Illumina's Growth Slows Sharply for the First Time: Is the Industry's Monopoly at a Turning Point?

Recently, sequencing leader Illumina announced its 2020 annual financial results.

In 2020, Illumina’s revenue was $3.239 billion, a 9% decrease from $3.543 billion in 2019. The gross profit margin was 68.0%, and the net profit was $656 million, compared to $1.051 billion in 2019.

Illumina, Inc., founded in 1998, is currently the world’s largest company specializing in gene sequencing instruments. In its early years, Illumina primarily sold gene sequencing chips. In 2007, Illumina acquired Solexa, entering the production of gene sequencing instruments, and subsequently grew into “a developer, manufacturer, and marketer of life science tools and integrated systems for large-scale analysis of genetic variation and function.” Illumina holds two-thirds of the global market share for gene sequencing equipment, and its high-throughput sequencer, HiSeq, has consistently been the best-selling product on the market.

Since its inception, Illumina has experienced meteoric growth, expanding at a rate exceeding 20%. In the past three years, the revenue of this “sequencing leader” has gradually stabilized. In 2020, Illumina’s revenue declined for the first time in a decade, an unexpected downturn.

The demand for sequencing instruments by midstream sequencing application enterprises will directly impact the survival environment of upstream instrument suppliers. The major representative companies in the midstream of China's gene sequencing industry include BGI Genomics, Daan Gene, Berry Genomics, Novogene, and Dian Diagnostics. In 2020, Novogene submitted an IPO application to the STAR Market, but its net profit for January–June 2020 declined by more than 300% year-on-year. Berry Genomics also experienced a performance decline in 2020, with its net profit dropping by 50%. Is the gene sequencing industry facing difficulties?

The answer is no. Although the market leader shows slight signs of fatigue, numerous vibrant sequencing instrument R&D companies continue to maintain strong growth momentum and full vigor.

IPO in Progress: MGI Tech Poised to Overtake on the Bend

In the field of sequencing, BGI Genomics has consistently remained a focal point of public discourse. Since its debut in the capital market, BGI Genomics has experienced numerous highlights: multiple R&D achievements have been progressively commercialized and implemented; it has led the drafting of national and industry standards related to the sector; broken the monopoly held by foreign-made sequencers in specific niche markets; and, during the outbreak of the pandemic, constructed a Fire Eye Laboratory with a nucleic acid testing throughput capable of serving tens of thousands of people within just 10 days.

Data shows that from 2017 to 2019, BGI Genomics' operating revenues were RMB 2.096 billion, RMB 2.536 billion, and RMB 2.800 billion, respectively, marking three consecutive years of high growth.In 2020, the revenue reached RMB 8.43 billion, a year-on-year increase of 201.09%. The net profit attributable to shareholders of the parent company amounted to RMB 2.08 billion, representing a year-on-year growth of 652.78%, demonstrating remarkable performance.

MGI Tech, a subsidiary of the BGI Group focused on the research and development of gene sequencing equipment, established the Fire Eye inflatable membrane laboratories during the pandemic, enabling a daily nucleic acid testing capacity of 300,000 samples.

People’s Daily once highly praised MGI Tech, stating that it “broke the monopoly and grew from weakness to strength.” Today, MGI Tech possesses research and development as well as manufacturing capabilities in three key areas of upstream genetic sequencing—instruments, reagents, and software—a rarity on the international stage. Since its establishment, MGI Tech has cumulatively invested over RMB 5 billion in R&D and achieved source-level patent layout for sequencing technologies, filing more than 580 technical patents, including over 80 PCT patents.Not only has it become the only enterprise in China, and one of only three globally, capable of independently developing and mass-producing clinical high-throughput gene sequencers.

By the end of 2020, MGI Tech’s application for listing on the STAR Market was accepted. To date, MGI Tech has completed Series A and B financing rounds, raising over US$1.2 billion, with investors including Sinovest Capital, Orient Securities, and Goldstone Investment.

The Most Noteworthy Technology in the Sequencing Field: Single-Cell Sequencing

As people gradually recognize the importance of single-cell research in understanding human biology and disease, the emergence of single-cell sequencing technology has come at an opportune time.Recently, the top-tier journal Nature selected the most noteworthy technologies of 2021, and single-cell sequencing technology successfully made it onto this list, which includes only seven technologies.

# Single-Cell SequencingSo-called single-cell sequencing is a sequencing technology that obtains the genetic information of individual cells, performing genomic sequencing at the single-cell level to identify cell types and functions, as well as changes or variations in the health or status of specific cells. Why use single-cell sequencing technology? It represents the future trend in biological science research, enabling scientists to more precisely understand the molecular characteristics of different cell types within human tissues, thereby laying the foundation for precision medicine.

Research related to single-cell sequencing is increasing day by day. As the "darling" of the sequencing field, single-cell sequencing has attracted investments from several top instrument companies in recent years, and many startups have also targeted this market, gaining significant favor from capital investors.In September 2019, 10x Genomics went public on the Nasdaq with an IPO raising $390 million, becoming the first publicly traded company in the single-cell sequencing sector and establishing itself as the industry leader.

In 2020, 10x Genomics reported annual revenue of $298.8 million, representing a 22% year-over-year increase from 2019. Fourth-quarter revenue amounted to $112.2 million, marking a 49% increase compared to the same period in 2019. The substantial revenue growth in the fourth quarter was driven by increased reagent and consumable sales, fueled by a significant rise in instrument installations.

In 2020, 10x Genomics achieved an annual gross margin of 80%, with remarkably rapid sales growth, showing strong momentum reminiscent of early-stage Illumina. As of December 31, 2020, 10x Genomics had sold 2,412 sequencing instruments, and more than 2,200 peer-reviewed publications were based on data generated using 10x products.

As of December 31, 2020, 10x Genomics had cash and cash equivalents of $663.6 million, including $482.2 million in net proceeds from the successful completion of a follow-on equity offering in September 2020. Full-year 2021 revenue is projected to be between $480 million and $500 million, representing a 61% to 67% increase compared to full-year 2020 revenue.

Currently, more than 200 institutions are engaged in gene sequencing-related services. The rampant growth of sequencing service providers has led to intense competition in the downstream market. However, competition in the upstream sector of the sequencing industry is no less fierce.In the forefront, the three global sequencing giants—Illumina, Thermo Fisher Scientific, and Roche—have been engaged in intense rivalry; meanwhile, promising contenders such as MGI Tech, 10x Genomics, and Oxford Nanopore are vying for prominence, with emerging players like Qitan Technology, Genetron Biology, Zhongke Zixin, and Hygenik continuously entering the market., the R&D market for gene sequencers will only become more competitive, and early signs of a shift in the market landscape have already emerged.