Next on the list

As BGI pushes for Shenzhen IPO, a former boss chases unicorn status


Wang Jian, president of BGI

“Mirror, mirror on the wall, who’s the fairest of them all?” If the question comes from Wang Jun, the former CEO of genome sequencing firm Beijing Genomics Institute (BGI), then the right answer would almost certainly be his new company, iCarbonX.

And Wang would probably be even happier if the mirror told him he had made some positive changes to his health, the upshot being an increase to his probable lifespan. For ‘smart mirrors’ are on the product horizon and that is just the kind of feedback the 41 year-old needs for iCarbonX, the company he set up after leaving BGI.

iCarbonX aims to be a market leader in the upcoming precision medicine field, where diagnostics are based on an individual’s genetics and lifestyle. And investors appear eager to back one of China’s most famous scientists. Wang’s reputation in bioinformatics meant that iCarbonX very nearly attained unicorn status (defined as a start-up worth $1 billion or more) during its very first fundraising round in 2016, when investments by Tencent and China Bridge Capital valued the company at Rmb6.5 billion ($944 million).

This January, Wang announced the launch of Digital Life Alliance, which includes five US companies iCarbonX has invested in. The idea is that by working together the group can create a much larger ecosystem to feed iCarbonX’s artificial intelligence-based platform with the health and genetic inputs it needs. In turn, Wang believes AI will enable iCarbonX to provide the kind of superior big data analytics that will propel medical breakthroughs and commercialise personal medicine, enabling the company to supply individual customers with health and lifestyle advice.

Smart devices will provide one major source of data. And in a sign that nothing will be sacred in this new world – governed by the Internet-of-Things – one of these data dumps will come from smart toilets, or real-time analysis of faeces and urine, as iCarbonX puts it. A second input, meanwhile, will come from the kind of genome data already sequenced by companies such as BGI.

But where does all this leave Wang’s former company, which has held the crown as China’s leading genomics entity since it was founded as a government institute in 1999? (Originally based in Beijing, it later decamped to Shenzhen to distance itself from politics.)

When Wang left BGI, one geneticist told the scientific journal Nature that Wang was “really the brains behind the operation”. According to China Money Network, Wang still holds a 10.5% stake in BGI’s holding company alongside co-founder Wang Jian on 85.3%. It is not clear whether the main reason he jumped ship is because of his much smaller stake, or a desire to start something new. However, what is more apparent is that BGI has recently become a target for the domestic media, which has run a series of critical articles prompted by the company’s resubmission of its listing plan on Shenzhen’s stock exchange (BGI’s previous listing application in December 2015 was thrown out after it failed to supply adequate documentation).

BGI has an illustrious past. Under Wang Jun and Wang Jian (their surnames look the same in English but contain different Chinese characters), it was the first company to decode the rice genome, the panda genome, the SARS virus and perhaps most importantly of all, the first Asian human genome. As we wrote in WiC306, BGI also had a sideline cloning miniature pigs.

One of its most ambitious decisions was to try and break the dominance of Nasdaq-listed Illumina, a manufacturer of gene sequencing machines. In 2012, BGI announced a $133 million bid for Illumina’s California-based rival Complete Genomics (CG). Illumina launched an unsuccessful counterbid followed by an equally unsuccessful campaign to block the deal through the Committee on Foreign Investment in the US (CFIUS).

Using CG’s technology, BGI has been able to build a series of gene sequencing devices, the most recent of which was launched late last year. But BGI appears to be a provider of trailing edge technology that does not appear able to keep up with the industry leader – Illumina. Analysts say BGI has been able to undercut Illumina at the lower end of the market. Its BSGISEQ-500 sequencer, which uses CG technology, retails for about 30% to 40% less than Illumina’s NextSeq 500 sequencer. But in January this year, Illumina unveiled its next generation machine NovaSeq, which is six times faster than its predecessor. Its share price has not quite responded in kind, but is still up about 34% year-to-date.

As many tech journals are fond of pointing out, it cost roughly $1 billion to map the first genone in 2001. In 2010, Illumina unveiled the HiSeq series, which cut the expense to $1,000. In 2017, it unveiled NovaSeq, which promises an era of the $100 genome.

Sina Finance argues that BGI has no big ideas of its own and concludes that while current profitability is perfectly acceptable, the future does not look very promising. It bases its argument on BGI’s cash pile, which it says has been invested in financial products rather than cutting-edge R&D.

The Chinese news portal also alleges BGI’s listing attempt is just an excuse for some of the existing shareholders to cash out. The holding company owns roughly 42% of the listing vehicle alongside pre-IPO investors including China Everbright, Sequoia Capital, Yunfeng Capital (co-founded by Jack Ma) and Greenwoods Asset Management.

Securities Daily also casts doubt on BGI’s IPO plan and suggests the company now has a lower valuation than it did when it completed its last known fundraising round in the first half of 2015. Then it was valued at Rmb19.1 billion ($2.8 billion). The newspaper believes the company is currently valued at around the Rmb15 billion mark, based on its disclosures to the Shenzhen Stock Exchange.

One industry insider tells Securities Daily, “BGI was once regarded as a divine god: one of the three knights alongside DJI [a drone company] and Kuangchi Science [space technology].” But Securities Daily says BGI has lost its crown and calculates that half of the company’s venture capital investors are under water.

Securities Daily also flags the emergence of rivals such as Berry Genomics, which was founded by a group of former BGI executives and has attracted Legend and Boyu Capital as backers. Berry Genomics now competes head-to-head with BGI in its most lucrative sector: pre-natal genetic screening (54.6% of BGI’s 2016 revenue, or Rmb929 million).

In 2015, the sector was boosted by a government decision to allow 107 hospitals to conduct non-invasive prenatal tests (NIPTs). This test normally takes place about nine to 10 weeks after conception and analyses foetal DNA circulating in a mother’s blood for chromosomal abnormalities such as Down’s Syndrome. Last year, the government paved the way for all hospitals to conduct NIPTs and demand is expected to grow rapidly following China’s replacement of its One-Child Policy with a Two-Child Policy (see WiC302). That said, the tests are not without controversy – some worry NIPTs may also be used to detect the baby’s sex, fuelling the country’s already wide gender imbalance.

BGI may face increasing competition, but it still has one very important advantage. In September, China launched its first (and the world’s fourth) gene bank. Dubbed the Chinese Noah’s Ark, China National GeneBank has ambitions to collect up to 300 million genetic samples of humans, animals and plants. It has been structured as a public-private partnership initiative with the National Development Reform Commission on one side and BGI on the other.

And while Illumina may still dominate the sequencing machine market, it has plenty of problems of its own maintaining that edge. Many analysts now rate privately-owned Oxford Nanopore as the company to watch (its MinION device can be plugged straight into a laptop).

The US genomics industry also has President Trump to contend with. As part of his “America First: Budget Blueprint to Make America Great Again” he is proposing to cut funding for bio-medical research (by up to 20% of its 2017 budget) as part of his efforts to increase defence spending by $54 billion.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.