Three Key Players in Precision Medicine Unveil IPO Filings: WuXi AppTec, BGI Genomics, and Meinian Onehealth

Preface

Recent years have seen a flurry of major developments in the genomics industry, with 2016 marking the inaugural year of precision medicine. Yet, regardless of the cautious skepticism from many industry insiders toward this buzzword or the aggressive capital-driven rush to stake claims in the precision medicine sector, what truly warrants our attention in the strategic landscape of precision medicine are the three major industry players potentially poised to enter the capital game in the future.

1The undisputed top player is WuXi AppTec

WuXi AppTec took only four months to complete its privatization, from the announcement in August 2015 to finalization. On December 10 (U.S. time), after market close, WuXi AppTec, a Chinese company listed in the U.S., announced the completion of its privatization and delisting from the New York Stock Exchange, with a market capitalization of $3.3 billion. WuXi AppTec will be sold to the newly established parent company, New WuXi Life Science Limited. Following the merger, WuXi Merger Limited will be formed as a wholly-owned subsidiary of the new parent company, at a transaction price of $46 per share. This price represents a 16.5% premium over the closing price ($39.50) on the day before WuXi AppTec announced its privatization plan in April of the previous year.


WuXi AppTec’s privatization is merely the first step in a long march; whether it will return to the A-share market is no longer an outcome worth anticipating. What intrigues the Chinese public even more is how WuXi AppTec, which started in 2000 with an initial team of just four people and has since grown into a global giant in new drug R&D with over 10,000 employees, will move forward in the future. I believe that when Dr. Ge Li returned to China 16 years ago to start his business, his original intention was undoubtedly focused on new drug development. At this moment, however, Dr. Li, who now leads a team of tens of thousands and heads a company valued at nearly RMB 20 billion, is no longer content with providing only R&D services. Instead, he aims to build an open platform—one that could become the “Alibaba” or “Amazon” of the biopharmaceutical industry. Once this strategic positioning is established, WuXi AppTec will begin to make a series of moves in the direction of precision medicine.

In which areas will this series of strategic moves unfold? To anticipate the next steps of industry players, let us first examine where this company has allocated its capital over the past one to two years:



The consortium proposing the privatization of WuXi AppTec includes venture capital firms such as Hillhouse Capital Group and Boyu Capital, as well as entities under Ping An Insurance Group and Singapore’s Temasek Holdings. Over the past two years, WuXi AppTec’s investment focus has been on genomics, biological businesses including cell therapy, and mobile health.

If the initial spending sets the stage, then future capital allocation habits will define the company’s strategic playbook. It is not difficult to predict that WuXi AppTec will proceed step by step across several potential avenues: establishing investment funds, spinning off business segments, pursuing back-door listings, entering the gene industry, and exploring new drug research and development.

Once WuXi AppTec makes this simple strategic move, it will inevitably come into direct confrontation with the leading player in the gene industry.

2The second-largest player is BGI Genomics, the leading company in the genomics industry.

In BGI’s official explanation, the name “BGI” is literally interpreted as “China is Great.” In reality, however, the name was a sudden flash of inspiration that struck Wang Jian, Chairman of BGI Genomics, while he was waiting at a red light. Why was it named “BGI”? A couplet displayed at BGI may reveal the deeper meaning behind it:Upper line: China nurtures outstanding sons and daughters, jointly laying the scientific foundation for millennia to come; Lower line: The great nation boasts elites, together unraveling the eternal causes of life; Horizontal scroll: The burden is heavy and the road is long.


BGI was destined to be the crystallization of this spark of wisdom. There is no second Wang Jian in the world, nor will there be a second BGI. BGI has become a brand; beyond the numerous splinter groups such as “Hua Xiao” and “Hua Dian” that have spun off, what remains is largely a sense of historical responsibility. Perhaps this is Wang Jian’s one-man war, with the team serving merely as an amplification of his partial capabilities.

The story of BGI Genomics’ IPO no longer satisfies growing curiosity; what deserves our attention is whether this “dissected” giant can foster a robust ecosystem. It is worth noting that BGI Genomics lacks experience in biopharmaceuticals, and its clinical applications are still in their early stages compared to traditional CRO companies. Nevertheless, this industry leader, which holds the “secret weapon” of precision medicine—gene sequencing technology—is making a grand foray into the clinical sector.

WuXi AppTec and BGI Genomics have independently converged on the field of rare diseases. Given that 80% of rare diseases are caused by genetic defects, gene sequencing holds a distinct advantage in rapidly identifying etiologies. Industry experts widely predict that gene sequencing will spur an industry valued at no less than RMB 100 billion. For hereditary rare diseases, the use of gene sequencing for prevention, screening, diagnosis, and medication guidance is increasingly becoming an essential requirement. Gene sequencing technology plays a unique role in the definitive diagnosis and medication guidance for a wide range of conditions, including congenital defects, rare diseases, cancer, and cardiovascular disorders.
While BGI Genomics is busy with its initial public offering, its strategic planning will likely follow a pyramid model: the lower the level, the greater the likelihood of strategic shifts, as this pertains to the stability of team management structures. Could BGI Genomics adopt an approach of small-scale trials and iterative error correction through compact teams? My assessment is that BGI Genomics is not suited to the rapid trial-and-error iteration model characteristic of the internet industry. The corporate DNA of this enterprise is inextricably linked to that of its founder. The spark that flares up in an instant is destined not to become a sustainable flame passed down through generations.

3The third major player will be Meinian Onehealth, the new dominant force in the health checkup industry.

Just as WuXi AppTec smoothly completed its privatization, iKang Healthcare Group’s path to going private appeared somewhat rocky.

On August 31, 2015, iKang Healthcare Group announced that it had received a non-binding proposal from a “buyer consortium” composed of Zhang Ligang and FountainVest Partners. The consortium intended to acquire all outstanding shares not already held by the group at a price of $17.8 per ADS (with each ADS representing 0.5 ordinary shares). This offer represented a 9.7% premium over the 30-day average trading price, implying a market valuation of $1.165 billion.


This privatization effort faced a “hostile bid” from industry rival Meinian Onehealth. On the same day iKang Guobin announced its privatization (August 31), Jiangsu Sanyou (now renamed Meinian Health) disclosed plans to “issue shares and pay cash to acquire a 72.22% stake in Ciming Health Checkup.” Through capital operations, Meinian Onehealth consolidated China’s three largest health checkup providers into two major players: Meinian and iKang. On November 29, Jiangsu Sanyou issued an announcement stating its participation in the privatization of iKang Guobin.

On the evening of January 6, 2016, Jiangsu Sanyou issued an announcement stating that the buyer consortium led by Meinian Onehealth had increased its bid for the privatization of iKang Healthcare. Just a day earlier, on January 5, the buyer consortium led by Zhang Ligang, Chairman of iKang Healthcare, had just brought in new capital partners, including Alibaba, Lenovo, and China Life Insurance. The capital contest is currently still underway.

Regardless of who ultimately emerges victorious in this battle, we are more concerned with the impact that consolidation within the health checkup industry will have on the field of precision medicine. Once the landscape of the health checkup sector becomes monopolized, the scenario predicted by Mr. Yu, Chairman of Meinian Onehealth, is likely to unfold: “Cultivating high-growth enterprises through such an ecosystem is one of our future development goals. In other words, leveraging our existing large-scale health checkup platform, we will continuously integrate new technologies, novel diagnostic methods, and advanced early screening and testing techniques, thereby extending our service offerings to provide better value to our clients. Furthermore, we aim to incubate more high-quality enterprises on this platform.”

Capital players in the three major sectors—precision prevention, precision diagnosis, and precision treatment—have already begun to enter the field of precision medicine. Driven by capital, the three key players I am focusing on are destined not to remain confined to their respective niches but will expand upstream and downstream to form closed-loop ecosystems. My prediction is that in 2016, major players will increase their activities in acquisitions and capital allocation strategies, avoiding direct conflicts in commercial operations and business activities. In the future, we will inevitably see competition for controlling stakes among enterprises, with behind-the-scenes investors adopting a wait-and-see stance.

To browse more insightful articles by Dr. Luo Qibin, please clickIndex of Dr. Luo Qibin’s Column Articles
This article is published by VCBeat with authorization from expert Luo Qibin. Please obtain the author’s permission if you wish to reprint it.
WeChat Official Account: gene_world