China Science and Technology News Network, November 5 (Wang Lin, Li Xin) Once the "first stock of gene sequencing", it is now in a deep pit of performance decline.
Recently, Berry Gene (000710.sz) disclosed the third quarter of 2021, the operating income in the first three quarters was 1.112 billion yuan, an increase of 2.27% year-on-year; the net profit was 0.28 billion yuan, down 81.41% year-on-year. At the same time, it disclosed the 2021 annual performance forecast, and it is expected that the annual operating income will be 1.4 billion yuan to 1.6 billion yuan, an increase of -9.11% to 3.87% year-on-year; the net profit loss will be 0.6 billion yuan to 0.9 billion yuan, down 128% to 143% year-on-year. So far, Berry Gene has had a sharp decline in net profit for two consecutive years.
(Compiled by China Science and Technology News Network Data source: Berry Gene financial report and announcement)
Since the outbreak of the new crown epidemic in the first quarter of last year, many genetic testing companies have benefited from it, but Berry Gene does not seem to have seized the opportunity, and due to the impact of the epidemic, the number of hospital diagnosis and treatment has recovered slowly, the main business revenue has continued to decline, and the overall performance has been sluggish, which seems to be a bit "out of place" compared with other gene companies.
The performance of medical testing has fallen sharply, and the future market needs to be developed
Berry Gene was established in May 2010 and completed the listing in August 2017 through the backdoor Tianxing instrument. At present, the main business is genetic testing services and equipment and reagent sales based on high-throughput sequencing technology, covering the whole life cycle clinical needs of reproductive health, genetic disease detection, oncology and so on. Medical testing services, supported by non-invasive prenatal testing (NIPT), are now an important source of revenue.
(Compiled by China Science and Technology News Network Data source: Berry Gene Financial Report)
Regarding the decline in the performance of 2020 and 2021, Berry Gene mentioned the continuing impact of the new crown epidemic, and the slow recovery of the number of hospital patients, resulting in a decline in the growth rate of the company's medical testing service revenue. However, China Science and Technology News Network found that as early as 2019, the revenue of medical testing services of Berry Gene has dropped significantly.
According to the data of the annual reports, in 2019, 2020 and the first half of 2021, the revenue of Berry Gene Medical Testing Services was 644 million yuan, 598 million yuan and 265 million yuan respectively, down 16.12%, 7.13% and 21.96% year-on-year, respectively, of which the decline in 2019 exceeded the 2020 epidemic, but Berry Gene did not disclose the reason for the decline in the 2019 annual report.
In fact, Berry Gene is the first company to introduce nipt into the domestic market and widely used in clinical practice, which has a history of more than ten years. However, with the strengthening of national supervision of the gene sequencing industry and the maturity of the technology of domestic gene companies, the first-mover advantage of Berry Gene has become less obvious. At present, Berry Gene and BGI Gene form a "duopoly" pattern in the market, accounting for about 30% of the share each.
From the data, it can be found that in the past two years, BGI gene has slowed down its revenue growth in the business related to reproductive health testing, but it has not declined significantly. According to the annual report data, in 2019, 2020 and the first half of 2021, the operating income of BGI's basic research and clinical application services for reproductive health was 1.176 billion yuan, 1.178 billion yuan and 624 million yuan, respectively, an increase of 11.56%, 0.12% and 9.92% year-on-year.
In addition, in terms of the sample size tested, BGI gene has far exceeded Berry gene, as of the end of 2020, BGI gene nipt test sample volume has accumulated more than 8.4 million cases, and in September this year, Berry Gene released an announcement that its test volume only exceeded 5 million times.
Due to the declining birth rate, how to increase market penetration has become a key factor in development. At the national level, in recent years, a number of policy guidelines have been issued to regulate the prevention and control of birth defects and prenatal screening and diagnosis, so that the national supervision of NIPT from disorderly to orderly, more and more provinces will include NIPT into medical insurance, playing a certain role in promoting the overall penetration rate of the industry.
In September this year, Berry Gene issued an announcement that its "Bebian non-invasive DNA prenatal test" (that is, nipt) was included in the scope of medical insurance payment in Beijing for the first time, which will have a positive impact on the increase in its nipt testing projects and improve its business performance. It is understood that at present, in the Beijing nipt market, Berry gene occupies an absolute advantage, however, the proportion of Beijing-born population in the country is less than one percent, and the impact of the inclusion of Beijing medical insurance on the overall performance of Berry gene needs to be considered by the market.
In addition, BGI has long been laid out in the development of national livelihood projects, and through cooperation with the government to carry out people's livelihood projects similar to the "quantity procurement" model (including nipt and other tests), it is not only cheaper, but also more favorable to expand the market. By the end of 2020, the relevant livelihood projects have covered more than 20 provinces, autonomous regions and municipalities directly under the Central Government, and the number of screenings has reached more than 11 million. In addition, BGI's nipt products have been included in medical insurance in Tianjin, Shenzhen and other places, and the market expansion of Berry Gene in these provinces and cities may encounter many challenges.
In this regard, Berry Gene told the China Science and Technology News Network that the company is actively promoting the work of products entering the procurement directory of medical institutions around the world, actively cooperating with the construction of the government's birth defect prevention and control system, and has also launched people's livelihood projects in some areas to promote market development. At the same time, at present, the company's new business revenue such as nipt plus, cnv-seq, wes and so on has achieved different degrees of growth, laying the foundation for the development of clinical business and the improvement of operating performance next year.
Business to upstream transformation Product autonomy and controllability is the key to development
In this 2021 annual performance forecast, Berry Gene also mentioned that its nextsep cn500 equipment sales will achieve substantial growth, and will drive the sales of related reagents in its genetic, tumor and microbial business lines. According to the semi-annual report, we can also see the relevant growth trend, in the first half of the year, its reagent sales and equipment sales revenue were 202 million yuan and 0.52 billion yuan, an increase of 4.18% and 273.90% year-on-year. Based on this, Berry Gene said that its business model has gradually changed from a service model to a product model, that is, gradually changed from the downstream "genetic testing service" of the industry to the upstream "equipment and reagent sales".
However, the gross margin of the upstream business does not seem to be dominant. According to the financial report data, in 2019, 2020 and the first half of 2021, the gross profit margin of Berry Gene Reagent sales was 73.15%, 52.46% and 56.01% respectively; the gross profit margin of equipment sales was 25.22%, 10.93% and 7.19%, respectively, not only the overall decline was significant, but also the gross profit margin of equipment sales was far from other businesses. This may be related to the fact that Berry Gene has always relied on overseas imports.
It is understood that the nextseq cn500 gene sequencer is the main equipment used and sold by Berry Gene, which is cooperated by Berry Gene and global gene sequencing giant Illumina. In 2014, Berry Signed a cooperation agreement with Illumina to purchase sequencer components and sequencing reagent raw materials from Illumina and manufacture them according to relevant instructions and standards. Therefore, Berry Gene has often been regarded as illumina's "Chinese agent" in the past.
According to the financial report data, illumina has been the largest supplier of Berry Gene for many years. In 2018, 2019 and 2020, the amount of reagents and instruments purchased from Illumina was 401 million yuan, 457 million yuan and 483 million yuan respectively, accounting for 47.91%, 35.27% and 36.03% of the total procurement in the current period.
"The company has embarked on a path from cooperative development to independent and controllable localization, and is currently continuing to invest in research and development, promoting the localization process and application innovation of clinical-level sequencing platforms, and accelerating the realization of upstream hardware and software independent control." Berry Gene revealed to the China Science and Technology News Network that the equipment can be produced and manufactured in China, but the corresponding reagents still need to be purchased from illumina.
In the genetic testing industry chain, equipment and reagents are the foundation, and the pricing of upstream enterprises not only affects the upstream procurement price, but also directly affects the cost of middle and downstream enterprises. If there is a change in trade relations, or a sharp increase in the price of suppliers, it will have a significant impact on the performance of Berry Gene. According to media reports, in 2014, BGI had raised the price of illumina reagents, resulting in negative growth in net profit that year, a decline of up to 79.3%.
In this regard, Berry Gene said that illumina has a large market share in the country, there is a need to purchase raw materials from it, and the cooperation between the two sides based on the strategic level is both sustainable and flexible. In the future, with the development of technology, the company will also choose other partners for third-generation sequencing technology according to market demand, technical situation and its own business development.
It is reported that the third-generation gene sequencer sequel II cndx of the Berry gene has recently passed the technical test. Berry Gene said that in the future, it will continue to lay out important subdivisions of genetic testing, increase investment in new product research and development, improve the progress of certification, and expand channels to strengthen commercial transformation to promote performance growth.