What are the features of synthetic biology and its classification?
Synthetic biology is the product of interdisciplinary research, including the study of synthetic metabolic pathways, biosensors, synthetic gene circuits, biomaterials, cell factories, cell-free expression systems, synthetic organisms, and so on. However, the research direction of synthetic biology is completely opposite to traditional biology. The latter studies the internal structure of life by dissecting it. Synthetic biology starts from the most basic elements to design and construct new biological systems. It is considered a new opportunity for biotechnology.
According to the supply chain distribution of synthetic biological companies, they can be divided into two types: supply chain companies and platform companies. The whole supply chain company has both synthetic biology applicable technology reserves and market-oriented products. The latter creates value by focusing on service and empowering customers with synthetic biological technology support.
Multiple factors promote the development of synthetic biology
Policy support
Synthetic biology is crucial to sustainable development. McKinsey estimates that, by 2040-2050, the application of synthetic biology can cut the annual average anthropogenic greenhouse gas emissions by 7-9% compared with 2018. Biokinilon can replace petroleum nylon in clothes to help companies and countries comply with the Paris Agreement. In addition to reducing carbon footprint, synthetic biological products can also be designed as more biodegradable products, which can help reduce daily waste. Creating meat and dairy substitutes can help feed a growing global population and ensure sustainable food production. Synthetic cement can upgrade infrastructure construction with cleaner and environment-friendly technologies and industrial processes. The China National Development and Reform Commission also printed and distributed the '14th five-year plan' for bioeconomy development. It refers to synthetic biology in Articles Five, Six and Ten and stresses accelerating the improvement of biotechnology innovation capability, carrying out frontier biotechnology innovation and promoting the development of biological agriculture.
Technology revolution
DNA synthesis technology is the most basic tool in synthetic biology. It can be divided into oligonucleotide synthesis and gene synthesis. The emergence of high-throughput DNA sequencing technology has greatly reduced the cost of sequencing. The cost of mapping the human genome was about USD 3 billion back in 2003. But in 2019, it will cost less than USD 1000. The cost reduction has promoted large-scale sequencing, accumulated a large amount of biological data, and accelerated genome research. In addition, CRISPR/Cas9 gene-editing technology, which won the Nobel Prize in chemistry in 2020, is more flexible in the selection of RNA-DNA cleavage sites. It has the advantages of simple operation, time-saving and low cost.
Statistics of investment and financing in synthetic biology in China
Thanks to benefits from policy support and technology revolutions in gene sequencing, editing, and synthesis, as well as (by the end of 2021) the successful listing of two American synthetic biology Unicorn companies, Zymergen and Ginkgo Bioworks, the global synthetic biology market grew explosively. The market size reached USD 73.693 billion, an increase of 767.5% over 2021. In 2021, the scale of China's synthetic biology market was about USD 6.41 billion, an increase of USD 3.94 billion over 2020, according to DeepTech.
With the vigorous development of synthetic biology in China, more and more capital has entered the market. According to EqualOcean’s data, in the first half of 2022, China's synthetic biology companies together received 9 times the investment sum, the same as that of the whole year of 2021.
Who will be the pioneer?
Technology VS Industrialization at scale
Liu Xiucai, CEO of Cathay Biotech, holds that the platform company has no competition. The conversion rate of long-chain α,ω-dicarboxylic acids (DCAs) in cells can reach 100% in laboratory. It is a successful genetic engineering technology with a high conversion rate – however, commercialization is not feasible due to the higher cost in the process of industrialization. On the contrary, the long-chain DCAs developed by Cathay Biotech only have a 70% conversion rate, but monopolize 95% of China's market. Therefore, it is difficult to implement a new product, if the technical team doing the synthetic biology cannot control the cost. Only a product with mass-production-compatible technology will have commercial value.
John Melo, the CEO of Amyris, also holds the same opinion. Melo has talked openly about the importance of having its own brand and factory. He believes that manufacturing is the bottleneck to releasing the potential of synthetic biotechnology. What he pays attention to and could lead their company to success is finding out which products can drive revenue growth and could move to mass production, rather than a scientific experiment.
Owning their factory is also important for making profits. "When we sell squalane directly to consumers, we can make USD 2500 per kilogram, but we can only make USD 30 per kilogram when I sell it to another beauty company,” Melo said.
He is obviously not satisfied with selling the company's star product squalane directly to mega-companies like L’Oréal, Shiseido, and Estee Lauder. Instead, Amyris is to strengthen the consumer business and launch its own beauty brand. Some Chinese synthetic biology companies are also copying this model.
High value-added chemicals vs Bulk chemicals
The gross profit of high-value chemicals such as peptides, hyaluronic acid, amino acids, and vitamins is much higher than that of bulk chemicals like biological plastics and biological nylon.
Meanwhile, the investors of Unity Ventures believe that the mass production of high value-added chemicals is different from that of bulk chemicals. For example, tens of grams of drug protein can be regarded as mass production, while tons of biological plastic can be considered as mass production.
The proportion of fixed assets investment in bulk chemicals is higher than in high-value chemicals. Correspondingly, the management cost and depreciation cost are also high, which will greatly increase the cost pressure on enterprises.
Market Sizing
To what extent can technologies replace existing products on the market? It is not difficult to understand, in the face of large-scale mass production by traditional chemical methods, that the price of synthetic biology will struggle to find an absolute advantage – or the cost is similar but it is more environmentally friendly. Otherwise, downstream customers have no reason to choose synthetic biological products. After all, consumers will only pay for the final product, not the technology. The enterprises need to avoid producing natural products with limited downstream applications, such as ambergris, and so on.
Based on the above standards, EqualOcean believes that synthetic biological companies with a clear industrialization path, high value-added products, and huge market demand will have more commercial value.
In order to analyze the business value of the synthetic biological company, we assign values to each dimension to make an accurate evaluation. We assign a value of '1' to the platform company, '1.5' to companies with plans to build factories, and '2' to the whole supply chain company.
High value-added chemicals are assigned '2' and bulk commodities are assigned '1'.
In terms of market sizing, enterprises that already have products for ordinary consumers are assigned a value of '2', companies that produce chemistry midbody but whose product lines cover daily chemical, pharmaceutical, food, and many other areas are assigned a value of '1.5', and companies specializing in a certain field are assigned a value of '1'.
As can be seen from the above table, we think Bloomage Biotech (Chinese: 华熙生物, 688363), AHB (Chinese: 华恒生物, 688639) and Readline (Chinese: 瑞德林生物) have the most commercial value at present.