This Blow to Malaria Is No News for Investors

Last week, scientists at industrial biotechnology company Amyris (NASDAQ: AMRS  ) announced the details of their process for creating artemisinic acid, a chemical precursor to the malaria wonder-drug artemisinin. The process technology for producing the pharmaceutical intermediate was licensed to Sanofi (NYSE: SNY  ) in 2008, which is now ramping up production at a facility in France that will ultimately produce 50 metric tons to 60 metric tons per year. It may not seem like much, but that represents about one-third of global demand.

With the story creating such a buzz around the Internet, investors may be left wondering, "Does this matter for Amyris?" While it can be considered a huge win for the field of synthetic biology, it means little for Amyris and does little to validate its current technology platform. Here's why.

The end of malaria?
Malaria affects more than 250 million people and kills 650,000 people each year, mostly in southeast Asia and Africa. Survival often hinges on two factors: prevention and access to treatment. In regions with access to first-line drugs, cure rates easily surpass 90%, and most treatments are completed in less than one week. Unfortunately, supplying a steady supply of first-line treatments has posed a challenge to pharmaceutical companies and the World Health Organization, or WHO.  

The most effective first-line treatments are artemisinin-based combinational therapies, or ACTs, which are wildly successful against malaria caused by the parasite Plasmodium falciparum. All of the world's artemisinin supply is currently derived from a single plant, although cultivation is difficult to maintain and impossible to predict from year to year. Since 2003 prices have risen as high as $1,100 per kilogram and as low as $200 per kilogram. Global production has fluctuated in a similar fashion, ranging from less than 25 metric tons per year to nearly 200 metric tons.  

This is why the process developed by Amyris is a big deal for ultimately eradicating the disease (not for shareholders, but we'll discuss that below). Its fermentation method for artemisinic acid uses engineered yeast to produce 25 grams per liter of the intermediate. Previous attempts have only been able to achieve a titer of 1.6 grams per liter.

That will enable Sanofi's commercial facility to produce enough of the drug for up to 150 million ACT treatments by 2014 under a "no profit, no loss" principle -- ensuring the world of stable and cheap access to therapies. If ACTs are managed responsibly to curtail resistance, this very well could spell the end for malaria.  

Big for synthetic biology, immaterial for investors
Commercial production of artemisinic acid is the first major showcase for the game-changing potential of synthetic biology. That is great news for the industry as a whole, but the news won't affect investors either way. Yes, companies such as Amyris and renewable oils manufacturer Solazyme are developing industrial biotechnology platforms for creating various chemicals. However, the process utilized by Sanofi probably wouldn't be profitable at current prices anyway.

In a best-case production scenario, Sanofi's annual 60 metric tons of artemisinic acid would have a market value under $20 million. A titer of 25 grams per liter may be a big improvement over previous trials, and it may be good enough for pharmaceutical production (high selling prices, low volumes), but it is not the way to a profitable product portfolio. Oils produced by Solazyme and farnesene produced by Amyris will have -- and need -- different production characteristics to enable economical commercial production.

For instance, let's consider what would happen if Amyris achieved a titer of just 25 grams per liter of farnesene at its current commercial facility in Brotas, Brazil. The biorefinery currently employs six bioreactors of 200,000 liters. Assuming the turnaround time for each bioreactor is 10 days (pretty quick) the company would produce less than 1 million liters of sellable product in an entire year.

Foolish bottom line
Don't get me wrong -- the process for artemisinic acid production will have a tremendous social impact and legacy. But investors should not make the leap that the development will ultimately translate into success for Amyris' current platform. Commercial production of biologics and pharmaceutical intermediates has occurred throughout the industry for decades from dozens of companies. The road to profitability in industrial biotechnology, where products are manufactured in high volumes accompanied by lower margins, will require much greater yields, titers, and microbial productivities than have currently been achieved by any company. Sometimes, great science doesn't translate into a great investment. Seeing how shares have barely budged, the market seems to agree.

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