Molecular Diagnostics Enters Rapid Growth Phase: Company Files IPO Prospectus

The in vitro diagnostics (IVD) industry is a key segment of the medical device sector and one of the primary areas of interest for investors. China’s IVD market size was projected to reach RMB 72.3 billion in 2019, with a compound annual growth rate (CAGR) of 18.7% over the three-year period, demonstrating steady and rapid development. Based on detection principles, IVD is primarily categorized into biochemical diagnostics, immunoassay diagnostics, and molecular diagnostics. Among these, the molecular diagnostics segment is currently in its growth stage, with expanding clinical applications, making it the most innovative and fastest-growing market within the IVD industry.

In the field of molecular diagnostics, companion diagnostics are burgeoning in China, with multiple innovative products already approved; liquid biopsy and non-invasive early cancer screening are still in their nascent stages, presenting an opportunity for domestic companies to actively catch up with international giants; in the gene sequencer market, Illumina dominates, while third- and fourth-generation sequencing technologies have not yet matured.

Companion Diagnostics (CDx) is an in vitro diagnostic technology associated with targeted therapies. It primarily assesses patients' therapeutic responses to specific drugs by measuring the expression levels of proteins and variant genes in the human body, thereby identifying the most suitable patient populations for treatment and enabling targeted, personalized therapy.

Companion diagnostics can also be simply understood as diagnostics developed alongside targeted therapies. In 1998, the first companion diagnostic, the Her2/neu test, was approved simultaneously with the breast cancer treatment drug trastuzumab. Currently, companion diagnostics are primarily applied in fields such as lung cancer and colorectal cancer. As of April 2018, the U.S. Food and Drug Administration (FDA) had approved multiple companion diagnostic products for use in clinical practice alongside various targeted therapies.

According to estimates by the UK-based Visiongain research institute, the market value of companion diagnostic devices and diagnostic testing services will reach $11.36 billion in 2021, with a compound annual growth rate (CAGR) of 22%. The share of regions other than Europe and the United States is expected to rise, with China’s market share projected to reach 6.5%, translating to an estimated Chinese companion diagnostics market size of approximately RMB 5 billion.

High-throughput sequencing technology, also known as next-generation sequencing (NGS), offers advantages in detecting unknown sequences, unknown mutations, and high-throughput multi-locus analysis. Compared with polymerase chain reaction (PCR)-based gene amplification techniques commonly used in the field of companion diagnostics, NGS is better suited for testing targets with thousands of mutation sites, such as breast cancer susceptibility genes (BRCA). As a major research and development focus in the companion diagnostics sector, four NGS-based products have been approved for market launch in the United States since 2016.

China closely follows the United States in the research and development of next-generation sequencing (NGS). In 2018, NGS-based companion diagnostic products from Burning Rock Biotech, Novogene, Nanjing Geneseeq, and Amoy Diagnostics were successively approved. The NGS products of the first three companies are indicated solely for non-small cell lung cancer (NSCLC), targeting gene mutations in EGFR, ALK, and ROS1. In contrast, Amoy Diagnostics’ approved companion diagnostic product, the “Human 10-Gene Mutation Combined Detection Kit (Reversible Terminator Sequencing Method),” achieved cross-cancer detection for the first time by incorporating KRAS wild-type testing to address colorectal cancer.

NGS-based companion diagnostic multi-gene mutation detection kits serve as an important complement to PCR-based products, primarily utilized in genetic testing involving numerous mutation sites and on large-panel tumor detection platforms. However, they are associated with higher costs, operational complexity, and technical bottlenecks such as a lower positive detection rate for fusion genes compared to PCR. In the future, multiple technological platforms for companion diagnostics will continue to coexist, with PCR technology remaining dominant in the current stage (next 3–5 years).

Gene Sequencing

Gene sequencing technology, which emerged in 1975, laid the technical foundation for disease screening and etiological diagnosis at the genetic level. Over the past few decades, gene detection technologies have continuously advanced. In the early 21st century, second-generation sequencing technologies were introduced, marked by Roche’s 454 technology, Illumina’s Solexa and HiSeq platforms, and ABI’s SOLiD system. These second-generation technologies significantly reduced sequencing costs, substantially increased sequencing speed, and maintained high accuracy. Previously, sequencing a human genome required three years, whereas with second-generation sequencing, it takes only one week. Currently, the cost of gene sequencing has been further reduced; in 2014, the cost of sequencing a human genome dropped below $1,000. With the launch of Illumina’s NovaSeq series of sequencers, the cost of human genome sequencing is expected to decrease further to approximately $100.

Third- and fourth-generation sequencing technologies offer significant advantages over second-generation sequencing in terms of read length and sequencing speed, but they have limitations in throughput and accuracy.

Currently, gene sequencing is being widely applied in clinical diagnosis and treatment, particularly in the fields of cancer, prenatal diagnosis, and genetic disorders. According to data from BGI Genomics' prospectus, the global gene sequencing market has experienced rapid growth in recent years, increasing from $794 million in 2007 to $5.9 billion in 2015. It is expected to maintain this fast-paced growth in the coming years, reaching $13.8 billion by 2020, with a compound annual growth rate (CAGR) of 18.7%.

Illumina, based in the United States, is the world’s largest manufacturer of sequencing instruments. In 2017, Illumina reported revenues of $2.752 billion, capturing more than 80% of the global market share for gene sequencers. The company’s HiSeq 2000 is currently the most mainstream sequencer on the market. In 2018, Illumina acquired Pacific Biosciences for approximately $1.2 billion, integrating PacBio’s long-read sequencing technology with its own high-throughput, short-read sequencing platforms, thereby solidifying its dominant position in the industry.

Nanopore sequencing technology is predicted to emerge as the fourth-generation sequencing technology. This technology features long read lengths, real-time analysis, and miniaturization. However, the accuracy of current PacBio and Oxford Nanopore sequencing technologies still requires further improvement.

Liquid Biopsy

Liquid biopsy refers to a technology that utilizes body fluids as specimen sources to detect and obtain tumor-related information. Compared with traditional invasive tissue biopsy, liquid biopsy offers advantages such as better patient compliance, easier sample acquisition, and higher specificity. More importantly, it can effectively overcome tumor heterogeneity, thereby enabling precise auxiliary tumor diagnosis, real-time monitoring, evaluation of therapeutic efficacy, and prognostic assessment. Therefore, liquid biopsy is poised to become an ideal technology for early auxiliary cancer diagnosis, companion diagnostics, treatment monitoring, and prognostic evaluation. Liquid biopsy primarily includes the detection of circulating tumor DNA (ctDNA), circulating tumor cells (CTCs), and exosomes, among which ctDNA and CTCs are currently the two most closely studied liquid biopsy targets. ctDNA refers to DNA fragments in human blood circulation that carry tumor-specific genetic information, including mutations, deletions, insertions, rearrangements, copy number variations, and methylation patterns. These fragments mainly originate from necrotic or apoptotic tumor cells, circulating tumor cells, or exosomes secreted by tumor cells. CTCs refer to tumor cells that spontaneously or passively detach from solid tumor lesions and enter the bloodstream. As the "seeds" of tumor metastasis and recurrence, CTCs carry abundant information related to tumorigenesis, progression, metastasis, and drug resistance.

Currently, commonly used ctDNA detection techniques in laboratories include the Amplification Refractory Mutation System (ARMS), next-generation sequencing (NGS), digital PCR (dPCR), and nucleic acid mass spectrometry. The ARMS method is currently approved by China’s drug regulatory authorities for clinical ctDNA testing and is relatively widely used in clinical practice. In China, liquid biopsy is only used for patients from whom tissue samples cannot be obtained; ctDNA can be used to guide the selection of EGFR-targeted therapies and companion diagnostics in lung cancer, but other applications remain in the stage of scientific research and exploration.

In 2018, Guardant Health entered into a collaboration agreement with AstraZeneca to develop the Guardant360 CDx assay for osimertinib and submit it for FDA registration. This assay is designed to identify patients who are likely to respond to osimertinib through minimally invasive blood testing. Guardant Health also leveraged its Guardant OMNI platform to develop a plasma-based tumor mutational burden (TMB) scoring companion diagnostic (CDx) test. This test is intended to predict patient responses to immunotherapies and targeted therapies within AstraZeneca’s oncology pipeline. The FDA has granted Breakthrough Device designation to the Guardant OMNI diagnostic platform for plasma-based TMB scoring.

The development of CTCs has not been smooth. CellSearch, a product for counting and analyzing CTCs, was developed by Johnson & Johnson in the United States. It was the first commercially available CTC product approved by the FDA (approved in 2004) and China's drug regulatory authorities (approved in 2012) for the management of malignant tumors, but it ceased sales in early 2016.

Currently, there are few mature liquid biopsy products, with most still in the early stages. The market potential is substantial, and the ability to improve specificity and sensitivity will directly determine the future scope of the industry.

Non-invasive Early Cancer Screening

Exact Sciences Corporation’s (EXAS) Cologuard represents the technological frontier of non-invasive cancer screening. Founded in 1995, EXAS was listed on NASDAQ in 2001. In 2014, the U.S. Food and Drug Administration (FDA) approved Cologuard as the first early screening method for colorectal cancer. EXAS screens for colorectal cancer by analyzing fecal DNA and blood-based biomarkers in stool. Extensive clinical trials have confirmed that Cologuard achieves a sensitivity of 92% for detecting colorectal cancer and 69% for detecting precancerous lesions in average-risk populations, with an overall specificity of 87%. It is recommended by the American Cancer Society and the National Comprehensive Cancer Network.

In 2018, EXAS reported revenue of $454 million, had not yet achieved profitability, and had a market capitalization of approximately $11.18 billion, representing a 154.9-fold increase, making it the pharmaceutical stock with the highest growth over the past decade among those with a market capitalization exceeding $11 billion.