The reason why Daan Gene took the initiative to cut the prices of several test reagents is that the market demand for such test reagents has not yet reached a large scale, and it is doubtful whether it is feasible to exchange price for volume.
Daan Gene (002030.SZ) may bring new variables to the direction of the molecular diagnostic industry with this move.
Recently, Daan Genetics issued a "Notice of Reagent Price Adjustment" (hereinafter referred to as "Notice Letter") dated November 7, which was circulated in the industry. In the Notice Letter, Daan Genetics said, "We have decided to significantly reduce the prices of our in vitro diagnostic reagents from November 2022 onwards".
According to Time Finance, Daan Gene has reduced the prices of 53 reagent products, covering hepatitis B, influenza, intestinal respiratory, Helicobacter pylori, human papillomavirus (HPV) and other fields. The price list attached to the Notice Letter shows that the prices of 48 reagent products have been reduced to CNY 20 or less, of which CNY 10 and CNY 15 products account for more than 95%, while only 5 products are priced above CNY 20.
In response to this price reduction, Time Finance called Daan Gene's securities department, and the person concerned confirmed that the aforementioned "Notice Letter" was indeed issued by the company.
As soon as the above document was issued, it caused a dramatic shock in the industry. Some industry insiders named it "CNY 10 Document", believing that this document is destined to go down in the history books of the Chinese IVD (in vitro diagnostic) molecular industry, directly penetrating the bottom price of Chinese players.
"In fact, the price of reagents has long been broken, the scale benefit of the head enterprises has been transmitted to the whole industry, and the price of upstream raw materials has also come down, so this is an essential return of the whole industry, not a disruption of the industry." Zhuo Wei, a veteran of IVD, said frankly to Time Finance.
The price of several test reagents products dropped to CNY 10
As the head player in the Chinese molecular diagnostic field, Daan Gene is a state-owned biopharmaceutical high-tech enterprise with molecular diagnostic technology as the leading technology, integrating the R&D, production and sales of clinical test reagents, instruments and supporting consumables, which was listed on the Shenzhen Stock Exchange in 2004.
The 2021 annual report shows that Daan Gene's products mainly include different categories of fluorescent quantitative PCR series products (clinical), fluorescent quantitative PCR series products (public health), sequencing series products, chemiluminescence series products, etc. Data from the State Drug Administration shows that Daan Gene has been approved for more than 70 reagent products.
According to the research report of Forward Industry Research Institute, PCR (polymerase chain reaction) technology is the most mature and widely used molecular diagnostic technology in clinical practice, with the advantages of high sensitivity, good specificity, timeliness and convenience. At present, PCR products market is the main segment of molecular testing products market, accounting for 40% of the overall molecular diagnostic market share.
The Notice Letter shows that most of Daan Gene's products with price reduction belong to the fluorescent quantitative PCR series (clinical). Among them, hepatitis B virus nucleic acid determination kit (PCR-fluorescent probe method), Mycobacterium tuberculosis nucleic acid detection kit (PCR-fluorescent method), human papilloma virus (type 6, 11) nucleic acid detection kit (PCR-fluorescent method), etc. are down to CNY 10.
"Unlike other companies, Daan Gene's supply chain is already complete, has the supply chain advantage, and has the strength to do this." Zhuo Wei told Time Finance, "Daan gene price reduction should be the market behavior after the company's accounting, price for volume, other manufacturers must follow, it can only be said that molecular diagnostics into the era of parity, rather than into the era of destruction. The direct cost of these reagents are not high, because the epidemic has cultivated a mature supply chain, making this price reduction possible and inevitable, just to see who makes the first move".
Financial data show that from 2020 to the first half of 2022, the gross margin of the biologics segment of Daan Genetics are more than 70%.
"The head of the industry is relatively mature in terms of research and development, production and other aspects, cost control is also better, in order to occupy more of the market, on the price of the hard drop, and even if the price is reduced, there is still a certain profit margin." Medical reform research expert Xu Yucai told Time Finance.
According to another media report, "Daan Gene also sent this price to various terminals, to local medical insurance and recruitment centers, ready to hang network", based on the document "Notice on Adjusting the Price of Some Medical Consumables and Reagents" issued by Qinghai Provincial Drug Procurement Center on November 15 (hereinafter referred to as " Notice"). The "Notice" pointed out that, according to the enterprise application, the price of some medical consumables and in vitro diagnostic test reagents are adjusted, and the adjusted price is implemented from now on.
The Notice shows that the price adjustment is large. According to the Times financial calculations, to enterovirus EV71/CA16 nucleic acid test kit (PCR - fluorescence detection needle method), for example, its actual specifications for the large package of 48 people / box, before the change, the price in Guangdong Province is CNY 4,608/ box, that is, CNY 96/ person, Shaanxi Province price is CNY 3,840/ box, that is, CNY 80/ person, and after the change, the price in Qinghai Province is CNY 1,440/box, i.e. CNY 30/ person, which is the same as the price in the above Notice Letter, and compared with the listed price in Guangdong Province before the change, the reduction reaches 68.75%.
The aforementioned person related to the securities department told Time Finance, "The products involved in the price reduction notice letter to be adjusted, the company has successively submitted applications to the national provincial platforms for price adjustment of the listed products."
In fact, in addition to Daan gene initiative to adjust the price of testing reagents, with the advancement of the reform of volume procurement, testing reagents products are also included in the collection. On November 14, Jiangxi Province, the official announcement of the pharmaceutical procurement service platform said that it will jointly carry out inter-provincial alliance of liver biochemical test reagents with Hebei Province, Shaanxi Province and other 22 places, involving 26 clinically used products such as total protein and albumin.
"Collective procurement is a major trend, this time Daan gene initiative to reduce prices may also be in response to the routine testing reagents products into the collective procurement and do the layout in advance." Xu Yucai analyzed to Time Finance.
Is it feasible to exchange price for volume?
The reason why Daan Gene's initiative to lower the prices of several tests is controversial is that the market demand for such tests has not yet reached a large scale, and it is doubtful whether it is feasible to trade price for volume.
Previously, a global market analysis report on infectious disease diagnostics by research firm Kalorama Information showed that the market for infectious disease testing in China is estimated to be $6.45 billion (approximately CNY 45.890 billion) in 2022. Of this, new crown-related tests are $3.05 billion, accounting for 47.29%.
"The market for PCR products has been cultivated and mature, the incidence is low but screening will be more, the total market is going to grow, so the price for volume is definitely effective in the long run." Zhuo Wei told Time Finance.
Data from the China Business Industry Research Institute shows that in China, the rising incidence of infectious diseases has directly driven the rapid growth of the in vitro diagnosis of infectious diseases market size. According to statistics from the National Bureau of Disease Control and Prevention, from 2015-2019, the number of cases of statutory infectious diseases in China grew from 6,408,400 to 10,244,500, with an average annual compound growth of 12.44%. In terms of market size, in the future, with the increasing national efforts to control infectious diseases, the in vitro diagnostic market size of infectious diseases in China is expected to increase from $2.109 billion in 2019 to $4.137 billion in 2027, with a CAGR of 8.79%.
From the product categories of this Daan gene price reduction, Shengxiang Bio (688289.SH), *ST Kehua (002022.SZ), Zhijiang Bio (688317.SH), Kepu Bio (300639.SZ) are all players in this track. A related person from a leading company told Time Finance that "the company will respond to the policy direction of the country."
"The price reduction can be seen from two aspects: on the one hand from the enterprise price reduction for the company's sales strategy, before the higher profits of conventional testing reagents, enterprises continue to upgrade production lines, bringing down the cost, so there is the possibility of price reduction and the main driving force; on the other hand, the future probability of some reagents for conventional tests will also go to the collection, the intermediate commercial links will be compressed. If we can quickly aggregate channels in advance, it is bound to bring revenue protection in the future." Zhou Jun, a senior expert in the medical industry, analyzed to Time Finance, "The final result is that the big factory will win the small factory, and the small factory will be eliminated from the game because the cost can't come down."
(At the request of the interviewee, Zhuo Wei and Zhou Jun are pseudonyms.)
China Association of In-vitro Diagnostics
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