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Origin Agritech: Monsanto of China, or Dud?



NEW YORK ( TheStreet) -- Origin Agritech (SEED - Get Report) wants to become the Monsanto (MON - Get Report) of China.

Investors have bid up the company's share price on just that ambition, valuing Origin stock like a biotech -- that is, based on the soaring hope that a bonanza awaits the company's promised pipeline of genetically modified seeds, rather than on its current business, which sells normal corn and soybean seeds to farmers in China.

Those outsized hopes were fanned in November, when the company announced that it had won approval from the Chinese government to produce and market a genetically modified corn seed. Laden with an enzyme called phytase, the corn that grows from the Origin seed apparently helps cattle absorb phosphate, an important nutrient. On the day of the announcement, the stock doubled in value, from $5.21 to $10.45, and it hasn't come down since, trading recently at a little more than $13.

But plenty of skeptics remain.

As it stands today, Origin remains little more than a feed lot with sci-fi dreams. It released fourth-quarter and year-end results on Thursday, posting 2009 revenue of about $86 million, up from $75 million a year ago. Because it sells only in Northern Hemisphere China, the company books nearly all of its revenue in the third period of each year, rendering its cash flow rather choppy.

China's crop-seed industry is balkanized; not one company controls more than 5% of the market. And, as one U.S. agricultural executive who recently returned from China has said, Chinese companies with ambitions of bringing bioengineered seeds to market have had trouble commercializing their products. Though the Chinese government has poured money into the development of high-tech corps, it's thus far had more success discovering technologies than applying those discoveries to the market.

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