Mega Genomics: The Sole Profitable Survivor of China's Consumer Genomics Battle Eyes HKEX Listing with RMB 200M Revenue

On August 16, according to disclosures by the Hong Kong Stock Exchange, Mega Genomics (Beijing) Co., Ltd. (Mega Genomics Limited, hereinafter referred to as “Mega Genomics”) filed an IPO application on the main board of the Hong Kong Stock Exchange, with China Securities International serving as the sole sponsor.

Consumer genetic testing may be a market with broader potential yet greater challenges than clinical and research-oriented genetic testing. Its breadth stems from the fact that, unlike the highly specialized and vertical markets of clinical and research genetics, it can be applied across numerous fields such as health management, nutrition, sports, and beauty, with relatively lower technical barriers and, most importantly, a much wider user base. The challenge lies in the fact that it is still too early for consumer genetic testing to achieve widespread adoption and profitability. Even Francis deSouza, Global CEO of Illumina, has stated that “the era of gene sequencing as a mass-market consumer product is far from arriving.”

Meinuo Gene is one of these high-potential companies. Since its establishment in 2016, Meinuo Gene has conducted over 10 million genetic tests as of June 30, 2021, with an average of more than 230,000 tests per month in 2020.According to Frost & Sullivan, Meiyin Gene is China’s largest consumer-grade genetic testing platform by cumulative number of tests performed, and one of the top three consumer-grade genetic testing platforms globally. By test volume in 2020, Meiyin Gene was the largest cancer screening genetic testing platform in China. In terms of revenue generated in 2020, Meiyin Gene held a 34.2% market share, ranking first in China’s consumer-grade genetic testing market. Moreover, Meiyin Gene is the only company in China’s consumer-grade genetic testing industry that has achieved profitability.

Amid the overall sluggish performance of the consumer-grade genetic testing market, Meinian Gene has not only achieved profitability but also maintained consecutive annual growth, and is now seeking an initial public offering. Why has Meinian Gene ultimately stood out from its competitors?

In 2004, Meinian Onehealth Healthcare Holdings Co., Ltd. (A-share: SZ002044, hereinafter referred to as “Meinian Onehealth”) was established. Subsequently, Meinian Onehealth successfully acquired the health checkup brands “Ciming” and “Meizhao,” and officially achieved full coverage of mainland China in 2018.

In October 2019, Meinian Onehealth introduced Alibaba Group, Ant Financial, and Yunfeng Capital as key strategic shareholders and partners, initiating in-depth cooperation to further enhance its digitalization and intelligent development, and to build a collaborative, innovation-driven technology platform. By the end of 2020, Meinian Onehealth had established more than 600 health examination centers across over 300 core cities in China, with a professional service team of nearly 35,000 members, including industry experts, medical technicians, and nursing staff. Over the past five years, it has provided professional health services to more than 110 million person-times.

Undoubtedly, Meinian Onehealth’s development to date has been underpinned by a mature growth strategy and a nationwide customer base. In 2015, the founding team—then responsible at a genetic research center for hereditary breast cancer testing and the development of automated high-throughput sequencing analysis products for genetic disorders, as well as participating in the development of personalized therapy products—met with Yu Rong, Chairman of Meinian Onehealth. This encounter marked the integration of genetic testing with health management. In 2016, the founding team and Yu Rong reached a consensus to incubate MeiYin Genomics through Tianyi Group (the parent company of Meinian Onehealth).

Leveraging Meinian Onehealth’s extensive nationwide footprint, vast customer base, massive health big data platform, and standardized medical healthcare service system, Mei Yin Genomics started out on the shoulders of giants, securing investment from Tianyi Group, New Hope Group, Maccura Biotechnology, Dongxi Capital, and other investors in its inaugural year.

In 2018, Meinian Onehealth Healthcare acquired Meiyin Gene. At the same time, Tianyi Group made performance commitments for Meiyin Gene, guaranteeing that its net profits for 2018, 2019, and 2020 would be no less than RMB 42.6273 million, RMB 88.6608 million, and RMB 123.3033 million, respectively. Although Meiyin Gene was the only company in China’s consumer-grade genetic testing industry to achieve profitability, it failed to meet these challenging targets amid an industry-wide landscape of losses across China’s genetic testing sector.

Following the failure of the valuation adjustment mechanism (VAM) agreement, Meinian Onehealth and Meiyin Gene initiated strategic equity adjustments. In November 2020, Meinian Onehealth transferred a 20.06% stake in Meiyin Gene for RMB 542 million. In March 2021, it further transferred an additional 7.55% stake for RMB 204 million. Through these equity transfers, Meiyin Gene introduced institutional investors such as Shiji Honghe Medical, Panding (Xiamen) Investment Management, Huixin Qihang, Future Life Health, and Shanghai Peizhan Investment Management Center (Limited Partnership) to optimize its shareholding structure. This marks the end of Meinian Onehealth’s controlling interest in Meiyin Gene, laying the foundation for Meiyin Gene’s current independent initial public offering (IPO).

Bolstered by the prestige of Meinian Onehealth, MeiYin Genomics has emerged as one of the few comprehensive genetic testing companies in China, achieving full coverage across the upstream, midstream, and downstream segments of the industry chain.Meiyin Gene adopts a platform-based business model driven by the dual engines of service and product R&D and commercial promotion. Therefore, the company can generate synergies from the integration of development and commercialization, thereby promoting business growth.

Platform-based Operational Model, Image Source: Prospectus

MeinGene’s upstream business segment involves innovative technologies developed by its internal R&D team and in collaboration with third-party partners, currently focusing on the development of LDT services and IVD products.Meinuo Gene has developed 89 multi-dimensional commercial testing solutions for consumer-grade genetic testing and cancer screening, 78 of which include laboratory-developed tests (LDTs) independently researched and developed by Meinuo Gene. In addition to its existing service portfolio, Meinuo Gene is currently developing eight IVD candidate products. Furthermore, Meinuo Gene launches new testing solutions in response to changing market demands; for instance, to address the outbreak of the novel coronavirus pandemic, it developed nucleic acid testing capabilities and provided COVID-19-related testing services in May 2020.

Product Pipeline Under Development, Source: Prospectus

Among the eight products under development, three are consumer-grade genetic testing kits, including the Folate Metabolism Capacity Assessment Kit (for assessing the risk of various cardiovascular and cerebrovascular diseases), the ApoE Gene Testing Kit (for assessing the risk of Alzheimer’s disease), and the BRCA1/BRCA2 Gene Mutation Detection Kit (for assessing the risk of hereditary breast cancer).Among them, the genetic testing kits for assessing folate metabolism capacity and the ApoE genetic testing kit are in the pilot production phase, with IVD registration certificates for both kits expected to be obtained from the National Medical Products Administration (NMPA) in 2022.

The other five kits are disease screening products, including an Alzheimer’s disease screening kit, a colorectal cancer screening kit, a gastric cancer screening kit, an auxiliary diagnostic kit for pulmonary nodules, and a cervical cancer screening kit.Among them, the Alzheimer’s disease screening kit currently under development is poised to become the world’s first screening kit approved for Alzheimer’s disease, according to data from Sullivan.

The midstream division of Meiyin Genetics comprises advanced and comprehensive genetic testing technology platforms, including endpoint fluorescence PCR, qPCR, NGS (multiplex PCR library preparation sequencing and exome/whole-genome sequencing), and whole-genome microarray platforms.According to Frost & Sullivan data, by combining testing technologies with automation, Meiyin Gene has achieved a testing capacity of up to 50,000 tests per day, making it the largest genetic testing platform in China.

The downstream segment of Meinian Gene’s business comprises an extensive sales and marketing network. As of June 30, 2021, Meinian Gene’s services covered more than 1,300 medical institutions across over 300 cities in China.The strategic cooperation with Meinian Onehealth is a significant source of revenue for Meiyin Gene. During the period covered by the prospectus data disclosure, revenue related to Meinian Onehealth consistently accounted for approximately 50%. Meiyin Gene’s strong sales performance is largely attributable to Meinian Onehealth’s extensive sales network. Additionally, Meiyin Gene collaborates with multiple e-commerce and online healthcare platforms to expand and enhance its sales and marketing network.

By vertically integrating upstream, midstream, and downstream capabilities to provide genetic testing services, Meinian Gene generated total revenues of RMB 195.5 million, RMB 123.7 million, RMB 203.2 million, and RMB 102.6 million in 2018, 2019, and 2020, and for the six months ended June 30, 2021, respectively, with gross profit margins of 43.7%, 63.4%, 72.0%, and 66.5%, respectively. In addition, Meinian Gene has leveraged its existing R&D functions, testing facilities, and sales channels to expand its market from the consumer-grade genetic testing industry into testing areas such as cancer screening and neurological disease screening.

Revenue, image source: prospectus

Meinengene has managed to stand out among consumer-grade genetic testing companies, not only due to the support from its backer Meinian Onehealth but also because of significant optimizations in its product design.Compared with the “all-inclusive” whole-genome genetic testing services offered by other companies in the same sector, Meiyin Gene not only provides comprehensive and extensive testing products but also unbundles the various reporting modules within genetic testing into distinct, standalone product offerings.In particular, individual products have been designed for diseases of relatively high public concern, such as Alzheimer’s disease, Parkinson’s disease, and cardiovascular and cerebrovascular diseases, offering users a range of options.

With such high optionality and low pricing, the product significantly boosted the market penetration of Meiyin Gene, successfully achieving a strategy of small profits but quick turnover. According to information disclosed in the prospectus, Meiyin Gene conducted over 2.68 million tests in 2020. Based on this figure, the revenue generated per test was only around RMB 75. Nevertheless, the high penetration rate enabled Meiyin Gene to achieve revenues exceeding RMB 200 million in 2020.

Tumor genetic testing products also made significant contributions to this RMB 200 million in revenue. The tumor genetic testing business line of Meiyin Genes experienced rapid growth in 2020, with its revenue jumping from RMB 6.87 million in 2019 to over RMB 41.51 million in 2020. This trend continued into 2021, with the revenue for the first half of 2021 nearly matching the full-year total of 2020.

Although Meiyin Gene was not among the earliest pioneers in the tumor genetic testing sector, its robust channel operations, strong reputation built through consumer-grade genetic testing, affordable product pricing, and unique health examination sales channels may enable it to rapidly emerge as a new force in tumor genetic testing in the coming years.

Although both of the aforementioned sectors offer broad prospects, they also face corresponding barriers. New entrants in China’s consumer-grade genetic testing market encounter several significant entry barriers, including limited sales channels, cost control challenges, brand loyalty, high service quality standards, and evolving regulations. Similarly, the cancer early screening market mirrors the consumer-grade genetic testing sector; leading companies in China’s cancer screening industry enjoy first-mover advantages. Compared with new entrants, these industry leaders possess distinct advantages in relationships and distribution channels, technological barriers, cost control, and regulatory compliance.

Following this IPO, Meiyin Genetics expects to primarily allocate the net proceeds (after deducting issuance expenses) to product research and development, thereby continuously strengthening its competitive moat. This includes R&D for single-cancer screening services and products, multi-cancer screening services and products, and chronic disease screening services and products.In addition, Meiyin Gene will establish a supercomputing center to support big data storage, large-scale parallel computing, operational management systems, the development of bioinformatics and AI cloud platforms, and the creation of integrated management systems for automated laboratories. The remaining funds will be allocated to upgrading consumer-grade genetic testing services and preventive healthcare products, expanding into the medical aesthetics, insurance, and pet care industries, as well as enhancing testing capacity, product sales, and daily operations.

From the current perspective, although Meinian Onehealth no longer holds a controlling stake in Meiyin Gene, their strategic partnership remains unaffected. Meiyin Gene has firmly established its leading position in the consumer-grade genetic testing market, while its layout in tumor genetic testing is rapidly rising, propelled by the expansion of its promotional channels.If Mein Gene successfully goes public as planned, the cloud of gloom that has hung over the consumer-grade genetic testing industry in recent years may well be dispelled.