The panic caused by the "proposal" is still spreading.
On January 25, in the draft version of the Biosecurity Act submitted by members of the U.S. House of Representatives, domestic companies such as WuXi AppTec, BGI, and MGI were mentioned; A similar draft bill was recently introduced in the U.S. Senate.
If these bills are passed, then the U.S.**-funded medical institutions will be restricted from using the products and technologies of the mentioned companies. Therefore, the "proposal" will inevitably cause panic in the domestic capital market.
On the afternoon of last Friday (January 26), the stock prices of WuXi AppTec, MGI and other companies plunged; On Monday (January 29), the shares of related companies continued to fall.
If it is said that last week's sharp fall was caused by the market's unwitting panic; So, what is the reason for the continued decline in the stock prices of related companies on Monday?
After all, at present, the above "proposal" is difficult to land, and it is already a relatively clear answer.
A black comedy
Although the above-mentioned "bill" is bluffing, it is not a substantive policy introduced by the United States, but only a congressional proposal.
As far as the American system is concerned,Proposals can be freely spoken, but it is not easy to land, not only is it time-consuming and laborious, and the approval rate is not high.
As shown in the figure below, scholar Zhang Tengjun found that in the first session of the 117th National Assembly, there were 251 China-related proposals, but only 2 became laws, with a pass rate of less than 1%; In the 116th Congress, the rate was 5%.
Of course, the time-consuming and laborious process and the low pass rate are not reasons for us to give up our worries. After all, in the field of investment, no matter how small the black swan, it is something we need to pay attention to.
However, most of the above proposals are too "absurd". There are a number of low-level factual errors in this so-called Biosecurity Act.
For example, the proposal proposes that "WuXi AppTec has received an investment in 'Civil-Military Integration Select Hybrid Investment**", but the actual situation is only that in the secondary market, there are relevant military industry ** who have temporarily held WuXi **, 2,000 shares and 15,500 shares ......
The content related to genetic safety involved in the proposal is even more nonsensical.
For example, the "proposal" mentions that "BGI works with the military to collect millions of non-invasive prenatal testing data to improve the quality of the population." In reality, this is most likely referred to as NIPT (non-invasive prenatal genetic testing).
It is true that NIPT testing requires the testing of relevant genetic data, which is also aimed at improving the quality of the population, but it has nothing to do with the military.
Embarrassingly, the country that attaches the most importance to NIPT testing in the world is the United States. In September 2020, the American College of Obstetricians and Gynecologists issued new guidelines to expand the testing of NIPT from at-risk pregnant women over the age of 35 to ...... all populations
In addition, in the proposal, American politicians even logically and movingly engaged in "joint sitting", saying that "MGI" is a subsidiary of BGI, so it is also a "guilt theory".
Actually,MGI's business does not involve data security, it is only a sequencing equipment provider.
To put it simply, in the gene sequencing industry chain, it is only a water seller and does not participate in the mining process, and the data generated by the equipment provided by MGI is kept by the customer himself.
From the perspective of nitpicking, sequencing equipment also theoretically has the possibility of data leakage. However, as of now, there is no evidence that MGI**'s equipment has security vulnerabilities.
What is embarrassing is that Illumina, a global gene sequencing giant and an American company, is full of scandals because of data security issues.
In 2022, the FDA and CISA jointly found that a number of Illumina devices had high-risk security vulnerabilities. In 2023, at the request of the domestic Food and Drug Administration, Illumina recalled 277 sequencers due to cybersecurity vulnerabilities in these devices, which prevented the instruments from producing correct results or creating data security risks......
These low-level errors are just the tip of the iceberg of proposals.
In essence, these bills are just "layman's proposals" put forward by "domestic executives" in the special period of the United States, and the core is to win higher traffic and attention.
It is not difficult to understand why some US politicians have diverted or attracted attention by magnifying the contradictions between China and the United States.
On the surface, he is the master of the people, but behind it is all political calculations. What's more, Mike Gallagher, one of the leaders of the proposal, has no background in biotechnology and is an out-and-out anti-China politician. In the eyes of overseas **, "Gallagher is a demagogue who is bent on making a name for himself on the China issue."
Of course, it's not just Mike Gallagher who is the demon.
It can only be said that in the current special and complex environment, "black comedy" may be staged frequently.
The impact needs to be looked at dialectically
Of course, the market may be anxious that in the current complex external environment, a "serious" proposal with a similar purpose may eventually be adopted. At that time, these businesses will still be affected. Therefore, the current stock prices of these companies** essentially reflect expectations in advance.
Indeed, the external environment is extremely complex, and it is not impossible for a similar "serious" bill to be implemented. But even so, for the impact of the enterprises involved, it is still necessary to dialectically look at it, and the core reasons lie in two points:
First, some biotech companies do not rely on the United States for their core technologies.
MGI, for example, is one of the only two clinical-grade gene sequencers in the world that can independently develop and mass-produce clinical-grade gene sequencers with different throughput from GB to TB. As of September 30, 2023, the company has obtained 389 domestic patents and 347 overseas patents.
In addition, on the basis of continuous innovation in core technologies, MGI has established an independent and controllable source core technology system. In terms of core raw materials, including sequencing enzyme materials and sequencing DNTP materials, etc., they have been self-produced and self-supplied.
Therefore, MGI's business operations will not be affected by relevant unfavorable policy factors.
Second, some biotech companies do not have a high proportion of U.S. business.
Let's take MGI as an example. In the first three quarters of 2023, the company's business revenue in the Americas was only 10.1 billion yuan, accounting for only 5 percent of total revenue8%。
Obviously, the company's high growth in the first three quarters (sequencer business increased by 31 percent year-on-year49%) have little relevance to the Americas business. Even if it encounters an extreme black swan, it will not affect MGI's current growth logic.
So, will this affect its future growth logic? For the domestic biotechnology industry, going overseas is already a must. The answer is still no.
First of all, even if the bill is "implemented", it will only affect the procurement of federal funds in the United States.
For most biotech companies, the impact is not too great.
Illumina's customer base is extremely diverse, including academic institutions, ** laboratories, hospitals, Bippharma, biotech, commercial molecular diagnostic labs, and consumer genomics companies.
*Institutions are not Illumina's only customers** or the core players driving their business growth. Therefore, even in the worst-case scenario, MGI, which also produces and sells gene sequencing equipment, will not be greatly affected in the United States.
Second, the "increment" of some biotechnology companies going overseas is not limited to the United States.
Due to factors such as an early start, higher product accessibility, and higher public penetration, the U.S. is indeed a major market for gene sequencing equipment and consumables.
But there are two sides to everything. After a long period of growth, the incremental market for sequencing instruments in the United States has been relatively limited. This can be seen from Illumina's sluggish U.S. revenue growth.
From this point of view, Europe, Asia, Africa and other countries and regions have large incremental demand. At present, Europe, Asia and other countries are paying more attention to gene sequencing.
For example, on January 24, the UK Health Security Agency released the "UKHSA Pathogen Genome Strategy", which mentions the great contribution of the pathogenic genome to the field of health, especially in the field of epidemic prevention and control, and the vision for future development. The introduction of this strategy will promote the growth of the gene sequencer market size.
The above-mentioned MGI is oriented to the global market.
In 2023, the European Patent Office ruled that Illumina's EP3002289 patent was invalid, which showed that the company was not subject to the EP3002289 patent restrictions in countries where the patent was claimed, such as Turkey, Portugal, Austria, Romania, Finland, Greece, Hungary, Belgium, Denmark and other regions.
At this point, the company's business expansion in most of the countries and regions involved in litigation will no longer be affected, which is conducive to further opening up important international markets such as Europe and the United States and broadening the company's global business coverage.
In addition, the company is also ready for business expansion in Europe, Asia-Pacific and other regions.
At present, MGI has set up two new subsidiaries in New Zealand and Serbia to support local business development, and has built new manufacturing bases and customer experience centers in Germany, the United States, Australia and other places. In Asia, MGI has also put into use a customer experience center in South Korea in cooperation with BMS.
According to the financial report, in the first three quarters, MGI achieved revenue of 10 in Chinese mainland, Hong Kong, Macao and Taiwan8.3 billion yuan, accounting for nearly 50% of the overall revenue, at the same time, the company's Greater China business still maintained rapid growth, with a year-on-year increase of 2119%。
In other words, MGI's increment comes from all over the world. Regardless of the extremes, it can effectively avoid the risk of stagnation in growth.
After suffering the ultimate wrongful killing
However, compared with the steady progress of MGI's business expansion, the performance of the market has gone in the opposite direction. Whether it is WuXi AppTec or MGI, the stock price is still sharply**.
Perhaps, this makes investors fully feel it"The market is a voting machine in the short term." The short-term movement of a company's share price is chaotic and can be influenced by a number of factors, not just value.
At present, the confidence of Hong Kong stocks and A-shares is extremely fragile. Since January, under the influence of many factors, as well as the influence of structured products such as snowballs, it has entered a continuous ** channel.
Against this backdrop, the sharp drop triggered last Friday may trigger a series of chain reactions that will be difficult to eliminate in a short period of time.
But in the long run, the market will inevitably be a weighing machine. As long as the core value of the enterprise remains unchanged, the short-term stock price** means opportunity.
It can be seen that after a series of black swans, the valuation of some domestic biotechnology companies is no longer high.
For example, MGI's price-to-sales ratio is close to that of Illumina. This is not reasonable, especially since the latter's performance has not been good in the past two years due to various factors such as goodwill impairment.
For MGI, 2023 will undoubtedly be a year of change, and the industry will return to a stable state of normalization after three years of rapid growth. Despite the short-term pressure, the company has exhausted all the headwinds, whether it is the installed capacity, the expansion of customers and ecosystem, and the acceleration of its international expansion following the patent settlement with Illumina, which provides certainty for the company's growth.
The essence of investing is the art of anticipation. Around value fluctuations, good companies will sooner or later cash in on logic.
In the pessimistic market environment, the strategy is long competitive leaders, the winning rate and odds are not bad, and I believe that the future will be rewarded by the market.
In particular, the current regulatory care for the market, as well as the performance resilience shown by some biotechnology companies, are bound to gradually eliminate discrimination.
Extreme downturn can often create a shocking "big**" So, in the biotechnology industry, will there be such a story?