In the realm of synthetic biology, a field at the cutting edge of modern science, certain companies have begun to carve out significant market presence and influence, particularly in ChinaAmong these, Huaheng Bio and Kaise Bio stand out for utilizing synthetic biology technologies to capture substantial portions of their respective marketsHuaheng Bio has seen continual product cost reductions due to technological advancements, which in turn has positively impacted its gross profit marginsMeanwhile, Kaise Bio has managed to offer its products at noticeably lower prices compared to their overseas competitors, ensuring a competitive edge even in the face of potential domestic rivals in the future.

Recently, the synthetic biology sector has attracted significant attention from investors and other market participants, evidenced by the robust performance of several publicly listed companies within this domain

Many of these companies have reported rising gross margins, indicating healthy financial metricsIn comparison to traditional chemical engineering, synthetic biology presents notable environmental advantages and contributes to the circular economyThere are already established companies in China that have successfully transitioned synthetic biology into practical applications, offering products that boast considerable cost advantages over traditional biological and chemical engineering methods.

Synthetic biology fundamentally re-engineers natural biological systems by combining engineering principles with biology to design and synthesize new biological components, systems, and pathwaysAccording to McKinsey, theoretically up to 60% of physical materials in the global economy could be produced through biotechnological meansThe significance of this application lies in its potential to replace traditional synthetic routes that rely on petroleum-based raw materials, which would ultimately reduce petroleum consumption and environmental pollution while also creating a more cost-effective, higher-yield, and environmentally friendly production pathway for some challenging chemical syntheses.

When comparing synthetic biology to traditional biochemical engineering, the new field exhibits several advantages: the use of renewable raw materials and mild reaction conditions significantly lowers carbon emissions

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Furthermore, there is considerable room for optimization in production processes, allowing for a decrease in costs, which indicates a broad range of future applicationsAccording to Guotou Securities, synthetic biology's advantages over conventional chemical synthesis are predominantly reflected in lower product costs, milder reaction conditions, and reduced environmental pollutionWhile synthetic biology is more efficient than traditional fermentation techniques, the challenges include higher technical requirements associated with enzyme design, chassis cell modification, and other intricate components of the process.

Synthetic biology's applications span numerous sectors such as healthcare, scientific research, industrial chemicals, food and beverage production, agriculture, and consumer goodsRecent trends show that investment in this field is accelerating as market potential continues to grow

Statistics indicate that from 2016 to 2021, as fundamental research in synthetic biology advanced, global financing for synthetic biology enterprises soared from under $2 billion to over $18 billionForecasts by CB Insights suggest that the industry may reach a market size of approximately $18.9 billion by 2024, with an average annual growth rate of 28.8% from 2019 to 2024. McKinsey also predicts global economic impacts from synthetic biology could reach $100 billion by 2025.

In alignment with these trends, China's 14th Five-Year Plan emphasizes synthetic biology as a key developmental focusThe plan aims to strengthen original foundational research, promoting innovation in synthetic biology technologiesKey technology breakthroughs in microbial design, high-throughput screening, efficient expression, and precise regulation are pivotal for enabling practical applications

In August 2022, the Ministry of Science and Technology, along with other agencies, issued directives about disruptive low-carbon technologies, underlining the necessity for innovation based on synthetic biology.

As of now, there are over 500 companies in the synthetic biology field internationally, with dozens in ChinaCitic Securities categorizes these companies into two models: product-oriented businesses that leverage synthetic biology for various market applications, and platform-oriented companies that provide integrated systems focusing on biological design and software developmentAt this stage, platform-focused enterprises face limitations in profitability due to the absence of applicable products, whereas product-focused companies span the entire industrial chain from biological modifications and fermentation purification to product refinement

This has allowed them to grow rapidly, with profitability levels on the riseHuaheng Bio and Kaise Bio represent leading names in their specific sectors within the product-focused model.

The operational foundation for these domestic synthetic biology companies centers around microbial fermentation techniques, where directed production of target products occurs through processes such as strain selection, high-efficiency fermentation, and purification controlHuaheng Bio, for instance, produces an array of amino acids, including alanine, valine, and D-calcium pantothenate, with its alanine production on a global scale reaching exceptional levelsBy the end of 2022, Huaheng Bio accounted for over 60% market share in L-alanine.

Kaise Bio, meanwhile, focuses on the polyamide supply chain, which includes products like long-chain dicarboxylic acids, pentamethylenediamine, and bio-based polyamides

Its long-chain dicarboxylic acid offerings are internationally dominant, boasting over 50% market share based on productive capacity in recent years.

Huaheng Bio's rapid growth trajectory reflects its outstanding performanceFrom 2021 to 2023, revenues escalated from 9.54 billion yuan to 19.38 billion yuan, showcasing year-on-year growth rates of 95.81%, 48.69%, and 36.63% respectivelyIn 2023 Q1, they recorded revenues of 5.01 billion yuan, maintaining a growth of 25.12% year over yearThis momentum is partly attributed to the company's expanding product lines, ongoing capacity releases, and crucially, a reduction in product costs leading to steadily improving gross profit margins, which surged from 34.67% in 2017 to 45.92% in 2020.

According to Shanxi Securities, Huaheng Bio’s anaerobic fermentation process represents a critical barrier to entry, accounting for its dominant global market share in L-alanine

In terms of competition, other producers face varying manufacturing methods led by companies like Fengyuan Bio, which employs fermentation techniques, and Japan's Musashino, which primarily utilizes chemical methodsHowever, Huaheng's anaerobic fermentation leverages renewable glucose as the substrate, operating under mild conditions, and facilitated by a streamlined one-vessel fermentation process that reportedly cuts production costs of L-alanine by approximately 50%. This has allowed Huaheng to offer prices 30% lower than those using enzymatic processes, pushing its gross margins beyond 40% compared to the 10%-20% margin typical in enzymatic production.

As a result of its improved process and scale, Huaheng's L-alanine prices have seen a decline from 17,100 yuan/ton in 2017 to about 14,800 yuan/ton by mid-2020, while enzymatic prices consistently exceeded 20,000 yuan

Gross margins for fermentative L-alanine consistently rose, reflecting steady improvement from around 42% to near 49% during the same period, still significantly higher than those of the enzymatic method by 20%-30%.

Similarly, Kaise Bio holds advantageous cost positions in their operationsThe focus on the polyamide value chain, especially with biobased products like long-chain dicarboxylic acid and pentamethylenediamine, has positioned them competitively on a global scaleHowever, the reliance on imported precursors like adiponitrile, which are controlled by Western manufacturers, inflates production costs domestically.

Market analyses show that DuPont's biobased nylon 66 is priced at 42,000 yuan/ton, approximately 31% greater than that of petroleum-based counterpartsIn contrast, Kaise's biobased nylon averaged 20,700 yuan and 20,900 yuan per ton in 2021 and 2022, respectively, making it 24.4% to 60.5% cheaper than available industrial nylon 66 types, showcasing a substantial price advantage.

Nevertheless, it's important to note that Kaise Bio reported gross margins of -3.85% and -7.34% for biobased nylon in 2021 and 2022. These figures were attributed to underwhelming downstream demand and suboptimal production utilization rates hindering the realization of economies of scale

In recent developments, however, domestic production for adiponitrile has begun to ramp up, signaling a decrease in reliance on imported materialsThis decline in production costs coupled with expanded capacities from downstream manufacturers of nylon 66 signifies a potential for competitive pricing in the marketReports indicate that as of the end of 2022, there were over 7.52 million tons of capacity in various stages of development, outpacing the global production capacity of nylon 66, which stood at approximately 3.07 million tons as of 2020.

This rapid expansion of nylon 66 capacity will bring competitive pressure for Kaise Bio's biobased products, specifically nylon 56, as evidenced by their pricing advantages in comparisonDemand strategies have emerged as the company collaborates with China Merchants in securing 5.5 billion yuan in funding while formalizing purchase agreements for specific quantities of biobased nylon resin over the coming years, effectively establishing a firm foundation for expanding market operations and product deployment.