HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Capital Markets

<ul>
<li>Although UGenix is a genetic technology company focusing on prenatal testing/precision oncology, it was the large-scale COVID-19 testing demand that made UGenix's overall revenue grow rapidly, which, however, is unsustainable.</li>
<li>NIPT market size is far less than expected. The clinical need for NGS has not developed as rigid demand. Restrictions on companion diagnosis pricing indicate market space would be compressed.</li>
<li>The business of both prenatal testing and precision oncology are not easy. Due to uncertain commercialization outlook/profitability and other negative factors, UGenix’s stock price after IPO could underperform.</li>
</ul>


Although UGenix is a genetic technology company focusing on prenatal testing/precision oncology, it was the large-scale COVID-19 testing demand that made UGenix's overall revenue grow rapidly, which, however, is unsustainable.
NIPT market size is far less than expected. The clinical need for NGS has not developed as rigid demand. Restrictions on companion diagnosis pricing indicate market space would be compressed.
The business of both prenatal testing and precision oncology are not easy. Due to uncertain commercialization outlook/profitability and other negative factors, UGenix’s stock price after IPO could underperform.


Pre-IPO UGenix Biotech - Future Growth Potential Is Highly Uncertain

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/genetron-holdings-ltd" target="_blank" data-smartkarma-citation="entities:28435:1" rel="noopener">Genetron Holdings Ltd (GTH US)</a> shareholders will vote on the consortium’s US$4.08 per ADS offer on 21 February. The offer is light in comparison to historical trading ranges.</li>
<li>Completion is conditional on shareholder approval, dissenting shareholders representing less than 15% of outstanding shares and regulatory approvals (NDRC, MoC and SAFE). </li>
<li>Despite the light offer, the completion conditions should be met. At the last close price and end of March completion, the gross and annualised spread is 7.7% and 45.5%, respectively.</li>
</ul>



Genetron Holdings Ltd (GTH US) shareholders will vote on the consortium’s US$4.08 per ADS offer on 21 February. The offer is light in comparison to historical trading ranges.
Completion is conditional on shareholder approval, dissenting shareholders representing less than 15% of outstanding shares and regulatory approvals (NDRC, MoC and SAFE). 
Despite the light offer, the completion conditions should be met. At the last close price and end of March completion, the gross and annualised spread is 7.7% and 45.5%, respectively.


Genetron (GTH US): Wide Spread Ahead of the 21 February Vote

<ul>
<li>The clinical need for NGS hasn't developed as rigid demand due to high cost, difficult operation, high requirements on hospitals/personnel, etc. It takes time for NGS to improve market penetration.</li>
<li>Genecast’s LDT business could face compliance issue.Its in-hospital business has lower gross margin.Increasing R&amp;D expenditure is inevitable since products need to get approval by regulatory authorities, putting pressure on profitability. </li>
<li>Burning Rock is in a leading position in NGS field, but its market value is quite low. We advise investors to be prepared for valuations to fall short of expectations.</li>
</ul>


The clinical need for NGS hasn't developed as rigid demand due to high cost, difficult operation, high requirements on hospitals/personnel, etc. It takes time for NGS to improve market penetration.
Genecast’s LDT business could face compliance issue.Its in-hospital business has lower gross margin.Increasing R&amp;D expenditure is inevitable since products need to get approval by regulatory authorities, putting pressure on profitability. 
Burning Rock is in a leading position in NGS field, but its market value is quite low. We advise investors to be prepared for valuations to fall short of expectations.


Pre-IPO Genecast Group - NGS Still Has Long Way to Go; Valuation Performance Is Worrying

Global Healthcare Analyst

Tina Banerjee

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/burning-rock-biotech-ltd" target="_blank" data-smartkarma-citation="entities:28970:1" rel="noopener">Burning Rock Biotech (BNR US)</a> has announced Q2 results. Despite the negative impact from COVID-related restrictions in China, revenue increased 3% y/y to RMB130.8 million, driven by pharma R&amp;D service.</li>
<li>Gross margin deteriorated due to unfavorable revenue mix and inventory write down. Even upon this, operating expenses grew 19%, thereby widening net loss to RMB262.1 million.</li>
<li>Encouraged by ongoing business volume recovery, management has reiterated full-year 2022 revenue guidance of approximately RMB620 million, indicating H2 2022 revenue of RMB354 million, which represents 29% y/y growth.    </li>
</ul>



Burning Rock Biotech (BNR US) has announced Q2 results. Despite the negative impact from COVID-related restrictions in China, revenue increased 3% y/y to RMB130.8 million, driven by pharma R&amp;D service.
Gross margin deteriorated due to unfavorable revenue mix and inventory write down. Even upon this, operating expenses grew 19%, thereby widening net loss to RMB262.1 million.
Encouraged by ongoing business volume recovery, management has reiterated full-year 2022 revenue guidance of approximately RMB620 million, indicating H2 2022 revenue of RMB354 million, which represents 29% y/y growth.    


Burning Rock Biotech (BNR US): Despite Q2 Results Missing Consensus Management Reiterated Guidance

Thematic (Sector/Industry)

<ul>
<li>PCR dominates the hospital market, but as targeted drug prices fall, PCR cannot have high pricing,indicating compressing market space. The whole logic goes from "To C " to "To B”.</li>
<li>NGS has advantages in new demand of individualized diagnosis and treatment of difficult diseases and drug efficacy prediction in response to complex mechanisms. It will seize market share from PCR.</li>
<li>A “good story” for related companies should not just focus on PCR (current fundamental), but NGS (long term potential) and may also cover early screening products (multidimensional growth).  </li>
</ul>


PCR dominates the hospital market, but as targeted drug prices fall, PCR cannot have high pricing,indicating compressing market space. The whole logic goes from "To C " to "To B”.
NGS has advantages in new demand of individualized diagnosis and treatment of difficult diseases and drug efficacy prediction in response to complex mechanisms. It will seize market share from PCR.
A “good story” for related companies should not just focus on PCR (current fundamental), but NGS (long term potential) and may also cover early screening products (multidimensional growth).  


Industry Report - Insights on China Companion Diagnostics Market (Business Logic and Outlook)

China

Burning Rock Biotech Limited operates as a biotech company. The Company discovers and develops diagnositcs solutions for precision medicine in oncology. Burning Rock Biotech serves customers in China.

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Burning Rock Biotech (BNR US)

Pre-IPO UGenix Biotech - Future Growth Potential Is Highly Uncertain

Due to gloomy commercialization outlook, it is challenging for UGenix to receive decent valuation premium after IPO. As the COVID-19 dividend...

Xinyao (Criss) Wang

Genetron (GTH US): Wide Spread Ahead of the 21 February Vote

Shareholders overwhelmingly approve the privatisation proposal. Turnout was at 75.4% of outstanding shares. Among these shareholders, 99.9% voted...

Arun George

Pre-IPO Genecast Group - NGS Still Has Long Way to Go; Valuation Performance Is Worrying

Genecast’s business faces different challenges as NGS hasn't developed as rigid demand. It's difficult for Genecast to make profits in the short...

Xinyao (Criss) Wang