Genetron Holdings Ltd. (Nasdaq: GTH), sometimes likened to the Silicon Valley-based GRAIL, is the leader in early cancer screening in China.
Like its California-based counterpart, GRAIL, Genetron focuses on detecting a number of cancers early in a high-precision and cost-effective way to improve patient outcomes. The Beijing-based company’s suite of products include early-stage cancer screening, cancer molecular profiling, treatment recommendations, and monitoring.
Genetron’s main operations are in China – a market that is estimated to reach $58 billion in 2023 by research firm EqualOcean. Further, Genetron has expanded into the United States, where it recently was granted Breakthrough Device designation by the FDA for its blood-based next-generation sequencing (NGS) test, the HCCscreenTM for early detection of hepatocellular carcinoma.
As the company prepares to release its third quarter financials on Monday, CapitalWatch zooms in on Genetron’s oncology portfolio and its position in the market.
Search for Effective Cancer Treatment
With countless public and private companies claiming to have the next drug to cure certain cancers, navigating this space as an investor without an advanced medical degree can be muddling. And indeed, there is still no cure for cancer despite significant advancements in treatment over the last decades. Instead, early detection of certain cancers remains the best way to beat them.
It is for this reason that the early detection space represents one of the most promising segments of the medical industry. Molecular biology and data science is an emerging field with proven effectiveness. And while there will be multiple players worldwide, barriers to entry are such that there remain few potential cancer screening leaders. In China, Genetron is well-positioned to continue to lead the world’s biggest market for early cancer screening.
Genetron’s Genomic Testing
Genetron covers eight of the 10 major cancer types in China and is developing advanced NGS platforms and gene assays covering multiple prevalent cancer types.
The company provides comprehensive genomic testing, as well as focused gene panel testing services. For the former, Genetron operates one of the largest pan-cancer NGS panels in the world, according to research by Frost & Sullivan, cited in the prospectus. As to the latter, it claims to be the first in China to develop and commercialize glioma testing products and its Glioma 8 biomaker panel has detection rate of 96% to 100%, depending on the genomic alteration.
In brain cancer detection, Genetron was the market leader in China in 2019, commanding a market share of 58.4%. Further, Genetron offers urine-based biopsy for urinary cancers, CSF-based liquid biopsy for brain tumor, NGS-based test Onco Thyroid, and other services.
Genetron was among China’s top three providers of NGS-based molecular diagnosis of cancer by revenue in 2019, commanding a market share of 11.6%. In addition, the company said it was No. 1 in the number of in-vitro diagnosis (IVD) products approved by the National Medical Products Administration (NMPA). Specifically, these are a digital PCR system, Genetron 3D biochip reading instrument, IDH1/TERT gene assays for glioma, Genetron S5/Chef, a medium-throughput NGS system, and Genetron S2000, a high-throughput NGS platform, together with the 8-gene Lung Cancer Assay (Tissue), an NGS-based IVD assay product powered by Genetron’s proprietary One-step Seq technology, which greatly simplifies lab procedures for NGS testing.
Vast Opportunities in China’s Cancer Market
Cancer is the second-largest cause of death in China, while the five-year survival rate across all cancers is 40.5% compared with 67.1% in the U.S. The government has set regulatory guidelines to control cancer treatment costs and has set up a fast-track evaluation and approval system for innovative drugs. While chemotherapy in China remains the dominant cancer treatment, holding 80% of the market, its costs and serious side effects opens the market for precision oncology.
Currently, China is behind the West in the adoption of molecularly targeted and monoclonal antibody drugs, showing significant potential for growth. The new field has already been supported by the government and is included in China’s 13th Five Year Plan.
Genetron seeks to capitalize on this new national focus and is collaborating with the government on some projects. In August, the company announced it will join a research project of China’s Ministry of Science and Technology to build a liquid biopsy-based early detection technology platform. Genetron will bring to the project its proprietary Mutation Capsule™ – the same technology that powers the aforementioned HCCscreenTM.
In its prospectus, Genetron said China began to shift toward precision oncology in 2018 and the trend is expected to rise. By 2023, targeted therapies and immuno-oncology therapies are expected to grow to 41.2% of the nation’s oncology market, according to Frost & Sullivan. Awareness and adoption of cancer molecular profiling is likewise expected to grow. Last year, the penetration rate of NGS-based molecular profiling in China was 1.3% compared to 4.6% in the U.S.
In the second quarter, despite continued impact from the Covid-19 outbreak, Genetron recorded strong revenue growth, seeing a 40% year-over-year jump to $14.4 million. The majority of the revenue was generated from diagnosis and monitoring: Revenue from laboratory-developed tests (LDT) was $10.7 million (up 31%) and in-vitro diagnostic products (IVD) revenue was $2.6 million (up 381%).
Another portion came from the development services, at $1.1 millionThe solutions Genetron provides in this segment include biomarker evaluation for molecularly targeted therapy and immuno-therapy, clinical trial enrollment, companion diagnostics development and joint marketing post-drug approval.
Genomic Profiling for Biopharma Partners
Genetron collaborates with governments, hospitals, and medical examination centers. In the second quarter, the company maintained partnerships with 26 biopharma companies. That makes Genetron’s partnership network the largest among China’s NGS-based cancer diagnosis companies, according to Frost & Sullivan.
“This network is expanding,” commented Genetron’s chief executive officer, Sizhen Wang, in an interview with CapitalWatch.
He continued: “Our strong regulatory approval capacity readily serves our biopharmaceutical company clients to facilitate NMPA registration process for their new drugs and companion diagnostics tests assays.”
Public Debut in Second Quarter
Like most emerging-growth companies focused on development in the medical field, Genetron still incurs losses. For the second quarter, the company posted $400.9 million, or $2.41 per share, in net loss. However, the non-IFRS net loss was $6.2 million, or 4 cents per share. This figure provides greater visibility of key metrics of the underlying business by excluding mainly fair value loss of financial instruments with preferred rights. Losses are expected to narrow going forward.
On June 19, Genetron lifted off in a $256 million initial public offering, selling 16 million American depositary shares at $16 apiece. The IPO, secured by Credit Suisse Securities (USA) LLC and CICC, among other banks, was priced above the expected range and exceeded the initial top estimate of $175.5 million.
While the Stock Exchange of Hong Kong has been the destination of choice for a slew of medical companies, Genetron pursued a listing in the U.S., where genomics development has a bigger adoption rate than in China. In the U.S., investors are more suited to understand the potential for growth.
“The decision to list in New York was very well thought-out,” Wang said.
“We want to become a China-based global player. A New York listing will help us build the brand name.”
Led by an impressive team of innovators with international expertise, Genetron has global ambitions. Prior to co-founding Genetron, Sizhen Wang led the expansion in North America, Australia, Singapore of iTalkBB, a mobile communications company he co-founded in 2004. Previously, he served with Capital One and GD Capital.
Genetron’s chief scientific officer, Dr. Hai Yan, has an extensive experience in neuro-oncology research in the West, and serves at the School of Medicine of Duke University and the director of the Molecular Genomics Lab. Yan also has a list of awards and prizes achieved in the United States for his research. The chief medical officer, Dr. Yun-Fu Hu, has over 10 years of experience serving at the U.S. FDA, focusing on reviews of IVD products and LDTs for genetic testing, molecular cancer diagnostics, companion diagnostics, radio dosimetry, digital pathology and artificial intelligence devices.
Further, Genetron’s chief technology officer, Dr. Yuchen Jiao, received his Ph. D. at the Johns Hopkins University and has multiple publications in academic journals including Science and Nature Genetics. Both Yan and Jiao had Postdoc training in the Bert Vogelstein Laboratory at the Johns Hopkins, where Thrive Earlier Detection, the MA based cancer screening company recently acquired by Exact Sciences for $2.5 billion, was rooted. Evan Ce Xu, the company’s chief financial officer, comes from working with Deutsche Bank AG, Goldman Sachs (Asia), Citigroup, and other international banks. The chief operating officer, Kevin Ying Hong, has served with C.R. Bard Inc. and Johnson & Johnson.
Setting up a CLIA-certified lab and R&D center in Maryland, Genetron has taken first steps for a launch in the U.S. In China, the company operates labs in Beijing, Shanghai, Hangzhou, Chongqing and Guangzhou.
With both the world’s largest population and the largest population of people 50 years of age and older, the market potential in China for early cancer detection is vast.
“China is a huge blue ocean for cancer diagnosis and treatment,” says Wang. “Genetron will see explosive growth over the next three to five years.”
On Monday, the company will release third quarter financial results. Investors looking for a long-term play on a massive market should keep this leading cancer detection stock on their investment radar.