Synthetic biology enterprises stand in the crater
From May 21st to June 13th, 19 enterprises including () (603392.SH), () (605337.SH) and () (300485.SZ) successively indicated on the investor platform that there was no synthetic biology related business or application (see Figure 1) for the time being, mainly because there was no technical reserve or none.
In sharp contrast to the cautious attitude of these enterprises towards synthetic biology, in the last two months, the concept stocks labeled with synthetic biology in the secondary market have soared.
The data shows that in the past 60 days, nearly 40% of the 27 synthetic biology concept stocks have risen. Among them, () (301301.SZ), () (603739.SH) and () (002773.SZ) led the way, with increases of 39%, 29% and 29% respectively. Seven stocks rose more than 5% (the opening price on June 18th).
This large group increase in share prices is considered to be driven by favorable policies. At the end of April, at the annual meeting of Zhongguancun Forum, Tan Tianwei, an academician of China Academy of Engineering, emphasized that bio-manufacturing is a very important new track and new format for new quality productivity. Led by the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Science and Technology and other national ministries and commissions are jointly developing a national action plan for biotechnology and bio-manufacturing, which is expected to be introduced in the near future.
Synthetic biology is not a new concept, it was first born in early 2000, and it is considered as the "third life science and technology revolution" after the discovery of DNA double helix structure and the human genome project.
To put it simply, the way of synthetic biology is to transform the genes of microorganisms such as bacteria, so that they can produce raw materials needed by human beings in metabolism, such as plastics, food or medicines, which can be applied to medical treatment, environment, health, energy, food, agriculture and other industries. This mode of production is often more environmentally friendly than traditional chemical methods, or it can produce new products that cannot be realized by chemical methods.
This is not the first time that synthetic biology has set off a market boom. The last wave of capital influx was in 2021, when there were 458 financing events in the field of synthetic biology in China, and the financing amount reached 113.6 billion yuan, all of which were the highest level since 2019.
At that time, Ginkgo Bioworks and Zymergen of the United States successively landed on NASDAQ. Both companies are platform-based enterprises that provide synthetic biology technology, and their listing also drives domestic hot money to flood into synthetic biology start-ups.
However, in less than three years, the three giants of American synthetic biology were almost wiped out, and the related investment and financing also fell to freezing point.
Amyris, the world’s first synthetic biology listed company, was once famous for producing artemisinin by using synthetic biology technology. However, after the development of bio-fuel products failed, it expanded its cosmetics raw materials and other businesses on a large scale, and its debts snowballed until the bubble burst, and it went bankrupt and liquidated in 2023.
Also in 2023, Zymergen went bankrupt. At first, it only focused on the development of strains. Later, it turned to the development of products, and chose an optical film Hyaline, which can be used in electronic products such as folding screens. However, mass production failed, and the entire synthetic biology sector in the United States plummeted. Zymergen was acquired by Ginkgo Bioworks after bankruptcy.
However, the surviving Ginkgo Bioworks is hard to say success. They insisted on making technology instead of products, and their market value fell by 92%, and their stock price was as low as 0.99 US dollars. In May 2024, they received a warning of delisting.
Industry martyrs have proved with painful reality that the concept of synthetic biology is very popular, but it is difficult to do business in this crater-selecting products, mass production, and developing business models. One wrong step may lose the game.
Who is the real synthetic biology enterprise?
Many practitioners said that enterprises in China are concentrated in the downstream field of synthetic biology, product-oriented, and there are few platform-based enterprises that provide technology.
A reference perspective is that, as an instrument supplier, synthetic biology is one of the fastest growing sectors of Agilent’s business in China, and its customer business focuses on bulk chemical raw materials, food additives, pharmaceutical and cosmetic raw materials.
Figure 2 shows the top ten companies in the synthetic biology concept stocks, and they are also the players that the market thinks are more promising, including Huaheng Bio (688639.SH), Huaxi Bio (688363.SH), Tebao Bio (688278.SH), Kaisai Bio (688065.SH) and () (600298.
These enterprises entered the field of bio-manufacturing earlier and firmly occupied the leading position in the subdivision track.
Huaheng Bio’s global market share of alanine exceeds 50%; Huaxi Bio is the largest supplier of sodium hyaluronate in the world, accounting for 44%. The long-chain dibasic acid produced by Kaisai Bio-accounts for 90% of the global market share.
Companies with stock prices in the top ten generally have two characteristics: one is mature products, and the other is rich experience in mass production.
A technician who has been engaged in synthetic biology research for many years said that when a company has made clear the synthetic biology methods used, it still needs to solve the problem of mass production. This is called "crossing the Death Valley from lab (laboratory) to fab (factory)" in the industry, and it will be scaled up to the industrial level after small-scale and pilot-scale tests.
In the research and development stage, the screening of strains is the key, and the characteristics of chassis cells should be studied for many years. In industrial scale-up, it is necessary to control fermentation temperature, time, dissolved oxygen and miscellaneous bacteria pollution more precisely, and the difficulty coefficient increases exponentially. After the problems appear, we should go back to the most basic strain optimization, reconstruct the metabolic pathway, and repeat it many times to achieve a breakthrough in strain tolerance and yield.
Gong Mo, general manager of Lingdao Capital, vividly explained the differences in each stage. It takes several years or even more to do basic research in the laboratory, and it is enough for a doctor to graduate after entering the pilot stage, which requires at least five years and tens of millions of dollars. It’s not a sudden idea that can be realized immediately. She said that investors are more optimistic about the team with long-term experience in basic research and industrialization. This kind of industrialization experience is best accumulated in downstream separation, extraction and purification.
Different industries have different definitions of "mass production". For example, the overall demand for cosmetic raw materials is small and the unit value is high. Therefore, the pilot scale is kilograms per year and the mass production is tons. For the chemical and material industries with large demand and low unit value, the pilot scale is at least 1,000 tons, and the mass production is calculated based on an annual output of one million tons.
The ability of mass production is so critical that after the concept of synthetic biology broke out in 2021, many enterprises raised funds mainly for building new industrial lines and expanding production capacity.
See the direction of the enterprise from the location of the new factory. In coastal areas such as Yancheng, Tianjin and other places, factories are mainly built by enterprises with small mass production scale and products going to sea. There is sufficient wind power in the local area, which is convenient for export and sales near ports. Enterprises with larger production capacity will directly choose places such as Xinjiang and Inner Mongolia where raw materials such as electricity, energy and corn are cheaper.
Among the concept stocks, Huaheng Bio has completed the expansion of Qinhuangdao and Bayannaoer bases, with the current production capacity of 100,000 tons and 50,000 tons. In addition, it has built a new material production base with a production capacity of 100,000 tons in Chifeng, Inner Mongolia.
Kaisai Bio’s 100,000-ton bio-based polyamide production line in Wusu production base in Xinjiang has been put into production. Huaxi Bio’s Tianjin plant has been put into production, and 64 pilot production lines are planned to be built. The overall production capacity of bioactive materials is planned to reach 1,000 tons.
Among the synthetic biology concept stocks, most enterprises are still in the initial stage of layout.
For example, Angel Yeast’s subsidiary Weiqi Enterprise, with an annual output of 10,000 tons, is under construction, and the first phase is planned to be put into production in 2025.
Azure Bio, whose daily limit has been raised for many times, shows that the enterprise has only set up a synthetic biology technology innovation laboratory, which is still in the research and development stage of the early strain laboratory and does not have the conditions for industrialization.
Product homogeneity is serious.
Synthetic biology is still in the early stage, because people’s understanding of the biological field is less than 10%, which brings a common phenomenon in synthetic biology enterprises-product homogenization.
The involution of cosmetic raw material enterprises is particularly serious.
There are more than 40 synthetic biology enterprises engaged in the development of cosmetic raw materials in China. Many start-ups and listed companies have plunged into squalene, ergothionine, icodoline and other popular raw materials with moisturizing and antioxidant effects.
At present, the listed companies with mass production capacity in China are mainly Huaxi Bio and Chuanning Bio. Ultra-pure ergothionine produced by Huaxi Bio-technology has a purity of over 99%. At the end of May, Chuanning Bio announced that some synthetic biological products have entered the stage of small-scale and pilot-scale, including squalene, ergothionine, and icodoline.
The aforementioned technicians believe that when making the same product, the volume concentration, volume purity, volume impurities, etc. really make the quality of raw materials better, and also knock down the original inflated price. For example, the price of ergothione was 200,000 yuan/kg a few years ago, and now it is only tens of thousands of yuan/kg.
However, cosmetics raw materials are a relatively small market, and the enterprises that enter the market first will have advantages, and most of the enterprises that enter the market later can only fight price wars, or suffer heavy losses because of drastic price changes.
In February this year, Sinochem, one of the earliest enterprises that made ergothionine, declared bankruptcy. The enterprise was founded in 2016, when there were almost no enterprises that produced ergothionine in China.
According to public information, Zhongke Nuozhi and Tianjin Institute of Industrial Biology, China Academy of Sciences agreed to realize the industrialization of ergothionine within 4 years after it passed the verification level of 75L fermentor, which means that it should be produced in at least 1000L fermentor.
However, in 2020, which was supposed to be the test result, Zhongke Nuozhi suffered a triple blow from inside and outside: it failed to mass produce, the price of ergothionine began to decrease, and it was deeply involved in various judicial cases and disputes.
In this year, the number of judicial cases involved in Kono Knowledge exceeded 60, which was the highest in the past years, including private lending disputes, patent transfer contract disputes, service contract disputes, labor disputes and so on. A year later, the court ruled that Kono paid R&D expenses and breach of contract fees, and transferred the development patent back to Tianjin Institute of Technology.
The bankruptcy of Zhongke Nuozhi shows the other side behind the scenery of synthetic biology track. The market turmoil and the ability of enterprises to land can directly determine life and death.
In addition, for some products, even if the price is lowered by the method of synthetic biology, it can not stimulate demand, and it is a waste of production capacity to be involved, so the forward-looking selection of products by enterprises is particularly critical.
For example, Glutathione, a raw material drug with the functions of protecting liver and whitening, is quoted at a price of about 800 yuan/kg-900 yuan/kg by using traditional yeast, and () (300233.SZ) occupies about 90% of the market share in China. Glutathione produced by synthetic biological process is quoted at about 600 yuan/kg-700 yuan/kg, but Jincheng Medicine still occupies 90% of the market.
This is because, on the one hand, the price drop is relatively low, which has not impacted the market; on the other hand, the change of pharmaceutical raw materials needs to be reapplied for approval, and the process is very complicated. Safety and stability are more critical factors than cost.
To sum up, there are two reasons for the homogenization of involution products in synthetic biology enterprises:
First, the raw materials of cosmetics are mainly small molecular compounds and monomer materials. At present, both the research on the characteristics of chassis cells and the environmental control of mass production are very mature. If the price in the market is high, more enterprises will flock to do it.
Second, China’s current policies are relatively stricter in food, medicine, agriculture and other fields. For example, the longest approval period for biological pesticides can reach 8-10 years.
Many practitioners said that the standards committee related to synthetic biology in China is gradually being established, and the access and process of approval will be improved in the future. However, what determines the profitability of enterprises at present is the ability to expand diversified product lines and find materials with a wider range of applications through long-term research and development.
Dong Lei, dean of the School of Life Sciences of Nanjing University, told the Economic Observer that the focus of synthetic biology around the world is mainly on the synthesis of small molecules, but not on macromolecular materials, because the synthetic steps involved are more complicated and difficult.
New materials, new business
Many enterprises that started earlier are also producing macromolecular materials based on synthetic biology. The leading ones are polymers in the chemical industry, such as PHA (polyhydroxy fatty acid ester, note: a kind of bio-polyester, which has degradable characteristics) and polyamide materials (nylon).
In the past, chemical companies such as Kaisai Bio and Huaheng Bio mainly sold small molecular monomer materials such as dibasic acid and alanine. They made them by biological method instead of chemical method, which reduced the cost and seized a larger market share.
It is difficult to reduce the short-term cost of macromolecular new materials, and the market has not been widely accepted, so enterprises are also exploring new business models. The most representative is that raw material enterprises directly go off to build brands or jointly manufacture products.
Many synthetic biology enterprises have flocked to PHA racetrack. This material has good biocompatibility, biodegradability and thermal processability, and can be applied to food packaging, fiber fabrics, agricultural mulching films, drug delivery and medical materials.
Blue Crystal Microbes is one of the start-ups with the most financing in synthetic biology. Since its establishment in 2016, it has completed 10 rounds of financing and disclosed that the total financing amount exceeds 2 billion yuan.
Li Teng, co-founder and president of Blue Crystal Microbes, told the Economic Observer that they have been doing PHA since its establishment, providing only technical services and not making products. It is difficult for start-ups to survive. If they only make popular products at the moment, they will be eliminated in a few years.
Li Teng said that at first, their definition of PHA was a fine chemical, but now it has changed into a bulk chemical. He explained that this adjustment is market demand-oriented. Unlike other enterprises, blue crystal microorganisms hope to use the same PHA to meet different needs. Blue crystal PHA is made because it has the greatest potential for cost reduction, the highest product adaptability, and the corresponding technical difficulty is higher. Stability and quality are the most priority factors, followed by cost.
The direct profit of Blue Crystal Microbes is to cooperate with brands and manufacturers to jointly develop PHA products, including disposable products, soft and hard packaging, textile fibers and so on. The annual production capacity of blue crystal PHA is 5000 tons, and the output of downstream products is 5000 tons, which belongs to the first echelon among PHA manufacturing enterprises at home and abroad.
In addition, cyanobacteria also develop in the middle and upper reaches, providing platforms and technologies to incubate small enterprises.
Li Teng said that in the past, they only produced products, but now it may be a turning point. They have observed that more and more small enterprises are also entering. However, the capabilities provided by incubators and biomedical sharing platforms on the market are different from the actual needs.
For example, most synthetic biology laboratories usually emphasize the automation of Qualcomm quantity, but most strain development processes do not need Qualcomm quantity, which is different from drug research and development, which needs to screen many different molecules. Therefore, Blue Crystal is helping small enterprises to improve efficiency through its own experience, such as technical services and laboratory sharing.
As the leading supplier of long-chain dibasic acids in the world, Kaisai Bio is also the first enterprise in the world to realize bio-based polyamide (note: dibasic acids and diamines are important monomer raw materials of polyamide). The pilot test of this material was completed in 2014, and the production line with an annual output of 100,000 tons was completed and put into production in 2021.
Although the production capacity has increased significantly, the actual sales volume has increased less.
According to the prospectus, from 2016 to 2021, the sales volume of bio-based polyamide increased from 0.5 million tons to 0.7 million tons, and the ratio of production to sales was always around 50%. In contrast, the sales volume of long-chain diacid, the ace product, increased from 25,000 tons to 61,000 tons.
According to Kaiser Bio, bio-based polyamide is a brand-new material, its price is higher than that of nylon made by chemical method, and its application ability is still being explored.
Bio-new materials made of new polymer materials need to provide a whole set of solutions, tell customers how to process and produce, jointly research and develop with downstream, and even assist customers in carbon footprint, equipment and technology, so as to make the market accept them faster. In this regard, Kaisai Bio has established an interdisciplinary R&D center, which has made remarkable progress in the textile field, engineering materials and composite materials.
In addition, Kaisai Bio has established its own fiber brand TERRYL to provide fiber solutions for the textile field.
For example, we cooperated with Bosideng’s brand Samet to build school uniforms, and cooperated with close-fitting clothing brands such as Shushu and Ubras to develop underwear, sportswear, yoga clothes and other kinds of clothing. At the same time, we replaced the consumables such as work clothes, helmets and carpets in the internal production base with new materials.
Liu Xiucai, chairman of Kaisai Bio, once publicly stated: "We can’t make the business model of synthetic biology too early." In the future, there may be a model similar to the pharmaceutical industry. A startup or research institution has made an efficient and valuable metabolic pathway, but it does not do follow-up research and development, and packages the results and sells them to mature enterprises in the industry to complete it.