Since the outbreak of COVID-19, new public health systems and advanced biotechnology have been swiftly hyped up. Genetron Health has been able to generate a surging revenue in these special social circumstances.
● Genetron Health's impressive performance also results from its double-track operation mode.
● Genetron Health specializes in molecular cancer profiling. While the global cancer treatment market is still immature, the company has harnessed the valuable development opportunity.
● The global population has had higher overall cancer incidence rates in recent years, directly stimulating the rising cancer diagnostics market. This medical company increased its R&D expenses and focused on creating a circulating tumor DNA (ctDNA) diagnosis method to improve its market competitiveness.
● But the company still encounters major challenges from other top players, China's economic issues and the wholly immature market.
Genetron Health has lately attracted increasing attention from investors. Consequently, it went public on Nasdaq in June 2020, raising a total of USD 0.26 billion, which is the largest to date IPO in the precision medicine sector of the global cancer treatment market. After this IPO, the medical company's share prices fluctuated but presented an upward trend in general, with a peak of USD 30.64 in early February 2021.
Founded in 2013, Genetron Health started its businesses from conducting brain tumor research and product development. Based on molecular biology and extensive data analysis, the firm developed a comprehensive product and service line, including early cancer screening, treatment recommendation, monitoring, and prognosis management. In 2021 spring's early cancer screening seminar hosted by Science magazine, the firm introduced its Mutation Capsule technology that can capture cell-free DNA's methylation and mutation simultaneously.
2020 was a significant year for Genetron Health that saw it achieve good performance in its three main sectors, even during the outbreak of COVID-19. The company achieved a YoY growth rate of about 31.3%. To be more precise, it generated 72.01% of the total revenue from the laboratory-developed test (LDT), appearing as the most prominent business segment in the last few years. However, the in vitro diagnostics (IVD) segment showed the highest increase rate in the past few years, with an average of 31.65%.
The firm's anti-risk capability came from its completed business layout. It started from LDT then evolved into a double-track mode of LDT and IVD. Thanks to this double-track service, Genetron Health's gross profit margin is also increasing, and its revenues are expected to reach CNY 620 million in 2021.
The medical firm's quick progress could not be realized without external support from substantive market opportunities of early cancer screening and the increasing number of cancer cases. As for the cancer diagnostic market size, it is expected to reach USD 14.76 billion by 2023, in which North America is still the region containing most of the profits. The rising market size for cancer diagnosis may be due to traditional cancer screening degradation, which has lower sensitivity. Hence, Genetron Health caught up with the increasing trend of early cancer screening and realized huge profits. For instance, most of LDT's revenues were from HCCscreen specializing in liver cancer screening in 2020's fourth quarter.
Secondly, the number of new cancer cases is still increasing. As GLOBOCAN predicted, the number of cancer cases will rise 47.15% from 2020's 19.3 million units to 2040's 28.4 million units. Under the massive increment, offering an early cancer diagnosis will become more critical, expanding the market through intersectional medical corporations among different companies.
Except for the above beneficiary factors, the medical company also has its customized solutions to face intense competition. Its first strategy is to increase its R&D investments. From 2018 to 2020, Genetron Health's R&D expenses were increasing dramatically, with an average R&D expense ratio of 31.62%. According to Statista, the average R&D investment for healthcare firms was 21.7% in 2018, and Genetron Health's inputs were much higher than the industry average in the same period.
Secondly, the firm chooses ctDNA as its principal approach to detect cancers. In general, the early cancer screening technology is a new technology based on liquid biopsy, which can discover cancers ten years earlier than the traditional ways. Specifically, liquid biopsy includes circulating tumor cells (CTCs), ctDNA, extracellular vesicles (EV), and circulating free DNA (cfDNA). Among these detection methods, ctDNA is more sensitive, as it exists in tumors' early formation stages and can be easily found.
Regardless of Genetron Health's good performances recently, compared to global top players, the company still needs a lot of improvements.
To begin with, the firm's earning capacity is weaker than other top competitors. In the third quarter of 2020, Tianxing Inst & Me – an innovative biotech firm and Exact Sciences – a molecular diagnostics company, presented the highest revenues, for CNY 10.82 billion and CNY 6.98 billion separately. Their incomes were much higher than Genetron Health's USD 0.3 billion.
Furthermore, China's early cancer diagnosis technology is also lagging behind other nations. This is due to two main reasons – the earlier start of the US industry and the US's comparatively complete commercial insurance sector. For instance, Exact Sciences' Cologuard, an FDA-approved DNA test for colorectal cancer screening, has a subsidy from Medicare. In other words, 94% of users in the US do not need to pay for their DNA tests. Consequently, China's five-year survival rate was much lower than other developed nations from 2017's data. The key point for China is to accelerate its popularization of medical insurance.
Last but not least, the early cancer screening industry is still incapable of generating profits. As a whole, the early cancer screening industry is still in its early-developed stage, no matter in China or other countries. From 2019's data below, most firms were at a loss, and Genetron Health's net profit margin was even at -209.02%.
As people gradually increase their awareness of cancer issues these days, many medical firms related to cancers have rapidly emerged. Under this situation, Genetron Health needs to put more effort into developing diagnosis technology, aiming to improve the efficiency of detecting and curing cancers. We are expecting the company will develop advanced biotechnology through its R&D process.