We are a leading independent esoteric clinical testing service provider in China. We have the largest esoteric testing portfolio among all the independent esoteric testing providers in China, with over 3,500 testing items in our service menu, which includes over 2,300 testing items for hematology. Over 1,100 testing items were developed fully internally, and approximately 2,400 testing items were developed by or in-licensed from third parties. Our mission is to offer patients and physicians worldwide broad and high- quality specialty testing services and promote the application of precision medicine.
Since our inception in 2003, we have strategically focused on esoteric clinical tests to address the significant unmet medical needs in China. We started from hematology as it is a leading specialty area for the development of novel therapies and adoption of new clinical diagnostic tests. We have successfully established a leading position in China’s independent hematology esoteric clinical testing industry, accounting for the largest or 42.3% of the market share by revenue in 2020, as well as a leading position in the overall independent esoteric testing market, accounting for the fifth largest or 4.1% market share in terms of revenue, according to Frost & Sullivan. We offer one of the most extensive hematology testing portfolios worldwide, according to Frost & Sullivan. Leveraging our experience in hematology, we have been expanding our services into other adjacent specialty areas. We primarily target specialty areas with substantial growth potential or significant synergy with our hematology esoteric testing services, including genetic diseases and rare diseases, infectious diseases, oncology and neurology. The esoteric testing market for each specialty area on which we focus has been growing rapidly; for example, genetic diseases and rare diseases, infectious diseases, oncology and neurology testing market grew at a CAGR of 23.3%, 26.6%, 18.0% and 33.6% from 2016 to 2020, respectively, and is expected to further grow at a CAGR of 33.3%, 35.1%, 16.0% and 40.2% to RMB2,637.2 million, RMB4,511.9 million, RMB7,764.3 million and RMB1,023.6 million in 2025, respectively.
OUR SOLUTIONS
Our testing services include: (i) clinical testing services, where we provide comprehensive testing services to hospitals, or through them, individual patients, ranging from sample collection and transportation, testing, to analysis of testing results and issue of clinical reports, and (ii) testing services for R&D projects and others, where we provide testing services for CROs, sponsors of clinical trials, pharmaceutical companies and research institutes, for scientific research and development of precision medicine as well as forensic testing services.
Laboratory Developed Tests
In connection with implementation of relevant testing services, we may adopt laboratory developed test, or LDT, to conduct certain testing services. A LDT is typically not a standalone testing service or business, but a self-developed procedure where testing reagents (“testing kits”) developed in-house or purchased from suppliers that are not registered with the NMPA (“unregistered testing kits”) are used or consumed. LDTs are developed and performed by independent laboratories to address unmet medical needs, and are often used to diagnose rare and complex medical conditions, to guide better treatment or prevention options for patients. Based on the type of testing technology and testing kits used, we categorize our testing services carried out by LDT into Genomic LDT, Bundled Non-Genomic LDT and Relevant Non-Genomic LDT. The diagram below summarizes the sub-classification of our testing services carried out by LDT.
Classification of LDT
In the year ended December 31, 2018, 2019 and 2020, revenue generated from our Genomic LDT represented approximately 21.9%, 21.6% and 20.5% of our total revenue, respectively; revenue generated from our Bundled Non-Genomic LDT represented approximately 11.4%, 14.3% and 12.9% of our total revenue, respectively; and revenue generated from our Relevant Non-Genomic LDTs represented approximately 3.6%, 5.2% and 5.0% of the our total revenue, respectively.
Regulation of LDT
The regulation of LDTs has been evolving over the past decades, driven in large part by the significant increase in the number and complexity of genetic tests. However, due to the relatively short history of the LDT industry in China, a comprehensive regulatory framework governing the LDT industry has not been established.
Governmental authorities which will be involved in the regulation of LDTs and use of unregistered testing kits mainly include NHC and NMPA, among which, (i) the provision of Genomic LDTs should be regulated by NHC and its provincial or municipal counterparts, and (ii) the provision of Non-Genomic LDTs should be regulated by NHC and its provincial or municipal counterparts. In addition, the use of unregistered testing kits during the provision of Non-Genomic LDTs shall be regulated by NMPA and its provincial or municipal counterparts. NMPA may further, together with NHC, enact detailed administrative rules to regulate internal use of unregistered in vitro diagnostics testing kits by a medical institution in the future. For details of the regulatory framework over LDTs and the risks associated with the uncertainties and changes in the regulation of LDT in the PRC, please refer to “Regulation – Regulations on LDTs” and “Risk Factors – Risks Relating to Our Business and Industry – We may be adversely affected by the uncertainties and changes in the regulation of LDT in the PRC, and any lack of requisite approvals, permits, registrations or filings in relation to our LDT may have a material adverse effect on our business, results of operations and prospects.”
As advised by our PRC Legal Advisor, our provision of Genomic LDTs, Bundled Non-Genomic LDTs and the use of unregistered testing kits during the provision of Bundled Non-Genomic LDTs are in compliance with the laws and regulations of the PRC in all material aspects.
Genomic LDT: Legal issues involved in our provision of Genomic LDTs mainly include (i) the utilization of NGS technology to provide Genomic LDTs; and (ii) the use of unregistered testing kits, both of which are in compliance with laws and regulations of PRC in all material aspects as advised by our PRC Legal Advisor and based on the Governmental Consultation.
Utilization of NGS technology: Pursuant to the Governmental Consultations, the pilot enterprises identified by the National Health and Family Planning Commission (國家衛生和計劃生育委員會,“NHFPC”, predecessor of the NHC) pursuant to the Notice on Commencement of Pilot Program on NGS Technology Clinical Use (關於開展高通量基因測序技術臨床應用試點工作的通知) issued by the NHFPC in 2014, can carry out NGS testing for pilot clinical use, and if the results of such pilot clinical use were promising, NGS technology may be adopted for wider clinical use. However, except for the NGS testing on prenatal screening and diagnosis which has been adopted for wider clinical use, pilot scheme with respect to remaining three identified projects (i.e., genetic disease diagnosis, tumor screening and diagnosis and preimplantation embryo genetic diagnosis) has not led to wide clinical use of NGS technology and the pilot scheme was brought to an end with no conclusive regulatory guidance. Pursuant to the Governmental Consultations, as there are market demand and clinical needs for independent clinical laboratories conducting NGS testing, the clinical laboratories conducting Genomic LDTs, including us, may in practice continue to provide NGS-based testing services before final regulations are promulgated.
Use of unregistered testing kits: Based on Joint Notice No. 25 and Governmental Consultations, there is no regulatory risk in connection with the use of unregistered testing kits during the provision of Genomic LDTs, including for research, clinical development and commercial use, provided that there is no distribution of unregistered testing kits during provision of the Genomic LDTs. Further, based on Governmental Consultations, use of unregistered testing kits during provision of Genomic LDTs will not be viewed by governmental authorities as distribution of such testing kits.
Bundled Non-Genomic LDT: Based on the Governmental Consultations and as advised by our PRC Legal Advisor, unregistered testing kits are allowed to be used during the provision of Non-Genomic LDTs as long as unregistered testing kits are not monetized during the provision of Non-Genomic LDTs, i.e., (i) we do not charge for unregistered testing kits; and (ii) no distribution or sale of unregistered testing kits is involved in the provision of Non-Genomic LDTs.
Price of our Bundled Non-Genomic LDT is determined either on cost-plus basis or on standard market price basis. Cost-plus pricing mainly reflects the cost of services provided and procurement cost of testing kits, plus a service premium (the “Standard Price”). Service premium takes into account the required skills, knowledge, experience and medical background associated with the provision of testing and medical consultation service, and does not include the cost of unregistered testing kits, as confirmed by our Directors. For Bundled Non-Genomic LDT determined on cost-plus basis, the cost of unregistered testing kits to be used in providing such LDT is excluded when formulating the Standard Price. As for Bundled Non-Genomic LDT determined on standard market price basis, the standard market price is calculated based on quantity of only registered testing kits to be used in providing such LDT multiplied by the unit price of such registered testing kits formulated by certain official price manual on medical service (the “Standard Market Price”). We additionally offer a discount to the Standard Market Price. Therefore, the unregistered Testing Kits are provided free of charge.
Based on the Governmental Consultations, it is confirmed that (i) our pricing mechanism of Bundled Non-Genomic LDT is acceptable; and we will not be considered as charging money for the unregistered testing kits under such pricing mechanism by charging service fee for LDTs; (ii) we will not be considered as distribution and sale of unregistered testing kits for use of unregistered testing kits during Non-Genomic LDTs; and (iii) the use of unregistered testing kits during the provision of LDTs will not alter the nature of the provision of LDTs.
Relevant Non-Genomic LDT: As advised by our PRC Legal Advisor, pursuant to the Regulations on Supervision and Administration of Medical Devices (Revised in 2020 and became effective on June 1, 2021) (《醫療器械監督管理條例》(2020年修訂並於2021年6月1日生效)), use of unregistered medical device may be subject to a fine of not less than five times but not more than ten times the value of unregistered medical device, and unregistered medical device may be confiscated by NMPA or its local counterpart.
We believe the risks and likelihood of being penalized for using unregistered testing kits in Relevant Non-Genomic LDT by the NMPA and its provisional counterparts is relatively low because: (i) based on the Governmental Consultations, none of Hubei NMPA, Beijing NMPA and Sichuan NMPA was aware of any penalties imposed on ICLs in connection with use of unregistered testing kits during provisions of LDTs; Beijing NMPA further indicated that there is no regulatory risk over use of unregistered testing kits during LDTs (which includes Relevant Non-Genomic LDTs) in Beijing so long as there is no distribution or sale of unregistered testing kits. In addition, our PRC Legal Advisor is of the view that NMPA and their provincial counterparts adopt consistent approach with regard to this issue; and (ii) our use of unregistered testing kits during provision of LDTs falls under the scope of Article 53 of the Regulations on Supervision and Administration of Medical Devices (Revised in 2020 and became effective on June 1, 2021) (《醫療器 械監督管理條例》（2020年修訂並於2021年6月1日生效）) which allows qualified medical institutions to research and develop in vitro diagnostics testing kits with no same category of products available on market in China and to use such in vitro diagnostics testing kits internally pursuant to licensed physician’s guidance, substantially reducing the risk of being penalized for use of unregistered testing kits.
Source: Kindstar Globalgene (09960) Prospectus (IPO Date : 2021/06/29) |