(report producer/analyst: Guolian Securities Zheng Wei)
BGI Intelligent Manufacturing, the first genetic sequencer stock In 2016, BGI Intelligent was established in Yantian District, Shenzhen, and applied for the Science and Technology Innovation Edition to be listed on September 2, 2021, becoming the first domestic genetic sequencer stock. The company focuses on the fields of life sciences and biotechnology, with the research and development, production and sales of sequencing instruments, related reagents and consumables as its main business. Based on the wholly-owned subsidiary CG US technology, it continues to innovate and masters the core technologies in many fields such as gene sequencing, library preparation, and laboratory automation.
.1 Focusing on the upstream of sequencing, the professional team continues to empower
Company is a subsidiary of BGI . During the development of BGI, through internal research and development, external acquisition of international sequencing giant CG US, accumulating related technologies with sequencing instruments, and gradually operates BGI Intelligent Manufacturing independently as a subsidiary with sequencing instruments as its main business. High-performance domestic sequencing instruments such as BGISEQ-1000, BGISEQ-500, MGISEQ-2000, DNBSEQ-T7 have been launched one after another.
is positioned as an upstream instrument supply in the group's gene sequencing industry chain, providing sequencing instruments to midstream sequencing service providers including BGI, Jiyinjia , pan-genetic subgenes, as well as downstream end consumers such as BGI Medical Laboratory, and occupy an important position in the internal sequencing closed-loop chain of BGI Group.
gene sequencer business includes gene sequencer and supporting equipment, sequencing supporting reagents, and data processing systems. With the needs of business development, the company has expanded laboratory automation, new businesses, etc., forming three major sectors, as follows: Two years after the establishment of
00 and MGISEQ-20 successively launched MGISEQ-2000 and MGISEQ-20 in two years after its establishment. 0. DNBSEQ-T7 system; from 2019 to 2020, it launched a global sequencing plan and released a "one-stop solution for large population genomics" to promote the development of the gene sequencing industry; in 2022, it won the patent infringement of the "two-color sequencing technology" of Illumina on BGI Intelligent Manufacturing. Illumina needs to pay BGI Intelligent Manufacturing US$334 million in compensation, and the company has the right to launch relevant sequencing products to the US market 10 months in advance.
Company's initial listing application was approved by the Science and Technology Innovation Board Listing Committee on September 2, 2021. Currently, the company has branches and subsidiaries in Wuhan, Qingdao , Hong Kong and the United States, Latvia, Japan, the United Arab Emirates and other places, and its business involves more than 70 countries and regions.
gene sequencing industry belongs to a high-end composite industry. Sequencing instruments and supporting reagents involve industries including electronic machinery, optics, software, clinical biology, etc., which have high requirements for the team's professional quality. At the same time, high-end composite talents are needed for a long time to provide sustainability for the company's development and technological innovation.
Company is currently a professional team led by Wang Jian , Mou Feng, Radoje Drmanac, etc. The team has been deeply engaged in genetic sequencing for many years and has a deep understanding of the industry and company development.
As of the end of 2021, the company's technical R&D personnel were 710, accounting for 34.6% of the total number of employees, making it the largest department of the company, of which master's degree or above account for more than 50% of R&D personnel. Continuous investment in talent resources is the key basis for the company to establish a technical moat.
As of the end of 2021, the company has obtained 475 valid authorized patents at home and abroad. In the field of gene sequencers, the company has formed a number of source core technologies represented by "DNBSEQ sequencing technology" and "regular array chip technology"; in library preparation and laboratory automation, it has developed core technologies represented by "key library preparation technology" and "automated sample processing technology".
medical device industry continues to invest in R&D and consolidate technology accumulation, so that products are in a competitive position in the market for a long time. It is one of the ways to achieve breakthroughs. Compared with listed companies such as Mindray Medical , New Industry, etc., which are also medical devices, BGI is still investing in R&D investment amount and personnel proportion.
.2 The equity structure is stable, and the well-known institution endorses
On March 3, 2016, MGI HK, a wholly-owned subsidiary of BGI Holdings, established BGI Medical Equipment, the predecessor of BGI Intelligent Manufacturing. In June of the same year, it was renamed Shenzhen Huada Intelligent Manufacturing Technology Co., Ltd. In 2020, the overall change will be Co., Ltd. .
As of the date of signing the prospectus, Zhihua Holdings directly holds 41.15% of the company's shares, and indirectly holds 11.15% of the shares through Huazhan Venture Capital, that is, Wang Jian, chairman of BGI, indirectly holds 52.30% of the company's equity through the two, and is the actual controller of the company.
has 23 and 18 domestic and foreign subsidiaries, of which CG US and EGI US are mainly responsible for product research and development; Latvia Intelligent Manufacturing is mainly responsible for product production, but the production scale is relatively small, and the remaining overseas subsidiaries are responsible for overseas sales.
In 2018, Huada Holdings transferred Huada Intelligent Manufacturing Co., Ltd. to HK Co., Ltd. In 2020, Huada Intelligent Manufacturing successively received investment from well-known domestic and foreign institutions, and its valuation continued to increase. As of June 2020, the company's valuation in the primary market was 22.049 billion yuan.
In October 2020, the company passed a stock incentive plan, including 117 people including the company's directors, senior management, core technology/business personnel, etc. within the incentive scope. Six shareholding platforms, Shenzhen Jiahua, Shenzhen Yanjia, Shenzhen Yanzhi, Tibet Jiahua and Tibet Zhiyan, hold a total of 5.64% of the shares. The exercise conditions are based on annual performance appraisal, based on 2019 revenue of 1.091 billion yuan, and the revenue growth from 2020 to 2022 shall not be less than 50%, 75%, and 100%. This option incentive plan is expected to recognize share payment fees during the period 2020-2023, with each period of 16.94 million yuan, 83.44 million yuan, 38.91 million yuan and 14.65 million yuan respectively, reducing the issuer's net profit in the future period.
.3 Revenue has grown steadily, and operations have gradually improved
2019-2021, the company's revenue maintained a steady growth, at 1.091/2780/3.929 billion yuan, respectively. The new crown epidemic has a promoting effect on the company's products. From 2020-2021, the revenue growth rate was 154.73% and 41.32% respectively. In 2020, the net profit attributable to shareholders turned from negative to positive, and the net profit attributable to shareholders further expanded to 484 million in 2021.
2022H1 revenue was 2.361 billion yuan, maintaining a growth of more than 20%, and its net profit attributable to shareholders was 344 million yuan, a year-on-year decrease of 19.10%, and its net profit attributable to shareholders was 343 million yuan, a year-on-year decrease of 21.17%. It is expected that this is due to the reduction in product sales of the epidemic.
In 2019, for large-scale procurement, the parent company's gradient price sales policy has a large price discount, which has a certain impact on gross profit; in addition, the company has increased the promotion of new DNBSEQ-Tx series instruments, and marketing expenses have increased. The overall period expenses have increased significantly compared with 18 years, resulting in a negative net profit in 2019. As the COVID-19 pandemic drives the sales of laboratory automation equipment and strong export demand, the overall market price has increased, driving gross profit margins in 20-21 to 74.69% and 66.44% respectively. In terms of the production line dimension, the company's core business gene sequencing maintained a revenue share of 90% before 2019. Affected by the new crown epidemic, sales slowed down and revenue share decreased, recovering to 1.276 billion yuan in 21 years. The sales of automation products that are more in line with the needs of anti-epidemic have increased significantly, with revenues of 2062/2.193 billion yuan respectively, and revenue accounts for more than 50%.
Due to the large demand for automation products during the epidemic and the increase in export share drives the average selling price, the gross profit margin of the production line in 20-21 is close to 80%, and the company's overall gross profit margin has also increased. From 2019 to 2021, the gross profit margin of the gene sequencing business increased, mainly because the product replacement caused the sales of the BGISEQ-500 platform to decrease and the revenue of the MGISEQ-2000 platform to increase.
In addition, the number of sequencing instruments has increased, and the proportion of sequencing reagent products in the business has steadily increased. Due to the scale effect, the unit cost of sequencing reagent has decreased, and the overall gross profit margin has increased.
2010-2021, the company's domestic and foreign revenue maintained steady growth. From 20 to 21, with the changes in product demand for the new crown epidemic, the company's marketing focus adjusted to overseas markets. On the other hand, developed countries mainly in Europe and the United States have developed for a long time and a large demand for sequencing reagents. As the domestic sequencing system gradually gained recognition from international customers, relying on the parent company BGI International Marketing Channel, the company's overseas operating income has gradually increased. Overseas sales in 20-21 were 1.876/2.134 billion yuan, accounting for 67.49%/54.31% of operating income, respectively.
In 2019, domestic sales reached more than 90%. After 20 years of adjustment to the epidemic, the recovery of H1 sequencer demand in 21 and 22 years has led to a rebound in overall domestic revenue, reaching 1.795/1.335 billion yuan, respectively, a year-on-year increase of 98.56%/52.92%, respectively.
htmlIn 021, domestic revenue accounted for 45.7%, followed by Europe, Africa, Asia Pacific and America. Laboratory automation products accounted for more than 77% of foreign sales revenue, and the sequencer business accounted for nearly half of the Asia Pacific region.
2020, affected by the global COVID-19 pandemic, the company's demand for fully automatic products in institutions such as disease control and customs increased, driving sales of production lines. The revenue related to the COVID-19 epidemic in 2021 was 1.985/2.344 billion yuan, respectively, accounting for 71.41% and 59.67% of the current revenue, while the sequencing business was temporarily damaged in 20 years.
As the global epidemic slows down in 2021, sequencing demand has gradually recovered. Non-epidemic revenue in 21 was 1.584 billion yuan, a year-on-year increase of 99.3%, and is expected to continue to release demand and drive the growth of sequencing business.
2018-2021, the proportion of the company's top five customers in operating income gradually decreased, 96.47%, 79.18%, 34.71% and 25.96% respectively; at the same time, related transactions with the parent company BGI Group also decreased year by year, reaching 92.38%, 69.96, 18.37% and 15.20% respectively.
company development is showing a diversified trend, its dependence on large customers has gradually decreased, the parent company's direct business support demand has decreased, it has achieved its own hematopoietic ability, created continuous revenue through gene sequencer business, laboratory automation business, etc., and established long-term cooperative relationships with UAE SumMITh Pharmaceuticals, Pan-Gene and other customers.
2019-2021, the company's core business sequencer, and the proportion of the top five customers in operating income also gradually decreased, from 79.53% to 49.79%. At the same time, the related business of BGI Holdings also dropped from 70.95% to 25.67%, but the proportion is still high. Affected by the epidemic, the procurement of sequencers has slowed down. We believe that as the impact of the epidemic weakens, the company's sequencer will gradually resume promotion, and customer concentration is expected to further decline.
10 billion sequencer market, downstream applications, 10000 humans have tens of thousands of genes stored in DNA molecule , and exist in four base forms: A, T, C, and G, paired to form base pair . By measuring blood or other human components, analyzing the gene information in it, judging the disease condition or increasing understanding of human information, that is, gene sequencing in general.
In addition to sequencing, commonly used gene detection technologies include FISH, PCR, gene chip , etc.
is divided according to the sequencer industry chain. The upstream of the industry involves the supply of parts, including optical components, biochemical reagents, instrument components, electronic control systems, etc., which are relatively dispersed. The downstream of the sequencer is a variety of test projects based on its system and targeted development, including NIPT, tumor genomics, microbiology, genetic disease detection, etc., with a broad market space.
According to the raw material procurement data disclosed by Huada Intelligent Manufacturing, the largest procurement amounts are biochemical reagents (enzymes, dNTP, primer , etc.), optical devices ( laser , camera, filter ) and mechanical components (machine-added parts, sheet metal parts, etc.), accounting for 16.00%, 12.43%, and 12.00% of the total procurement amount (average purchase amount from 2019 to 2021), and are the core components of the sequencer.
.1 Device segmentation blue ocean, policy continues to encourage
according to medical devices, gene sequencing belongs to the IVD field, the system consists of two parts: instruments and reagents. Manufacturers' reagents can generally be compatible with their own instruments. In the early stage, they will increase market share through instrument sales, and continuously promote test projects to form a business model of continuous sales.
According to the prospectus of BGI Intelligent Manufacturing, it is estimated that the global gene sequencing instruments and consumables market will be US$6.9 billion in 2022, with a compound growth rate of 18.2% from 2019 to 2030. It is estimated that by 2030, the global gene sequencing and consumables market capacity will reach US$24.58 billion.
According to Grand View Research's 2020 market report, the global upstream sequencing market size in 2019 was approximately US$4.138 billion, Illumina's market share was approximately 74.1%, and related business revenue was US$3.068 billion; Thermo Fisher's market share was approximately 13.6%, and related business revenue was US$563 million. In 2019, BGI's genetic sequencer business revenue was RMB 1.001 billion (equivalent to approximately US$145 million), which is about 3.5% of the global market, ranking first in China and third in the world.
China's genetic sequencing and consumables market capacity was 7.81 billion yuan in 2022, with a compound growth rate from 2019 to 2030 being higher than the international average, at 19.7%. The market size is expected to reach 30.39 billion yuan in 2030. After years of hard work, Huada Intelligent Manufacturing has surpassed Thermo Fisher, second only to illumina.
Early sequencing industry developed faster than policy reform. In 2016, gene sequencing was officially written into the "13th Five-Year Plan" and a series of favorable policies were successively introduced, emphasizing that the sequencing industry is a priority and strategic development field, which will guide the industry to develop in an orderly manner.
The " Human Genetic Resources Management Regulations " issued in 2019 and the "Biose Security Law" in 2021 propose that human genetic resources such as genomes are important components of national security, and the significance of the sequencing industry has been further improved.
.2 The development history of sequencing technology, the three generations of methods have their own advantages
1990, the Human Genome Project was officially launched, with a total budget of US$3 billion. In 2001, the Human Genome Project ushered in an important milestone, namely, the publication of the human genome working sketch, the average sequencing cost per person was about US$100 million, and it further dropped to US$10 million in 2007. Moore's Law is basically in line with it.
2005-2007, with the massive promotion of the second-generation high-throughput sequencer, the sequencing cost has dropped significantly to less than 1,000 US dollars. In 2021, the wholly-owned subsidiary of BGI, Wuhan BGI Medical Laboratory, won the bid for the " Sichuan University West China Hospital 100,000 cases of rare disease patients whole genome sequencing plan procurement project". The winning amount of the project was RMB 1,348 per case, which is a breakthrough in the domestic price of the genome.
With the launch of ultra-high-throughput systems such as BGI DNBSEQ-T7 and illumina NovaSeq, the personal genome cost is expected to be reduced to US$100, which will promote the clinical commercialization of genetic testing technology and open up a larger application market space. The development and maturity of
technology has driven the industry to continue to advance and continuously expand the market space.
is represented by the chain termination method invented by Sanger et al. in 1977, which opens the curtain for the first generation of sequencing. This method can only measure one single sequence at a time, sequencing de novo and assembly de novo, and has an accuracy of up to 99.999%. It is still used, but the disadvantages of high sequencing cost, cumbersome operation, and low throughput are limited to the large-scale use of first-generation sequencing.
second-generation sequencing is currently the mainstream high-throughput sequencing , NGS on the market. It breaks DNA into countless fragments through physical or chemical means, and sequences it simultaneously after the library is established. Therefore, the second-generation sequencing throughput has been significantly improved, and the technology has been mature and has a large audience. Second-generation sequencing has short fragments and some sequences cannot amplify, resulting in information loss; in addition, processing and analysis of overlapping sequencing areas is also a difficult point. The representatives of
third-generation sequencing are PacBio's SMRT and Oxford Nanopore Technologies nanopore single-molecule sequencing technology. The sequencing process does not require PCR amplification of . The sequencing length reaches about 10kb. A longer sequence can obtain richer information and is suitable for genomic analysis.However, the accuracy of single-base recognition is slightly poor, which is a problem of the further application of third-generation sequencing.
For gene sequencer manufacturers, competition in the future will not be a one-time transaction of medical equipment. It is the industry's long-term moat to provide downstream manufacturers and terminals with overall solutions based on clinical application scenarios. Solving clinical practical problems through products + services is the industry's long-term moat. We believe that clinical penetration will become the key to industry competition. From this perspective, second-generation sequencing will not be eliminated by third-generation and fourth-generation technologies in the visible future due to its mature technology and rich applications, but will complement each other and make diagnosis of medical problems from different angles.
.3 Mergers and acquisitions seize the high-quality track and innovation to become the global leader
1998 Illumina was founded in California, USA. It has been listed in 2000. After 22 years, its market value has reached US$56 billion. The company takes sequencing instruments and supporting reagents as its core products. In addition to the products, it also provides genetic testing services to research institutions, pharmaceutical companies, schools, and government departments.
In the early days of its establishment, illumina developed a FISH-based chip field. At that time, the cost of each genome was as high as 10 million US dollars. The uncertainty of the industry's development model made the company unable to immediately reverse the decline after joining the core figure Jay Flatley, and its stock price once fell below $1.
In 2007, illumina acquired Solexa and officially entered the field of gene sequencing. The latter's technical feature is to break DNA into tiny fragments and recombinate it, and then use bioinformatics technology to decipher, laying the foundation for the subsequent continuous price reduction of the genome to US$1,000, and also increasing Solexa's sales from US$2.5 million in 2006 to US$100 million in 2007. In 2021, the company's stock price reached a maximum of US$555.77, with gaining 50 times in 2014.
In the following years, illumina actively made plans around gene sequencing, and successively acquired companies such as Epicentre, Blue Gnome, and jointly established an AGC (Normative Genome Alliance) joint agency with Nafaber Cancer Center, MD Anderson Cancer Center , etc., to guide the industry from a standard level and further consolidate its leading position in sequencing.
After early exploration, based on the restrictions on the scientific research funding end and long-term market considerations, the company adjusted its strategic focus from the scientific research market to the clinical market, and adjusted its organizational structure in 2013 to form three core business lines, including life sciences, clinical diagnosis and consumption testing, and continuously launched systems that meet clinical scenarios.
company's main products include MiSeq series sequencers, MiniSeq series benchtop sequencers, NextSeq 500/550 sequencers, NextSeq 1000/2000 sequencers, NovaSeq 6000 high-throughput sequencers, etc. Illumina adopts bridge PCR and reversible termination method synthesis and sequencing technology, which not only ensures high accuracy of sequencing, but also reduces sequencing errors caused by repeat sequences and homopolymers.
As an upstream leading company in the sequencing industry, since entering China in 2005, in addition to direct sequencer sales, it has also carried out midstream and downstream gene cooperation with Chinese sequencing companies. Such as cooperation with Novozhiyuan in the fields of reproductive health and cancer detection; cooperation with Berry Hekang and Annoyouda in NIPT. There is also an agreement with . The Institute of Medicinal Plants of Chinese Academy of Medical Sciences was signed to carry out the Thousand Medicinal Plant Genome Project (1KMPG) and create the world's first reference gene library for medicinal plants.
In 2021, illumina's revenue was US$4.526 billion, a year-on-year increase of 39.7%, and net profit was US$762 million, a year-on-year increase of 16.2%. After experiencing the impact of the epidemic in 2020, the company rebounded in 21 years. In the 15 years of acquisition of Solexa, the compound growth rate was 19.66%, continuing to maintain the global sequencing leader position.
Before 2013, illumina's product revenue accounted for more than 90%. In 2013, it acquired Verinata Health, a US NIPT service giant. The service revenue growth rate in 2013 was close to 70%, and the compound growth rate of service business from 2013 to 2021 was 17.18%, higher than the compound growth rate of product business of 15.36%.
Illumina, as an upstream sequencing supplier, has self-developed and self-produced capabilities. The gross profit margin remained between 62-69% from 2006 to 2021. Affected by the split Grail, the H1 profit side fluctuates in 20, 20 and 22 years. Under the steady state, the company's net profit margin is between 20-25%.The rise of
Illumina lies in the fact that it keenly captured the potential of the gene sequencing industry in the early stage, and quickly entered the industry through external mergers and acquisitions, and controlled the voice with high-quality products. In the following 10 years, through independent research and development iteration and continuous merger and acquisition of industrial chain targets, relevant industry standards were built and the industry was established, accounting for about 70% of the overall sequencing market. All of them could enjoy the high premium valuation given by the market for a long time.
As the sequencing cost continues to decrease, its popularity in clinical practice has gradually increased. After years of polishing, illumina has a lot of experience in clinical user experience, data integration and analysis, forming the company's future moat.
.4 Downstream applications are blooming, and business models complement each other
is divided into three categories according to service type. The downstream application fields of gene sequencing can be roughly divided into three categories: one is scientific research (new drug research and development and innovation, scientific research verification), the second is clinical (infectious disease diagnosis, prenatal testing and genetic disease detection, early tumor screening, and accompanying diagnosis), and the third is personalized consumption and others. Benchmarking Europe and the United States, personalized consumption generally refers to individual consumers. Scientific research users are still the largest customer base, followed by clinical and hospital diagnostic purposes, and are also the fastest growing group among application customers. The compound growth rate from 2020 to 2027 was 13.5%.
According to the type of clinical application, companies with different segmented application tracks have been bred, including cancer detection companies that have been listed on US stock , Ranshi Medical , PanGenomics, BGI, Berry Gene, Berry Gene , etc., which started with NIPT.
.4.1 The scientific research market dominates
gene sequencing scientific research end customers include colleges and universities, hospitals, pharmaceutical companies and enterprise incubator companies, and there is a certain overlap between users. Related applications include pathogenic microbial detection, intestinal metagenome, target and biomarker detection, etc.
Take the intestinal metagenome as an example. The human body is affected by a large number of symbiotic bacteria . Most of these bacteria are parasitic in the human intestine, commonly known as intestinal microbiome , or "human intestinal metagenome". The study is part of the Human Intestinal Metagenome Research Project (MetaHIT) and has been supported by the Ministry of Science and Technology and Shenzhen. Shenzhen BGI Research Institute is the only non- EU research group, using high-throughput sequencing technology and high-efficiency information analysis platform, and has achieved a series of breakthrough research results.
study collected 124 samples from the intestinal microbiota of Europeans, and through deep sequencing, nearly 600 billion base sequences were produced. After subsequent analysis, 3.3 million non-redundant reference genes of the human intestinal metagenome were obtained, which is about 150 times that of the human own gene, and a considerable proportion of genes of unknown microorganisms were obtained. On average, there are about 160 dominant bacteria in each person's body, most of which are shared by individuals, and are of guiding significance for studying the relationship between metabolic diseases and intestinal microorganisms.
Nuohezhiyuan is a leading provider of genetic sequencing scientific research services in China. The company has established a high-throughput gene sequencing and bioinformatics analysis platform with a leading throughput scale, and combined with multiomics research technology means to provide multi-level scientific research and technical services and solutions for basic research in life sciences, medical and clinical application research.
company has obvious market advantages in the field of genetic sequencing research services. In the past five years, it has published more than 100 signed papers in international journals, serving more than 4,000 first-class scientific research institutes at home and abroad, and has a coverage rate of 99% for the top 100 academic research institutions in the world.
relies on multi-omics technology with the NGS platform as the core, and has established three major business segments: basic scientific research services in life sciences, medical research services, and sequencing and library construction services. The technology and service capabilities are in the leading position in the country.
Representative companies: BGI (300676.SZ), Novozhiyuan (688315.SH), Burning Stone Medicine (BNR.O), Pan-Gene (GTH.O), Ruiyi Gene, etc.
.4.2 The clinical market is developing rapidly
(1) Prenatal testing and genetic disease testing
In 2018, China issued the "National Comprehensive Prevention and Control Plan for Birth Defects", which clearly stated that by 2022, the prenatal screening rate will reach 70%; the screening rate of neonatal genetic metabolic diseases will reach 98%, the hearing screening rate of neonatal children will reach 90%, and the treatment rate of confirmed cases will reach 80%, sending a good development signal for the prenatal screening and diagnosis market.
NIPT, as a safe prenatal examination method, has increased from 3.2 billion yuan in 2021 to 5.8 billion yuan in 2025, with a CAGR of 16.0%. In the future, it is expected that the domestic birth rate of newborns will continue to decline, and the driving force of industry growth comes from the increase in penetration rate of .
The leading companies have a big first-mover advantage and the industry's competitive landscape is stable: From a technical perspective, the main methods used for prenatal examination and genetic disease detection include: NGS, PCR-Sanger, gene chip, mass spectrometry , etc.
Take BGI and Berry Gene, two companies with obvious first-mover advantages as examples. The former uses target sequence capture and NGS technology for the detection of single-gene genetic diseases; the latter is good at neonatal screening in the field of third-level prevention and control, and conducts whole exome detection (WES) and whole genome sequencing (WGS) around children's genetic diseases.
Representative companies: BGI (300676.SZ), Berry Gene (000710.SZ), Yikang Gene , Boao Test , Youxun Medicine, etc.
(2) Early tumor screening and accompanying diagnosis
According to WHO global cancer data in 2020, 19.29 million new cancer cases were added in 2020, of which 4.57 million new cancers in China were added, accounting for 23.7% of the world. The high-incidence cancers in China include lung cancer, colorectal cancer, gastric cancer , breast cancer , liver cancer , etc. The number of cancer deaths worldwide is 9.96 million, of which 3 million are killed in China, accounting for 30% of the total number of cancer deaths. The cancers with higher mortality rates in China are lung cancer, liver cancer, gastric cancer, esophageal cancer, colorectal cancer, etc.
The high incidence of tumors brings potential demand. The cure rate of most cancers in the early stage can reach more than 90%. The target population for early screening is large: malignant tumors are one of the most important factors that restrict the life and health of our country. On the policy side, the "China Three-Year Action Plan for Cancer Prevention and Treatment" proposes to expand the coverage of cancer screening and early diagnosis and treatment. The main application method of
gene sequencing in the field of tumors is liquid biopsy, which was selected as one of the top ten technological breakthroughs selected by the MIT in 2015. By detecting ctDNA, circulating tumor cells (CTCs) and exosomes in the human blood, the tumor information in the whole body is suitable for early diagnosis and precise medical treatment of cancer, and is divided into single cancer and pan-cancer.
single cancers are mainly targeted at cancers with higher incidence rates such as colorectal cancer, liver cancer, gastric cancer, lung cancer, breast cancer and cervical cancer . According to the Frost & Sullivan data, based on the incidence rate per 10,000 people, the screening of the above cancers has a potential of more than 10 billion yuan. Pan-cancer screening is directly aimed at healthy asymptomatic people. According to the prospectus of Ranshi Medical, the size of the domestic early cancer screening market will grow from US$18.4 billion in 2019 to US$28.9 billion in 2030.
The commercialization model of domestic early tumor screening and companion diagnosis companies is divided into two categories: IVD and LDT. Due to technical and cost limitations in various aspects such as laboratory construction, PCR and NGS will not replace each other in a short period of time. The two forms of LDT and IVD can empower each other and provide personalized services for different scenarios and needs. Most companies also choose to make arrangements at the same time. After the
product is approved and developed, it can apply for LDT qualifications and enter the market. It is easier to form cash reflow as soon as possible than IVD. However, LDT requires higher promotion costs and labor costs, which also leads to high sales expenses under this model. In addition, the LDT model has high requirements for logistics conditions, resource equipment, etc., which is more likely to put pressure on the performance of small-scale enterprises.
Comparison with Aide Bio-, Ranshi Medicine and Pan-Genezi: In terms of the operating income composition of the whole year of 2021, Ranshi Medicine and Pan-Genezi are relatively close to the revenue composition, with the LDT business accounting for nearly 60%, and the hospital revenue is about 30% of the total revenue.
Ranshi Medicine provides 13 types of NGS cancer companion diagnostic tests, including OncoScreen Plus (pan-cancer type companion diagnosis) and Lung Plasma ( for non-small cell lung cancer), and China's first approved NGS kit for non-small cell lung cancer.
pantogenics mainly use premature screening of monocancer species, covering central nervous system cancer, lung cancer, liver cancer, colon cancer , breast cancer, etc.
About 76% of Aide Bio's revenue comes from the sales of testing reagents, followed by testing services accounting for 17%. Based on the NGS platform, the company has developed products such as Weihuijian and Weirujian, covering the accompanying diagnosis needs of lung cancer, colorectal cancer, breast cancer, ovarian cancer and other cancers. In January 2021, the company's premature screening kit for colorectal cancer based on fluorescent PCR was approved.
Representative companies: Aid Biologics (300685.SZ), Novoscience (688315.SH), Burning Stone Medicine (BNR.O), Pan-Gene (GTH.O), Novoscience Health (6606.HK) and gene , Ginga, syringa gene, etc.
.4.3 The consumer market is exploring and advancing
The United States has a place with consumer-grade gene testing service providers such as 23andMe, Family Tree, and 23Ancestry. The product was launched in my country's consumer-grade gene testing since 2013. Microgene was established in 2014, driving the industry boom and the industry entered the 100 yuan stage. iResearch data shows that the scale of consumer gene users grew rapidly from 2016 to 2018, with a CAGR as high as 223%. The scale of domestic users in 2019 was nearly 2.207 million.
e-commerce platform is the main distribution channel for consumer gene products at present: Therefore, when users choose brands, they usually regard price and sales as key factors, representing brands such as MicroGene, 23 Rubik's Cube, Anwo Health, etc., showing a relatively obvious head aggregation effect. BGI Research and Development Co., Ltd. invested in Zhiyin Box in 2017 and provided it with technology, database and other resources, and cooperated with it with stem cell storage services through BGI. BGI Intelligent Manufacturing selected Microgenes as its first consumer-grade gene detection partner of its "Sequencer Program". Based on the accumulation of microgene data, it explores the development of NGS in consumer-grade gene detection with whole-genome sequencing technology as the core.
Representative companies: Main Gene (6667.HK), BGI (300676.SZ), Genebao, Aimi Gene, Baimei Gene and other
technologies empower the product matrix to empower downstream to achieve win-win results By polishing the subsidiary CG.US technology, BGI Intelligent Manufacturing has formed patent barriers based on technologies such as "DNBSEQ sequencing technology" and "regular array chip technology", and has developed different flux instruments to adapt to different scenarios. As the company's lawsuit with Illumina gradually becomes increasingly implemented, the company's promotion in overseas markets has cleared obstacles, especially in traditional sequencing developed regions such as Europe and the United States, which is expected to become the second curve of the company's long-term growth.
's independent closed platform is ultimately in a competition with many downstream application manufacturers. Through open compatibility, BGI enables application manufacturers to carry out customized development on the platform, and also promotes company system iteration and sales. In the context of rising security to the national level, domestic brands jointly build a sequencing ecosystem to achieve win-win results.
.1 Sequencing products continue to be rich, and automated products help fight the epidemic
. Currently, there are gene sequencing instruments including DNBSEQ-T7, MGISEQ-2000, MGISEQ-200, etc., covering ultra-high throughput, medium-high throughput, medium- and low throughput; the maximum throughput ranges from 6TB to 1GB. Able to cover the needs of different customer groups. From 2018 to 2021, the company's sales of gene sequencers were 580, 637, 323 and 658 respectively, with corresponding sales of RMB 579, 730, 221 and 457 million respectively.
company's ultra-high flow instrument T7, benchmarking illumina NovaSeq 6000 S4, the data output rate is faster, while the medium-throughput product MGISEQ-2000, which is superior in data output rate, number of effective Reads, etc. compared with NextSeq 2000 P3.
Garvan-Weizmann Cell Genomics Center has shown that for the sequencing of four different scRNAs, the overall performance of the BGI MGISEQ-2000 system is consistent with that of Illumina NextSeq 500 and NovaSeq 6000, and the test price is more advantageous.
Huada Intelligent Manufacturing represents the second-generation sequencing process, it is generally divided into four steps: library preparation - DNA nanosphere generation - sequencing - bioinformatic analysis. The company has developed a research and release around the entire sequencing process, and has merged and iterated after acquiring GC.US, continuously consolidated the underlying technology, forming core technologies such as "DNBSEQ sequencing technology" and "regular array chip technology". As the basis of the sequencing device, the company's sequencing device business has reached a global leading position.
DNBSEQ sequencing technology
DNBSEQ sequencing technology is the underlying foundation used by Huada Intelligent Manufacturing Sequencing Machine and is the company's patented technology. Including the preparation of DNA nanospheres (DNB) and two-color sequencing technology. Among them, DNBSEQ sequencing is compared with other technologies, and enhances detection signals through nanospheres to improve detection accuracy; Rolling Circle Amplification (RCA) is linearly amplified based on the original template, and amplification errors will not accumulate.
In addition to the preparation technology, the combination of two-color sequencing and CoolMPS achieves interference-free sequencing by introducing natural bases (dNTPS), and at the same time, shortens the sequencing time while ensuring accuracy; the simplification of the optical module also makes it possible to further reduce the instrument.
regular array chip
With the development of semiconductor processing technology, chip technology related to gene sequencing has also been continuously optimized. The company uses photolithography nanosilicon crystal chips, with the surface nanotroughs in an orderly and consistent manner, and chemically modify the array sites to covalently bind locally to DNA microspheres. Each site corresponds to the microspheres one by one, and there is no mutual interference between the signal points, forming chip adsorption and high-density regular arrangement. Combined with high-performance optical lenses, accurate single-pixel information is obtained, and sequencing accuracy and use efficiency are improved. Compared with traditional random array chips, the company's regular array chip has a higher tolerance for the quality of sample library, the sample concentration range in the preparation process is wider, and the sample and library preparation are more operable. More importantly, under the same cost conditions, the data output of chips per unit area is increased and the overall system throughput is improved.
MegaBOLT Bioinformatics Analysis System
In the last link of sequencing, the company assists users in the detailed analysis through the independently developed MegaBOLT/MegaBOLT-Pro Bioinformatics Analysis Accelerator. MegaBOLT uses the heterogeneous method of CPU and FPGA computing for analysis acceleration. Based on the core algorithm, the multi-task scheduling system accelerates, which greatly increases the analysis speed by 10-20 times. In addition to the fast analysis speed, the accuracy performance is also very stable, which can achieve 99.9% of SNP in human genome variant detection and 99% of Indel. Currently, it supports whole genome (WGS), whole exome (WES) and Panel-targeted sequencing data analysis.
can realize information management, report output, cloud computing and other functions, in conjunction with ZLIMS laboratory information management system and BGI online cloud platform.
Laboratory automation product categories are numerous, including instruments, software, information and other product categories. Through information and integration methods, low/non-degree manual intervention is carried out in the sample preparation, transportation, testing, analysis, sample collection and storage of experimental steps. It can shorten the TAT (Turn around time, refers to the time from the collection of samples to the obtaining of test results), reduce artificial operation errors, improve standardization and test throughput, and reduce biological infection of experimental personnel. According to Grand View Research data, from 2016 to 2019, the compound growth rate of the laboratory automation market was 6.1%, reaching US$4.51 billion in 2019. The new crown epidemic in 2020 further promotes the demand for automation equipment.
Huada Intelligent Manufacturing's existing laboratory automation business covers market segments such as sample preprocessing, nucleic acid extraction, library preparation and assembly line. The market segment accounts for about 36% of full automation. As the company's product line continues to enrich and its user recognition increases, the revenue of accessible markets and production lines is expected to further break through in the future.
From 2018 to 2021, the company's laboratory automation products sold 35, 100, 1028 and 1395 units respectively, with corresponding sales of RMB 12.6347 million, RMB 34.3838 million, RMB 584 million and RMB 653 million respectively.
.1.3 New business frontier, continue to explore unknown fields
The company's new business consists of cellomics solutions, remote ultrasound robots and BIT products, mainly assisting the company's sequencers and automation products, and conducting more cutting-edge fields on the sequencing platform. From 2019 to 2021, the operating income was 23/77/428 million yuan respectively.
BGI intelligent manufacturing single-cell platform DNBelab C, and a series of high-throughput single-cell RNA library preparation kits (DNBelab C4), combined with the MGISP series automated library construction and the DNBSEQ series sequencing platform, the single-cell sequencing technology has been implemented in the genome, transcriptome, and epitome, helping to break through the research of single-cell diseases in immune, nerve, development, and other diseases. Scientific research exploration and application transformation in the field of single-cells have entered the stage of ultra-high-throughput and ultra-big data research.
.2 The patent fog is gradually clearing, and overseas promotion may accelerate
Since March 2019, with illumina Cambridge Ltd in the Düsseldorf District Court in Germany, litigation of patent infringement by B&B Intelligent Manufacturing and its overseas subsidiaries, the two convenient confrontations have been held, and litigation and counter-litigation have been carried out 34 times in more than 20 countries and regions. In 2020, it was the time when BGI Intelligent Manufacturing entered the international market. Due to court bans, some regions restricted the promotion of BGI Intelligent Manufacturing in the local area, affecting the normal progress of overseas sales.
In July 2022, the ruling of the Delaware District Court in the United States undoubtedly cleared the obstacles to the global promotion of BGI Intelligent Manufacturing. Illumina's patent infringement on BGI Intelligent Manufacturing's two-color sequencing technology; all patents mentioned in illumina's previous counterclaim were sentenced to invalid; BGI Intelligent Manufacturing received US$334 million in compensation, and the two parties reached a settlement and no longer objected to the content of the lawsuit. In the next three years, the United States will not sue the other party and its customers for patent infringement and violation of US antitrust laws or unfair competition, nor will it claim compensation for the possible losses caused by the existing sequencing platform.
Huada Intelligent Manufacturing began selling its related sequencing products based on CoolMPS technology in the United States in August 2022, and will start selling StandardMPS related sequencing products in January 2023. In addition, in Europe, it is planned to promote the sequencing equipment of HotMPS high-throughput sequencing reagents outside patent disputes, and the UK can officially start selling.
The victory and solution of the US patent litigation is undoubtedly positive news for the company to promote the company in the international market for a long time, which means that in the European and American markets where sequencers are mainstreamly used, the company has the opportunity to compete with Illumina on the same stage. On the other hand, it shows that the company's products are recognized by developed markets. As the company's product strength and international marketing channels continue to improve, the overseas market is expected to become the second curve of the company's growth.
.3 Access qualification creates scarcity, and the ecosystem promotes the sequencing industry to advance
As of September 2022, according to the data of the NMPA official website, there are 21 certificates related to sequencers, including only the certified sequencer manufacturers that are completely independently developed and produced. Currently, there are only two companies, BGI and Zhenmai Bio, and the industry still has high technical barriers.
In the context of national gene security, more and more downstream manufacturers and end users are actively choosing domestic sequencing systems. In July 22, Ranshi Medical announced that it had reached a strategic cooperation with BGI to jointly explore commercial services and IVD product development. Ranshi Medicine has always been one of Illumina's largest oncology clients in the country. Coincidentally, Jiyinjia, PanGeno, and Zhenhe Technology are also included in the R&D system with the BGI Intelligent Manufacturing Platform.
NGS-based tumor manufacturers need additional costs when the imported platform accumulates technology and data basis. In addition to policy orientation, the performance of domestic sequencing platforms is constantly improving. By capturing trace DNA and subsequent amplification, it is the confidence that downstream manufacturers can change their system.
The above-mentioned NGS application manufacturers that cooperate with BGI Smart Manufacturing rank among the top in the annual application data volume in China, especially in the direction of tumors. It can be seen that domestic sequencing platforms represented by BGI Intelligent Manufacturing have shown a trend of reconstructing the sequencing industry structure, that is, from independent and closed to striving for the open platform ecosystem of more downstream manufacturers. How to allow downstream manufacturers to use the platform to accelerate the transformation from scientific research to clinical practice and actually solve medical pain points requires more in-depth, continuous and rich cooperation between the two parties.
Profit forecast and valuation .1 Profit forecast
We expect that from 2022 to 2024, the company's revenue will be 4.522/5.401/6.594 billion yuan, respectively, with year-on-year growth of 15.10%/19.43%/22.09%, and the net profit attributable to shareholders will be 1.692/708/897 billion yuan, respectively. The revenue growth rate of
sequencer business in the next three years will be 50.51%/35.52%/35.27% respectively. Under the high industry prosperity, the company, as the industry leader, independently developed products and obtained domestic registration certificates, the product matrix has gradually taken shape, downstream application customers register and develop applications with company models, and the products are expected to continue to increase in volume in China; with the implementation of the lawsuit against Illumina, the company's promotion obstacles for the mainstream sequencing market in Europe and the United States have been cleared, and the recognition of the mainstream market has steadily increased, and overseas market promotion is expected to accelerate, driving the overall improvement of the production line.
is expected to grow revenues of laboratory automation business to -20.24%/-10.24%/-2.01% respectively. Demand under the epidemic has a significant promoting effect on the production line and has an impact on the continued high growth of the production line. However, we believe that laboratory automation products and sequencers have a certain degree of synergy, and performance indicators will be coordinated with sequencers to continuously improve. The promotion and increase of sequencers will also have a certain driving effect on the automation business. At the same time, domestic laboratory upgrades are a trend after the epidemic, and the demand for laboratory automation products has always existed. The overall base of
's new business is small and the production line is still continuing to be enriched. The growth rate in the next three years will be 90.12%/45.12%/25.12% respectively. The company's cellomics solution based on single-cell library is expected to continue to enrich its application scenarios as high-throughput sequencing technology becomes more mature.
.2 Valuation
) Relative valuation method: Because the company's fully automated laboratory products are affected by the epidemic, demand fluctuates greatly, and the core production line sequencer is still in the stage of rapid development, and the promotion and R&D costs are relatively high. In addition, due to the high litigation compensation costs with the United States this year, comprehensively integrating the company's development stage and industry status, based on the principle of prudence, we choose the PS comparable company valuation method.
selected Mindray Medical and United Imaging Medical as comparable companies, referring to the corresponding operating income of Wind in 23 years, and based on the similarity of product attributes and structures, referring to the five-year average PS of illumina (ILMN) listed company in the United States from 2016 to 2021.
2022-2024 industry average PS was 13.6/10.9/8.8, respectively, and illumina's five-year average PS was 13.77. It is reasonable to select a comparable company's average PS as the PS of BGI Intelligent Manufacturing, with a corresponding market value of 58.871 billion yuan.
) Absolute valuation method: has turned losses into profits in 2020, and its business scale has gradually taken shape, and the FCFF model is used for valuation.
refers to the average yield of ten-year treasury bonds in the past six months to give a risk-free interest rate of 2.74%, and divides the company's forecast period into three stages.
The first stage is based on profit forecast; 2025-2030 is the second stage, based on the overall development of the sequencing industry and the company's competitive position, the compound growth rate is expected to be 11.5% in this stage; after 2030, the third stage, the industry and companies enter a stable period, the business is relatively mature, and the expected perpetual growth rate is 2.5%.
FCFF valuation estimates that the company's market value is 49.297 billion yuan, corresponding to a value of 119.33 yuan per share.
In summary, we used PS valuation and FCFF valuation methods to finally obtain the company's reasonable valuation range of 49.297-58.871 billion yuan, with an average of 54.084 billion yuan, that is, 130.92 yuan per share, corresponding to 23-year PE of 77 times.
Risk warning Market competition risk: lumina accounts for about 74.1% of the global market share, with more than 15,000 units installed worldwide, and Thermo Fisher market share is about 13.6%. The two companies have been developing in gene sequencing for decades, the R&D system is mature, and the marketing channels are stable. The company still has a big gap compared with the two, and there is a market competition risk.
Patent risk: The high-tech industry, which is an example of genetic sequencing, has the risk of limited technology output, and there is uncertainty about the company's future use of CG US patents. In addition, the main competitor Illumina initiated patent litigation against the company, its subsidiaries and dealers overseas, which will have a certain impact on the company's business sales and marketing activities of the products involved in litigation.
Related transaction risks: The company's dependence on the parent company of BGI Group has gradually decreased, and the proportion of related transactions has dropped to a new low of 18.37%. However, as an upstream company that has only been established for five years and is still in the process of rapid development, the demand for the group's mid- and downstream resources is still relatively large. If the purchase amount of related companies decreases significantly, it will have an adverse impact on the company's performance.
The risk of a large amount of accounts receivable and a low turnover rate: From 2018 to 2021, the company's accounts receivable were relatively high, accounting for 51.25%, 32.92% and 12.57% of operating income, respectively, accounting for 51.25%, 32.92% and 12.57% of operating income, respectively; the turnover rate of accounts receivable was 1.99, 3.77 and 5.58 respectively during the same period, which was lower than the industry average overall, but it showed an upward trend. The principle of prudence has set aside bad debt reserves, but if the company has a large amount of accounts receivable in the future, it will result in large bad debt losses, which will have an adverse impact on the company's operating performance.
Risk of high customer concentration: Company's related business share continued to decline from 2019 to 21, but the core sequencer products still accounted for 25.67%, with a high concentration of single customers, and its performance was affected by the fluctuations in orders of major customers.
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