The multi-billion dollar in-vitro diagnostics market is being carved up, while the tumor molecular diagnostics sector remains largely untapped.

IVD, or in vitro diagnostics, has formed a huge market.

　　CITIC Construction InvestmentA report pointed out that, benefiting from the COVID-19 epidemic, the size of China's IVD market exceeded 100 billion yuan in 2020. With a market size in the hundreds of billions, the IVD market presents a complex structure with numerous sub-sectors and product categories.

　　As of July 2021, there were 57 IVD concept stocks in the A-share market. Among them, biochemistry, immunology, POCT, and molecular diagnostics are the mainstream sub-sectors. However, in the current IVD industry, although domestic products occupy a larger market share, foreign companies almost monopolize the high-end technology in various sub-sectors. Because the global molecular diagnostic technology started relatively late, the gap between domestic and foreign technologies is not large in this area, making it the focus of the capital market.

　　01

　　The Blue Ocean of Tumor Molecular Diagnostics

　　Molecular diagnostics refers to the detection of the structure of genetic material in the body at the gene level. According to China Trade Finance Network, in 2020, the market size of molecular diagnostics in China was 12.5 billion yuan, with a compound annual growth rate of 18% since 2016. Among them, PCR accounts for 40% of the molecular diagnostics market share.

　　PCR, also known as polymerase chain reaction, is the most mature molecular diagnostic technology in China. In the capital market,Da An Gene、Ed Bio、Ruian Gene、Kai Pu Bio、AnTu Bioand other listed companies, all mainly operate or have deployed PCR diagnostic reagents.

　　Since PCR is a technology, different sub-sectors emerge when it's applied to different diseases. Currently, common diseases in China where PCR technology is used include infectious diseases and tumors. Among them, infectious diseases include COVID-19. For example, the products of companies such as Kai Pu Bio and AnTu Bio are nucleic acid detection kits using PCR-fluorescence probe technology.

　　However, infectious disease diagnosis has become a fiercely competitive market.Hu An Securitiespointed out in a report that there are more than 2,000 companies in China engaged in nucleic acid testing. Because the barriers to entry in this field are not high, many manufacturers enter the market with different technologies, and the domestic share has reached about 60%.

　　From IVD to molecular diagnostics, and then to PCR, the capital market's attention has gradually shifted to tumor molecular diagnostics. This blue ocean market covers hematological malignancies (such as leukemia and lymphoma), solid tumors, etc. Although the market size is not large, the growth rate is relatively fast, and listed companies such as Ed Bio and Ruian Gene have emerged. According to CITIC Construction Investment'sresearch report，the market size of tumor molecular diagnostics was 4.905 billion yuan in 2020, and it is expected to grow by 24.2% this year to reach 6.091 billion yuan.

　　More noteworthy is that behind the rapid growth, the competition in domestic tumor molecular diagnostics is relatively fragmented and the concentration is low, and foreign giants do not have obvious technological advantages. In other words, whichever company emerges first and obtains a larger market share will be more favored by the capital market.

　　02

　　R&D Strength as a Valuation Anchor Point

　　In the capital market, listed companies that mainly operate in tumor molecular diagnostics include Ed Bio, Ruian Gene,Ransheng Medicineetc. The first two companies are listed on the A-share market, while Ransheng Medicine is listed on the USNASDAQstock market.

　　Distinguishing by diagnostic technology, Ed Bio and Ruian Gene use mature PCR technology, while Ransheng Medicine uses the not-yet-mature NGS technology. As of August 25, the Price-to-Earnings ratios of Ransheng Medicine, Ed Bio, and Ruian Gene were -36 times, 102 times, and 100 times, respectively, with market values of 14.674 billion yuan, 18.467 billion yuan, and 3.884 billion yuan, respectively. In 2020, theoperating revenueof Ransheng Medicine, Ed Bio, and Ruian Gene were 430 million yuan, 730 million yuan, and 280 million yuan, respectively,net profitwere -410 million yuan, 180 million yuan, and 40 million yuan, respectively.

　　Comparing the valuations of these listed companies with theirAchievements，we can find that there is no strong correlation between the two, and NGS technology is more favored. Theresearch reportsof various institutions have pointed out that R&D strength is the valuation anchor point for tumor molecular diagnostic companies.

　　In 2020, the R&D expenses of Ransheng Medicine, Ed Bio, and Ruian Gene were 260 million yuan, 87 million yuan, and 74 million yuan, respectively, accounting for 60.4%, 28.56%, and 26.1% of their operating revenue, respectively. In terms of the number of R&D personnel, Ed Bio and Ruian Gene had 274 and 97 employees, respectively, while Ransheng Medicine did not disclose this information.

　　With the investment of funds and human resources by listed companies, technology will naturally be transformed into achievements. In terms of key business indicators, in 2020, Ed Bio and Ruian Gene each had 120 and 101 medical devices, and 38 and 31 patents, respectively. In terms of technology transformation, the gap between the two companies is not large.

　　At the same time, some leading IVD companies have also noticed this blue ocean and are conducting research on tumor molecular diagnostics. Da An Gene pointed out in its 2020 annual report that the demand for tumor detection is rising strongly, and molecular diagnostics will become a new growth pole for the industry, and believes that companies with comprehensive advantages in core technology, innovation ability, Brand, and market will have greater opportunities. In the same report, Da An Gene has already listed PCR-tumor detection products in the list of main products.

　　03

　　The Key to Breaking Through

　　When leading companies enter the field of tumor molecular diagnostics, the existing market structure will be disrupted. Listed companies that have already entered this field will not only compete with leading companies for market share, but their valuations may also change. In this situation, increasing the number of products, expanding sales channels, and innovating business models are all key to breaking through.

　　As of 2020, Ed Bio had 18 tumor detection products, all targeting solid tumors; during the same period, Reyon Genomics had 4 tumor detection products, including 1 leukemia and 3 solid tumors. In terms of sub-sector selection, Ed Bio has an absolute advantage in solid tumors, while Reyon Genomics, a later entrant, uses hematologic tumors as an entry point.

　　Production leads to sales. In 2020, Ed Bio and Reyon Genomics' sales expenses were 230 million yuan and 60 million yuan respectively, and they each had 340 and 270 sales personnel respectively. It can be seen that Ed Bio has more products and a larger sales team. In terms of output and sales, Ed Bio and Reyon Genomics' molecular diagnostic reagent revenue in the same period was 560 million yuan and 210 million yuan respectively.

　　Based on this calculation, the per capita sales of molecular diagnostic reagents for Ed Bio and Reyon Genomics in 2020 were approximately 1.65 million yuan and 780,000 yuan respectively. Combined with the number of products owned by the two companies, the per capita sales of both companies are not high, so innovation in business models is particularly crucial.

　　In this respect, Ed Bio adopts a "drug + diagnosis" business model, specifically cooperating withJohnson & Johnson、Amgenand other pharmaceutical companies such as Hengrui, with the pharmaceutical company's tumor drugs accompanying its detection products; Reyon Genomics proposes to build an industrialized technology platform, including integrating various core technologies and building an integrated automated detection platform.

　　In addition, the path taken by Daan Gene in Enter the field of tumor molecular diagnostics is also worth noting. In addition to focusing on PCR technology, in March 2020, Daan Gene launched tumor NGS detection products. During the same period, Ed Bio obtained approval for 2 products based on NGS technology, and Reyon Genomics is carrying out NGS clinical research projects. Although domestic NGS technology is still in its infancy, once it matures, it may greatly affect the valuation of listed companies.

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