By Edward Bryan, CFA
Supply chain disruptions are testing corporations all over the world. Can options be present in a fermentation tank? We imagine the disaster may speed up the adoption of artificial biology to make sure native, sustainable provide of many merchandise from supplies to meals.
Crises inevitably result in nice modifications and alternatives. Today’s provide chain disaster could also be no completely different. Since the start of COVID-19, corporations and nations have struggled to make sure regular provide of key inputs to the conventional functioning of our economies. This yr, key commodities and different merchandise from Russia and Ukraine have been disrupted amid the battle. And the growing prevalence of pure disasters pushed by local weather change in recent times has additionally interfered with provide chains.
Car factories lie dormant as a result of a lacking microchip has thwarted manufacturing. Pharmaceutical suppliers depend on abroad provide for lively components in lots of medicines. Food producers that depend upon wheat exports from Ukraine, a rustic often called “the breadbasket of Europe,” are in danger as a result of the spring planting season is in jeopardy. Companies going through challenges like these in quite a lot of industries could discover modern methods to revamp provide chains by turning to artificial biology.
Synthetic biology is a revolutionary know-how that would make a profound impression on the best way an unlimited array of merchandise are manufactured. In our current white paper, we defined how the science works and is quickly increasing into new purposes (See The Synthetic Biology Revolution: Investing within the Science of Sustainability). It all occurs in a brewery-like atmosphere. Production organism cells (yeast, as an example) are sometimes grown and fed in a fermenter, and the downstream output (purified protein, for instance) is harvested. Beyond the biotech trade, the place artificial biology was first adopted, falling prices are selling its use to create supplies that enhance the standard of merchandise reminiscent of pet meals, watch straps, and cement. Now, the retreat of globalization could also be a catalyst for broader adoption.
Reversing Decades of Globalization
Decades of relative peace prompted corporations to globalize their provide chains. Car elements typically cross the US-Mexico border a number of instances earlier than they’re put in right into a car. Apple’s (AAPL) iPhone accommodates elements made in over 40 completely different nations. This provide chain optimization enabled corporations to squeeze out ever-higher revenue margins—but additionally created hidden vulnerabilities.
The financial savings gained from sourcing cheaper provide for a element abroad can shortly evaporate when a neighborhood COVID-19 outbreak causes ports to shut or a geopolitical battle disrupts provide. Many inputs for merchandise we depend on day by day, like fertilizers for farming, come from far-off all over the world, typically from nations ruled by non-democratic rulers. Even if the present battle is resolved, we imagine corporations and economies will not merely revert again to the old-normal provide chains, having realized their inherent fragility.
How can artificial biology assist? By offering cost-effective native manufacturing. Anywhere you’ll be able to brew beer, you can also make issues with artificial biology. Here are some examples of potential alternatives for artificial biology to alleviate tough provide points.
Oil and pure fuel—usually are not solely used for producing power. Plastics and nylon are byproducts of petroleum that might be produced utilizing artificial biology. Some fertilizers are derived from pure fuel and a current examine reported engineered micro organism might be used as an alternative to ammonia-based fertilizers, which at present depend on pure fuel.
Pharmaceutical components—about half the world’s medication are derived from vegetation and nature-based supplies. According to the FDA, some 78% of lively pharmaceutical components producers are situated outdoors the US. As extra pharmaceutical corporations faucet into the facility of artificial biology to create these chemical substances, dependence on provide from overseas will wane.
Food and flavors—current occasions have uncovered vulnerabilities in numerous elements of the meals provide chain. For instance, through the pandemic, as US customers confronted main meat shortages, Tyson Foods (TSN) warned that the “food supply chain is breaking.” Synthetic biology can be utilized to create various protein sources, which will be manufactured in quite a lot of places as a result of they are often economically viable at a comparatively small scale, in accordance with the Good Food Institute; a distributed provide system is extra resilient to disruption. In Singapore, 90% of all meals is imported, so the nation has been on the vanguard of regulatory approval for cell-culture meat. Synthetic vanilla now instructions as much as 85% of worldwide provide, fixing persistent provide difficulties for a flavoring that’s naturally produced primarily in Madagascar.
Clothing—it’s grow to be the norm to seek out that your shirt or sneakers have been manufactured on the opposite aspect of the planet. But McKinsey experiences that 71% of attire and style corporations are planning to extend nearshoring by 2025. McKinsey predicts that artificial biology fermentation can yield vital value financial savings in manufacturing of supplies reminiscent of nylon, silk, cotton, and clothes dyes.
Electric car batteries—a professor from Columbia University used artificial biology to develop a particular microbe that may extract treasured supplies from a mine in a extra environmentally sustainable means. This might help enhance native sourcing for electrical car batteries within the US.
Using Science for Strategic Advantage
Many corporations may need scoffed at artificial biology as a futuristic, costly know-how that wasn’t aligned with globally dispersed provide chains. We imagine it might grow to be a extra engaging possibility as established corporations search to re-orient their operations, and youthful corporations develop and construct out new provide chains from scratch. Greater investments in artificial biology result in discoveries that push down the prices of manufacturing, opening up extra purposes and markets, and making a virtuous cycle that attracts in additional funding.
Investors ought to take observe. Select modern corporations which might be enabling the artificial biology revolution provide engaging progress potential, in our view. And corporations throughout industries which might be embracing the know-how to deal with provide chain challenges could take pleasure in strategic benefits versus friends that may unlock promising long-term return potential.
The views expressed herein don’t represent analysis, funding recommendation or commerce suggestions and don’t essentially characterize the views of all AB portfolio-management groups and are topic to revision over time. AllianceBernstein Limited is authorised and controlled by the Financial Conduct Authority within the United Kingdom.
Editor’s Note: The abstract bullets for this text have been chosen by Seeking Alpha editors.