Text / Two Winds
Producer / Node Finance
Rao Yi shelled for days, and BGI received all the orders? It's not that simple.
Rao Yi, a big man in the scientific community, posted an article criticizing BGI Gene (hereinafter referred to as BGI) and its CEO Yin Ye, and Yin Ye replied: Thank you for your advice. After the matter came to an end, many overlooked details surfaced, making BGI a more three-dimensional enterprise.
With the advantages of industry leaders, BGI has performed well in the field of gene sequencing, however, BGI, which is in the middle of the industry, has purchased foreign gene sequencers and acquired foreign companies in order to cut into the upstream of the industry, resulting in lower business barriers. The "high-tech" label has been questioned. Many BGI executives have left their jobs and copied the old business model to "share" BGI, which has become a major spectacle.
Rao Yi's shelling exposed BGI to the spotlight. "BGI Intelligent Manufacturing" self-developed products mainly rely on internal digestion, and in vitro customers are still trying to expand; Under the low-price competition of new crown testing enterprises, playing the marketing card and reducing the proportion of research expenses, it is difficult to establish business barriers of Huadaqiang, so what will it rely on to get rid of competitors?
/ 01 /
BGI in controversy
Why has it become an indispensable topic in the genetic world?
BGI is an unavoidable topic in the domestic genetic community.
Since the alleged land enclosure bribery and other controversial events in 2018, BGI has once again entered the public eye and won the favor of the Chinese people due to the sudden outbreak of the new crown epidemic. In 2020, when the epidemic in Wuhan came to an end, some outstanding contributors were awarded the title of "National Advanced Individuals in Fighting the New Crown Pneumonia Epidemic" by the state, including two from the University of China, both related to the FireEye Laboratory.
BGI on the cusp of the storm: "Trees are big and windy" or "accumulated drawbacks are difficult to get rid of"?
FireEye Laboratory is a third-party testing institution established to undertake nucleic acid sample testing and was included in the earliest batch of third-party testing institutions by the CDC. It is BGI's "cash machine" during the epidemic. With this, the financial report for the first half of 2020 shows that the net profit of BGI during the period was 1.651 billion yuan, an increase of 734.19% year-on-year.
BGI's "big" was not built in a day. As early as the SARS period, BGI has been deeply involved in virus detection, and BGI Chairman Wang Jian served as the leader of the pathogen team at the Beijing Municipal Headquarters for Combating SARS. In July 2017, BGI landed on the ChiNext board and obtained more than 20 up-and-down boards after listing, with a market value of more than 100 billion yuan. At the beginning of the epidemic in Wuhan, with the help of the FireEye Laboratory, Wuhan improved its virus detection capabilities in the short term, and there are also views that BGI is suspected of "making a show".
BGI Langfang "FireEye" Laboratory Source: BGI Gene official website
In 2020, with the help of nucleic acid testing business, BGI's market value returned to 100 billion.
Relying on "foreign instruments and reagents, government subsidies and cheap domestic labor", Rao Yi criticized BGI so much, and some doubts have a long history. After the epidemic booster cooled, today, BGI's market value is only a quarter of its highest point, falling to about 25.5 billion yuan – the "indisputable gas" of BGI's performance seems to support Rao Yi's view. Due to the lack of barriers to business, start-ups can replicate BGI's model. As a result, BGI has spawned Chinese gene sequencing companies that have sprung up everywhere.
China's gene sequencing enterprises cannot avoid BGI
Soon after the establishment of BGI, the issue of road choice was put on the agenda. Faced with the "purchase of foreign instruments" or "independent research and development", the two founders parted ways. Wang Jian insisted on acquiring foreign companies, and Yu Jun, another founder who was also a big man in the gene industry, chose to leave BGI and later founded Hanhai Gene.
The barriers of self-developed gene sequencers are high, and many people are daunted. Wang Jian chose to do large-scale by purchasing foreign instruments and walked this road. As a result, other companies rushed to copy the BGI model, including many BGI executives who left their jobs to start businesses.
At one time, there were more than 30 "Huaxiao" companies on the market, those started by BGI executives. Among the many "Huaxiao", the strong ones such as carbon cloud intelligence, which has been invested by Tencent. The founder of Carbon Cloud Intelligence is Wang Jun, former CEO of BGI Gene, who was also shelled by Rao Yi, and Yin Ye just became CEO after Wang Jun left.
Yin Ye Image source: Yin Ye Weibo
To understand BGI, the most intuitive thing is to start from its deep and broad impact on the industry. Some time ago, the Jin Zhun medical violation (multi-tube mixed inspection) exposed by the epidemic prevention and control in Beijing has become a major case in the field of nucleic acid testing industry in the past two years. The founder of BGI Medicine is a number of BGI executives (Wang Xuegang, former vice president of BGI And CEO of Europe, and former CEO of BGI Americas and Northeast China). In addition, many people are familiar with the nucleic acid testing institutions Metacode Gene, Ji inga and other founders are from BGI.
A company that extends so many competitors with similar business models is rare in other industries.
With the anti-epidemic heroes on the one hand and the controversial business model on the other, how does BGI integrate these two labels? The answer lies precisely in BGI's business model.
/ 02 /
Under the "internal and external troubles"
How has BGI gone through twenty years?
BGI borrowed from foreign companies, early in the purchase of Illumina products, and later in the acquisition of CG platforms.
BGI VS giant Illumina ended up acquiring CG
Illumina is a giant in the field of sequencers. In the field of second-generation genetic testing, nearly 90% of sequencing has been done by Illumina products. More than a decade ago, Illumina and BGI were close partners, and BGI purchased hundreds of gene sequencers, thus winning Illumina's "largest order in history.". Throughout the industry chain, the early BGI provided gene sequencing services by purchasing gene sequencers. BGI's name of "Foxconn in the genetic world" is derived from this.
With the expansion of scale, BGI decided to cut into the upstream of the industry and work gene sequencers. Self-developed gene sequencers are not an easy task. BGI decided to abandon the purchase of Illumina's products and instead set its sights on the American company Complete Genomics (CG) and take the road of mergers and acquisitions. CG does not sell sequencers, its main business is to provide sequencing services to downstream companies, and it has suffered serious losses due to the low sales price of related services. In 2013, BGI saw the opportunity to acquire CG and acquire related technologies.
BGI has acquired upstream manufacturing technology through mergers and acquisitions, which is the only one in the industry. BGI did not sit back and relax. In his business plan, Yu Jun, the founder of Hanhai Gene, pointed out that the Complete Genomics (CG) platform acquired by rival BGI is a us-phased product. In fact, BGI has developed two products based on CG sequencers, which, according to Caixin, have "average effects."
BGI "got rid of" related party transactions
For "Huaxiao" enterprises, the purchase of gene sequencers to provide sequencing services has become the main business model. The first choice of most of the "Hua Xiao" is not BGI, but Illumina.
BGI's gene sequencers are not optimistic about the market, so BGI's self-developed sequencers have long served BGI itself. This is like many new energy vehicle companies with average product strength, the first product to the market is often the first to cut into the B-end business, do online car services - because C-end users are difficult to pay for the product.
BGI Intelligent Manufacturing, a subsidiary of BGI Group, which is mainly engaged in gene sequencer business, was approved for IPO on July 26 this year. However, it has been questioned for its high-level related party transactions with BGI. In 2019, BGI purchased a total of RMB597 million from BGI. The proportion of related party transactions is too high, which has caused BGI to lose its market credibility to a certain extent. In recent years, BGI is breaking through Illumina's encirclement.
At present, emerging star companies such as gene sequencing downstream enterprises such as Stone Burning Medicine and Panshengzi are increasing their efforts to purchase BGI products. In July this year, The company with the largest proportion of tumor genetic testing in the market, Lithologic Medicine, reached a cooperation with BGI Intelligent Manufacturing and obtained technical support and services from BGI's high-throughput sequencer. Gradually being accepted by the market is good news for BGI, but it still needs time.
Despite this, BGI has become a giant in domestic gene sequencing. In 2019, BGI announced that it has an installed capacity of 1,100 units, which is equivalent to one-tenth of the giant Illumina, and is also the only company in China to mass-produce clinical-grade sequencers.
/ 03 /
The post-pandemic era
What supports high-growth revenue?
The COVID-19 pandemic has enabled BGI to achieve "acceleration" development. In 2020, BGI's revenue achieved a 10-fold increase year-on-year (only 571 million in 2019, up to 5.562 billion in 2020); net profit soared 6 times year-on-year.
BGI's revenue composition is also adjusting: non-invasive prenatal genetic testing (NIPT) revenue has hardly changed, while businesses such as nucleic acid testing have soared and accounted for the majority of revenue. In 2020, the basic research and clinical application services for reproductive health, which accounted for nearly half of BGI's revenue, increased by only 0.12% year-on-year, and the proportion of revenue in this business fell to only 14.03%; At the same time, the revenue of comprehensive solutions for precision medicine testing increased by 873.70% year-on-year, accounting for more than 60% (66.24%) of the total revenue.
The epidemic has receded, and revenue has cooled
The epidemic is good and there will be a time when the tide will recede. In 2021, BGI's net profit fell by 30%. The revenue share of integrated precision medicine testing solutions fell to 50%, the largest decline among all businesses. This trend continues. In the first quarter of this year, BGI's net profit attributable to the mother was 330 million yuan, down 37% year-on-year.
One of the reasons for the decline in BGI's performance is the decline in the global unit price of COVID-19 nucleic acid kits and tests. In the nucleic acid testing market, many "Hua small" enterprises are engaged with BGI's price war and launched a firefight. What will BGI's growth rely on in the future? Where is the ambition of a company that once had a market value of 100 billion?
The first thing to pay attention to is that the business that provides stable revenue for BGI is basic research and clinical application services for reproductive health. According to the calculation of Guosen Securities, the number of non-invasive prenatal genetic testing (NIPT) tests in China exceeded 4 million in 2019. Among them, Berry Gene and BGI Gene occupy 30%-40% of the market share respectively, forming an oligopoly pattern.
BGI once regarded Berry and Kang as the number one competitors. It is worth noting that Berry and Kang are also a "Huaxiao", and the chairman Gao Yang once served as the president of BGI Health. In this field, BGI maintains itself in the first echelon, but its dominant position is not solid.
BGI's "One-stop Data Management Service System for Birth Defect Prevention and Control" source: BGI's official website
Nuggets " The Next Gold Mine "
Tumor sequencing is considered the "next gold mine" to succeed noninvasive prenatal genetic testing (NIPT). In the segment of the tumor genetic testing industry, stone-burning medicine has accounted for 13% of the market share in 2020 and ranked first. The founder of Burning Stone Medicine was a former investor in Northern Lights Venture Capital. Dramatically, in 2014, the founder of Stone Burning Medicine decided to start a business after listening to BGI's first round of financing meetings. The tumor kit of Stone Burning Medicine was first approved by the former State Food and Drug Administration.
BGI's oncology kit was approved more than a year later than Lithologic Medicine (approved in September 2019). In 2019, BGI established BGI Digital Pole to be responsible for tumor early screening business and data services. In 2021, BGI's related business revenue in the field of tumor high-throughput sequencing detection was only 380 million yuan, an increase of 8.12% year-on-year. In contrast, the revenue of stone-burning medicine in 2021 is about 508 million yuan, an increase of 18.1% year-on-year.
At present, BGI is in a relatively backward position in this field. The backward BGI is not without opportunities, on the whole, the mainland tumor disease population base is huge, but the penetration rate of genetic testing is only about 10%, far lower than Europe and the United States, is still in the early stage of the market.
Perhaps the most criticized by the outside world is BGI's low investment in research and development. In 2021, BGI's R&D expenditure was 487 million yuan, accounting for only 7.19% of the overall revenue, compared with the opponent Berry Gene's R&D investment in 2021 accounting for 9.02% of the operating income. BGI's largest R&D expenditure in recent years was 620 million yuan in 2020, accounting for only 7.38% of the revenue of that year.
When R&D is difficult to surpass competitors, how to build future business barriers? Self-developed gene sequencer and cutting into the upstream of the industry are the keys to BGI's establishment of advantages, and this step BGI still needs a long way to go in order to shake off the "Hua Xiao" who are biting behind it.
Rao's shelling plunged BGI into controversy. However, compared with dealing with public opinion, strengthening the business may be the only right way for BGI.
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