the-share synthetic biological concept is outstanding. On April 30, the last trading day before the "May Day" holiday, the whole plate rose sharply, ranking first in all concept plates.

The concept of pre-festival fermentation usually remains persistent after the festival, and this synthetic biology section is no exception. As of the close of trading on May 6, related stocks such as Azure Biology (603739), Shengda Biology (603079), and Chuanning Biology (301301) have continued to gain momentum and have recorded several consecutive success.

chuanning biological stock price trend 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 and computer technology, synthetic biology has developed into a highly systematic discipline. It is widely believed that bioeconomy will be the theme of the fourth industrial revolution.

Under such a background, of course, there will always be many subversive opportunities. But standing at this node, it is too early to say that the relevant manufacturers are about to usher in a performance explosion.

Everything 1. can be synthesized.

So what is synthetic biology?

As the name suggests, it is the technology of artificially designing and transforming organisms to make them become production media and ultimately create artificial bio-based products. To make a figurative analogy, we know that the underlying computer language is a binary code combination of two numbers, 0 and 1, while synthetic biology is actually a quaternary code combination of bases such as adenine, guanine, cytosine, and thymine. Human beings first find and design a piece of genome, and then put this piece of gene into microorganisms. These microbial cells turn into miniature factories to metabolize target products for human beings.

In theory, most of the molecules currently produced by chemical or enzymatic catalysis can be produced biologically. Products such as fuels and plastics may be replaced by bio-based products in the future. The Organization for Economic Cooperation and Development (OECD) predicts that 20% of petrochemical products can be replaced by synthetic organisms in the next 10 years, which is a huge market of 800 billion US dollars.

Synthetic biology product production steps Source: Huaan Securities

Of course, the most commercial value at this stage is the application of biomedicine, such as insulin and other drugs, as well as the active ingredients of skin care products such as squalene, which are potential tracks. After all, this industry is closer to synthetic biology and is easy to transform. And the added value of the product is much higher, the initial start can better cover the cost. The health sector has long been considered the main battleground for synthetic biology, accounting for an estimated 35% of its total direct economic contribution.

Abundant 2. Domestic Traditional Capacity

China and the United States are the main participants in the global synthetic biology arena. Both governments attach great importance to the potential contained in this track. The other side has issued the "National Biotechnology and Bio-manufacturing Plan", and my country has also issued "Outline documents such as the" 14th Five-Year Plan for Bioeconomy Development. Under the power of big countries, industry investment and financing is very active. Industry data show that in 2021, global synthetic biology startups received a total of about $18 billion in investment. Domestic related listed companies investment and financing efforts are also very large, China Merchants Bureau into the Kaisai biological, Huaheng biological plans to increase the production of succinic acid, malic acid and other projects, and Jinbo biological and other Pre-IPO stage companies are also queuing up to list.

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 raw materials or food and feed fields need all kinds of amino acids and even functional sugar alcohols, are produced through fermentation, China's advantages in this respect can be described as unique. On the basis of such a large traditional fermentation, the development momentum of domestic synthetic biology is also relatively rapid. According to the data of Pioneer States, there are a total of 925 synthetic biology-related enterprises in China, and there are also many concept stocks.

Synthetic biology related listed companies source: Wind, Zhongyuan Securities Research Institute

The first to bear the brunt is naturally the traditional fermentation enterprises, such as the leading enterprise in the field of antibiotic intermediates Chuanning biological. According to the public disclosure information of Chuanning Bio, several of its synthetic biological products have been successfully commercialized and entered the production and sales stage. However, 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, with very few emerging business sources.

another force is the leader in the field of original medicine and beauty, such as huaxi biology (688363) and giant biology (02367). the synthetic biology business of these enterprises mainly involves recombinant collagen. this product is also a relatively definite landing scene of domestic synthetic biology. Huaxi Biology entered the bureau earlier, recombinant collagen has been carried out mass production planning, and the recombinant collagen factory of Giant Biology and Juyuan Biology has also been successfully put into production.

source of huaxi biosynthetic bio-related products: company annual report, compiled by the author

In addition, there are pharmaceutical companies like Kanghong Pharmaceutical (002773) that claim to apply synthetic biotechnology in the development of innovative drugs.

In short, we can see from the performance of the relevant listed companies that synthetic biology is indeed a broad field that can be applied to many segments of biomedicine. However, most of the manufacturers stay in the research and development, trial production stage, from the realization of large-scale commercialization is still far away. In the foreseeable period, I'm afraid we can't expect too much from synthetic biology to bring incremental revenue to various manufacturers.

The Stone of 3. Mountain

The booming of a large number of domestic manufacturers of synthetic biological concepts is in sharp contrast to the bleak of their counterparts on the other side.

Amyris, Zymergen and Ginkgo are three synthetic biology companies listed in the United States, and all have encountered great difficulties in 2023. Among them, Amyris was once regarded as a bull in the synthetic biology industry. In 2011, the stock price reached an exaggerated high of US $500 per share. However, Amyris did not cross the threshold of commercialization in the end, and finally fell in August 2023.

Amyris' business can be summarized as using its core product, farnesene, to produce oil. Sugarcane to oil is undoubtedly a very topical story. However, there are two difficulties. First, the output required for chemical products is too large. The production of 1 liter in the laboratory and the large-scale production of 10000 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. Under the background of the downward trend of international oil prices, Amyris's playing method is even more economical.

But there's a second half of the story, which proves that synthetic biology doesn't have to be a complete dead end. After the failed exploration, Amyris sold farnesene to its shareholder, Royal DSM of the Netherlands, who turned to produce vitamin E from farnesene and succeeded. Therefore, the application of synthetic biology in the field of traditional chemical industry is not yet mature, but in the field of biomedicine, it may be able to hold up a sky now.

In 2030-2040, the direct and indirect impact of synthetic biology will reach 2000-300 billion US dollars per year. Source: Mckinsey, Huaan Securities

In my opinion, synthetic biology is certainly a major direction with disruptive opportunities. However, at this stage, domestic players are faced with the problems of how to choose the right products and realize large-scale industrial production. At least at this point in time, manufacturers are still in the concept cultivation stage, and we have not seen which one has the possibility 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. No sale, no harm.

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