The $3-billion allure of gene sequencing: Are entrepreneurs and investors ready?

According to statistical data, non-invasive prenatal testing (NIPT) products have already reached over 60 countries worldwide, with the global market size expected to exceed $3.5 billion in 2019. China’s comprehensive two-child policy, implemented in 2016, is projected to sustain annual births at approximately 18 million. Benefiting from this policy, NIPT adoption rates are also expected to rise steadily. Moreover, advanced maternal age increases the risk of fetal Down syndrome—particularly among mothers aged 35 and older, where the probability rises exponentially. Public data show that the proportion of births to advanced-age mothers has increased year-on-year since 2011, providing strong support for NIPT market growth. Figure 7: Proportion of births to advanced-age mothers in China (%) On the other hand, according to statistics from China’s National Health and Family Planning Commission, infertility rates in China rose from 4.8% in 1984 to 12.5% in 2012—primarily driven by environmental, dietary, and lifestyle factors. As a key assisted reproductive technology, in vitro fertilization (IVF) is expected to expand further in the future. Preimplantation genetic testing (PGT), an indispensable component of IVF, is likewise poised for explosive market growth. Additionally, global new cancer cases totaled 14.1 million in 2015, with projections indicating a 70% increase in new cases over the next 20 years. Factors such as population aging, unhealthy lifestyles, and environmental pollution will drive continued annual growth in global cancer incidence. According to China’s National Cancer Registry Center, new cancer cases in China reached 4.2916 million in 2015—and continue to rise annually. The four pillars of personalized cancer treatment diagnostics—cancer susceptibility gene screening, early cancer diagnosis, companion diagnostics for therapy selection, and post-treatment monitoring—suggest substantial future market expansion. Yet nearly every player in this market is well-established; it is no easy feat for startups to outperform incumbents. Currently, major listed companies dominating China’s gene sequencing market include BGI Genomics, Dian Diagnostics, Anke Biotechnology, Beilu Pharmaceutical, Qianyuan Pharmaceutical, Zixin Pharmaceutical, Changhong Technology, Berry Genomics, and Kaixinyuan. Based on their 2017 annual reports, BGI Genomics was the largest, generating RMB 2.096 billion in revenue and RMB 398 million in net profit. Other companies reporting net profits exceeding RMB 300 million included Dian Diagnostics and Zixin Pharmaceutical. Figure 8: Net profit and growth rate of domestic gene sequencing companies in 2017 (in RMB hundreds of millions) Figure 9: Revenue and growth rate of domestic gene sequencing companies in 2017 (in RMB hundreds of millions) Except for Daan Gene and Zixin Pharmaceutical, all other companies reported healthy operating cash flows. Daan Gene’s negative cash flow stemmed mainly from increased net cash outflows related to factoring, financial leasing, and micro-loan services at its newly acquired subsidiary; Zixin Pharmaceutical’s decline resulted from higher payments for purchasing consumable biological assets compared to the prior period. Figure 10: Net profit and operating cash flow of various companies in 2017 (in RMB hundreds of millions) Among gene sequencing companies, Zixin Pharmaceutical posted the highest gross margin in 2017—at 79.36%; Anke Biotechnology followed closely at 77.43%.

Lianchuan Bio’s declining gross margin: surging accounts receivable and falling turnover ratio

From the STAR Market to the Beijing Stock Exchange: declining R&D expense ratios It is reported that Lianchuan Bio plans to raise RMB 300 million in this listing, allocating RMB 200 million to the expansion and upgrading of its gene technology products and service platform, RMB 50 million to the R&D of molecular diagnostic reagents, and RMB 50 million to supplement working capital. The total planned investment across these three projects amounts to RMB 352 million. Notably, the company previously attempted a STAR Market listing in 2022, seeking RMB 608 million in funding. After undergoing one round of regulatory inquiries, however, it withdrew its application the following year. This time, applying to the Beijing Stock Exchange, its fundraising target has dropped by nearly RMB 300 million. Furthermore, the DNA synthesis platform R&D project has been eliminated entirely, while the core project—the expansion and upgrading of its gene technology products and service platform—has been scaled back from RMB 270 million to RMB 204 million; the working capital supplementation project has shrunk from RMB 150 million to RMB 50 million. It is worth noting that although the company plans to invest RMB 97.3491 million in its molecular diagnostic reagent R&D project, its actual R&D investment in recent years appears inconsistent with such ambition: its R&D expense ratios stood at 13.61%, 11.70%, and 8.38% across successive periods, whereas the industry peer average was 7.31%, 9.31%, and 10.25%, respectively. Clearly, Lianchuan Bio’s R&D expense ratio trend runs counter to that of its peers—declining continuously while industry peers’ ratios rise steadily. By 2024, Lianchuan Bio’s R&D expense ratio had fallen below the industry peer average. 3 Accounts receivable surge persistently; turnover ratio declines Moreover, accounts receivable have surged significantly in recent years, while turnover ratios have declined steadily. Lianchuan Bio’s primary customers include universities, research institutions, hospitals, and pharmaceutical companies. As of the end of each reporting period, its accounts receivable balances were RMB 56.9769 million, RMB 94.5507 million, and RMB 129 million—representing 24.26%, 32.99%, and 35.07% of its respective period’s revenue. Its accounts receivable turnover ratios were 5.09 times/year, 3.78 times/year, and 3.29 times/year, while post-period collection rates stood at 93.86%, 84.28%, and 31.03%, respectively. Bad debt provisions disclosed under the applicable impairment methodology amounted to RMB 6.3721 million, RMB 11.1955 million, and RMB 16.4332 million across the respective periods. Unmistakably, alongside the declining accounts receivable turnover ratio, the 2024 post-period collection rate plummeted sharply. Meanwhile, the company’s contract liabilities climbed past RMB 100 million—reaching RMB 82.8631 million, RMB 98.0228 million, and RMB 123 million across the periods—while its monetary funds stood at RMB 72.4175 million, RMB 57.3614 million, and RMB 102 million, respectively. Regarding cash flows: net cash flows from operating activities were RMB 64.2946 million, RMB 48.7279 million, and RMB 120 million; net cash flows from investing activities were –RMB 132 million, –RMB 117 million, and RMB 50.0454 million; and net cash flows from financing activities were RMB 30.3997 million, RMB 27.7207 million, and –RMB 102 million.

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