The "pro-son" bought for $8 billion lost almost nothing, with large-scale layoffs, store closures, the resignation ......of the former CEO, the change of the boss in China, and the FTC's iron fist, and the performance was repeatedly frustratedIllumina, the global leader in gene sequencing, is it because of the poor vision of mergers and acquisitions, the slow pace of technology change, the strong competitors, or the "bubble" of the industry itself
It's rare for a big M&A in the biotech sector to end so quickly.
Recently, under the tremendous pressure of internal operations and external supervision, the chief financial officer of Illumina, a global gene sequencing giant, revealed that Grail, a cancer early screening subsidiary that was repurchased with a high-profile $8 billion three years ago, will consider a direct divestiture, and its potential buyer has appeared.
2020 is the most prosperous year for gene sequencing companies. When Luckin exited the U.S. stock market, Genetron Health went public against the trend, achieving the largest IPO in the history of global cancer precision medicine, and in the same year, Burning Rock Dx, which Sequoia had invested heavily in, also landed on the U.S. stock market. However, the brilliance of these new generations is followed by Illumina, which dominates the upstream of the industry (with a market share of more than 80%), and the acquisition of Grail, a leader in early cancer screening, and its official entry into the midstream market of the industry.
At that time, Illumina's outstanding performance, especially the strong performance of the Chinese market, took advantage of the situation to hold a new trump card, like Google, to open up the industrial chain, build a platform and ecology, and at the same time maintain the advantages of second-generation gene sequencing technology in his hand.
However, in just three years, this is not what it used to be. The industry environment has changed, and so has the competitive landscape. The rise of new giants began to eat up more market share, but the trump card in the hands of the old giant Illumina has become a "hot potato", and billions of dollars of goodwill impairment have dragged down performance. Not only that, but in an industry that places great emphasis on product iteration, Illumina's products are hard to beat the impact of strong competitors.
The $8 billion merger and acquisition has continued to be strongly opposed by the United States and the European Union, exhausted by paper complaints and fines, and there are also patent lawsuits, court battles with competitors, and disputes ......between executives and investorsChicken feathers all over the place. In order to reduce expenses and reduce resource consumption, it is accompanied by layoffs and closure of operating sites. What is the key reason why the current Illumina, with the enemy on the back and the pressure inside and outside, has made this giant fall off the altar in just 3 years?
3 years of early cancer screening dreams,
It's almost empty
From divestiture, acquisition, to divestment of Grail, Illumina is a vivid play of how much love and so much hate there is.
Initial spin-off of GRAIL to facilitate the development of its multiple cancer early screening tests. In 2016, Grail was spun off from Illumina, which joined Microsoft founder Bill Gates and Amazon founder Jeff Bezos to invest in Grail, who was born in Rome. After the spin-off, Grail raised approximately $2 billion to develop Galleri's products, a multi-cancer early detection blood test with the ability to detect more than 50 cancer signals, a testament to its ability to attract money.
In the course of time, Grail became a leader in early screening, and later partnered with AstraZeneca to enter the field of companion diagnostics, with the aim of creating an ecosystem in the management of the whole course of cancer.
GRAIL is also an important step for Illumina to find new application scenarios and penetrate into the middle and lower parts of the industrial chain in the process of ecosystem construction. In 2020, when there was a major window of opportunity for early cancer screening, Illumina decided to take it all in, and after the acquisition, Illumina acquired the rights to use the Galleri blood test.
However, the official announcement of this acquisition opened its bumpy second half.
The EU and US antitrust authorities strongly opposed the deal, mainly because Illumina's merger and acquisition would not expand horizontally but vertically downstream of the industrial chain, which may significantly reduce competition and innovation in the early screening market for a variety of cancers, thus constituting an industry monopoly.
The timeline for the "confrontation" with the EU's antitrust authorities is particularly long, with the European Commission initiating two rounds of review of the acquisition starting in April 2021, and in August of the same year, Illumina "preemptively" announced that it had completed the acquisition of Grail. In the statement, Illumina said that there was no legal obstacle to acquiring the company in the United States, but in August this year, the SEC began an investigation into the matter. It is also worth noting that the battle with the EU has not yet ended, and in July this year, the European Commission imposed a penalty of about 4 on IlluminaThe $7.6 billion fine is a direct record fine in the European Union for Illumina's completion of its merger with GRAIL ahead of regulatory approvals. Not only that, but the EU side has recently demanded that Grail** be either given to another company, or it will be spun off into a publicly traded enterprise, merger and acquisition, and no imagination.
The regulator is forced at all levels, which is external pressure. But more importantly, Illumina, which used to defend GRAIL, has dragged down its own performance step by step in the past two years due to the "decadent" GRAIL, and has forced itself to make the choice of divestment.
In Q1 2022, Illumina's full-year financial guidance was the highest 5% growth rate, but Illumina's full-year revenue was about $4.6 billion, a year-on-year increase of only 128%, compared to 40% year-on-year in 2021, creating a strong contrast. Especially in the last quarter of 2022, Illumina's revenue fell by more than double digits year-on-year, and the revenue of its core sequencing instruments fell sharply year-on-year. From a regional point of view, almost all market performance declined, and China ranked first with a 22% decline.
It is worth noting that last year, Illumina's net profit turned from a profit to a loss, and the loss was as high as $4.4 billion.
Why, exactly?This brings us to Grail. In the same year, Grail's revenue was less than $100 million, but the corresponding research investment exceeded $300 million, and its sales and administrative expenses were nearly $300 million, while its goodwill impairment was 39$1.4 billion, with an overall operating loss of 46$5.7 billion, which significantly impacted Illumina's performance.
The crackdown hasn't stopped. The 2023 Q3 financial report has been announced, although the current important product DNA sequencer has been increasing in volume, but Q3 shipments have declined compared with Q2. China's revenue in Q3 still fell seriously year-on-year (26%), and the sales situation in the rest of the regions except the US market is not optimistic. According to data from CIC Consulting, in 2022, Illumina has been overtaken by MGI in the sales market share of China's new gene sequencing equipment. The shrinkage of several major markets confirms a harsh fact: the emerging gene sequencing giants with high-tech barriers are gradually rising, eating away at their market share and impacting the market share that Illumina has painstakingly operated for many years. Based on this, the financial guidance has sent a less optimistic signal, and full-year revenue is expected to decline by 2% to 3%.
In the quarter, Illumina's net loss was also affected by a Grail-related 8The impact of $2.1 billion in impairment of goodwill and intangible assets hurt Illumina again.
I have to mention that Grail is now like a hot potato that burns money but has no ability to monetize, which makes Illumina's situation even worse.
In addition, since the beginning of this year, Illumina has been in the whirlpool many times, first with investors and management fighting for several months to compete for the right to the first place. It is also related to the acquisition of Grail, which cost a lot of resources, and the market value has shrunk by $50 billion in three years. Subsequently, CEO Francis Desouza, who had witnessed Illumina's growth over the years, was caught in a dilemma and finally resigned. Shortly after, Illumina's general manager for Greater China, Qing Li, who had expanded its business in China after four years at Illumina, also resigned.
Amid internal turmoil, a sharp downward revision in performance, and a shortage of funds, Illumina announced layoffs this year and closed some of its operations. The performance of the capital market is even more dismal, with a market capitalization of just over $17 billion remaining.
The gene sequencing industry is prone to thunderstorms
Is it **, or is it Puyu?
If you ask what is the direct reason why Illumina is where she is now?Overestimating one's own strength and taking competitors lightly may be one of the reasons.
In general, the cost of a technology is the beginning of its explosion when more demand side can afford it.
In early 2014, with the help of its newly developed sequencing platform HiSeq X TEN, Illumina successfully reduced the cost of human whole genome sequencing to less than $1,000, breaking through the "cost bottleneck" of downstream applications of gene sequencing, and making it possible for genome sequencing to penetrate into academic research, drug research and development, and clinical applications on a large scale. This technological breakthrough not only greatly improved the company's performance, but also allowed the gene sequencing industry to officially enter the industrial chain of development and application in the pharmaceutical industry, and the industry development entered the "fast lane", after which Illumina occupied 70% of the global gene sequencing market for a long time.
If we look at the Chinese market, innovative drugs are in full swing, and the gene sequencing industry will naturally not be left behind. However, the gene sequencing industry, like many technical fields, has long been "monopolized" by overseas companies due to the difficulty of technological breakthroughs. Therefore, in the early stage of the industry's development, most Chinese companies mainly cut into midstream sequencing services, and few Chinese companies were involved in upstream sequencing instruments.
But unlike China's innovative drug industry, which has limited influence on global giants, Chinese companies have become a direct "threat" to Illumina in the gene sequencing industry.
MGI began its independent R&D in 2013 after the acquisition of Complete Genomics (CG), and in 2016, MGI was established on the basis of digesting CG's technology. At the time, no one could have imagined that the company would become one of the "straws" that crushed Illumina's performance.
Until July 2022, Illumina and MGI reached a settlement of all pending lawsuits in the United States, and Illumina paid 3$2.5 billion in net compensation costs. This made the industry realize that the Chinese company had posed a threat to the global gene sequencing giant. Behind him, Huada Group has seized market share in the field of gene sequencing, and China has formed its own "city wall" in the field of gene sequencing technology, such as Berry Gene, a leader in NIPT technology, Novo Zhiyuan, a leader in the field of scientific research and sequencing, Burning Rock and Genetron Health in the field of oncology.
Back to Illumina, on the one hand, it is in a three-year patent tug-of-war with MGI, and on the other hand, the acquisition of Grail is more like a desire to buy back a sharp blade. However, BGI itself integrates upstream, midstream and downstream, and has more advantages in upstream and downstream connection than Illumina.
On the other hand, the "hard core" of Chinese players in overseas technology has also made domestic midstream players such as Genetron Health, Herui Genetics, and Burning Rock Dx "huddle together for warmth" with the upstream MGI, while MGI continues to "harvest" overseas customers. This also poses a threat to Illumina's market share.
In the past, Thermo Fisher and other old players blocked the way, and then there were new players from China such as MGI to fight for the best and the cost, and the acquisition target brought a "mess", and the competition in the industry track became more and more crowded, which eventually caused the giant Illumina to come to the current situation. However, for the industry, the largest acquisition of the gene sequencing industry in recent years may end in failure, and it is also a wake-up call for the industry: the track is becoming more and more crowded, the capital market environment is up, and the industry is clearing, and the time has come for it to rely on its own strength to go through the cycle.
If the industry still can't forget the highlight moments such as Burning Rock and Genetron Health landing on NASDAQ in 2020 and 2021, and the doubling of performance brought about by the outbreak of new crown testing demand, you might as well look back at the challenges experienced by the gene sequencing industry at home and abroad since the beginning of this year
The stock prices of Burning Rock Dx and Genetron Health, which are listed on the U.S. stock market, are ninety percent, and they are laying off employees and cutting business to "survive with broken arms".
The performance of domestic leading Berry Gene and BGI Gene is "thunderous";
Many provinces in China have issued the "Regulations for the Management of Sample Delivery and Testing in Medical Institutions", and the management of genetic testing has become stricter.
However, it can also be seen that after the gene sequencing industry tends to be standardized, the policy has also opened a "gap" for the entire industry.
Last year, Shanghai issued the "Notice on Carrying out the Pilot Work of High-quality Development of Public Hospitals in Shanghai", encouraging qualified hospitals to carry out pilot projects for self-developed in vitro diagnostic reagents. Since then, Beijing, Guangzhou, Tianjin, and other places have also encouraged the pilot of in vitro diagnostic reagents for laboratory self-built detection methods (LDT), and this year is also known as the first year of the implementation of China's LDT model.
However, after the industry is cleared, it still takes time to answer whether the gene sequencing industry is the best or the best.