Test kit makers face biggest test as they seek growth after Covid
Korean test-kit makers are looking for growth after the Covid boom ends, going for afield in search of their next act.
As they struggle for new business opportunities, their stocks have been weak despite the intense demand for test kits. SD Biosensor is trading near its July 2021 initial public offering price. Seegene is down 82 percent from its 2020 peak.
The main strategy for a number of them is buying into in-vitro diagnostic companies. In-vitro diagnostic involves testing blood or tissue samples.
Currently, the market is dominated by a number of international companies, including Basel-based Roche, Chicago's Abbott Laboratories, Washington's Danaher and Munich's Siemens. Together these companies control more than half the market.
In early November, SD Biosensor, Korea's largest test kit maker by market cap, acquired Eco Diagnostica, a Nova Lima Brazil-based diagnostic company, for 47 billion won ($40 million).
As the eighth largest health care market in the world, Brazil is very attractive market, SD Biosensor said. The country has 37 percent of South America's diagnostic market.
Founded in 2011, Eco Diagnostica manufactures and distributes human and animal diagnostic products. It owns about 150 diagnostic products and is the second largest diagnostic company in Brazil by sales.
In September, SD Biosensor spent 40 billion won acquiring 22.1 percent of UXN, a Suwon, Gyeonggi-based, Konex-listed continuous glucose monitor (CGM) developer. CGM systems continually check glucose levels of a person and issue an alert if the level goes too high or too low.
The size of global CGM market, which was around 15 trillion won in 2019, will likely to grow to 17 trillion won in 2025.
"SD Biosensor has a strong determination to undertake more mergers and acquisitions in the future in order to enter global market," said Jeong Song-hoon, a researcher at Korea Investment & Securities, adding that the company will have about 1.2 trillion won to deploy for the deals.
In 2021, Seegene hired Park Sung-woo as head of M&A. Park previously served as the chief financial officer at Daelim Industrial.
Analyst Lee Ji-soo of KTB Investment & Securities said in a report that "Seegene holds around 384 billion won of cash and is likely to use that to acquire companies in order to enter new businesses."
SD Biosensor's Standard Q kit, the country's first antigen Covid-19 test kit to receive approval from the Ministry of Food and Drug Safety, has been exported to around 60 countries, including United States. It received use approval from the ministry in September last year, and has received an emergency use authorization (EUA) from the U.S. Food and Drug Administration (FDA).
The company's self-test kit received an EUA from the FDA on Dec. 27.
SD Biosensor's net profit jumped 200-fold on year to 621.6 billion won in 2020. Its revenue rose 2,310 percent on year to 1.69 trillion won, while operating profit rose 48,500 percent to 738.3 billion won.
Its net profit fell 4.24 percent on year in the third quarter on a 1.72 percent decline in revenue.
Seegene generated 503.1 billion won in net profit in 2020, up 1,783.8 percent. Its revenue increased nine-fold to 1.13 trillion won, while operating profit rose nearly 3,000 percent to 676.2 billion won.
Its net profit was down 39 percent on year in the third quarter on a 7 percent on year decline in revenue.
"Demand for Covid-19 test kits is expected to increase for a while as the number of cases in countries that adopted the 'Living with Covid' scheme is on the constant rise," Won Jae-hee, a researcher at Shinhan Investment, wrote in a recent report.
BY SARAH CHEA [email@example.com]