Analysis of GenePlus's Strategic Transformation and Strategies for Gene Testing Enterprises to Break Through the OEM Model

I will now prepare a comprehensive analysis report based on the collected information.

As a representative enterprise in China’s precision diagnostics field, GenePlus’s development trajectory profoundly reflects the market fluctuations of the entire gene testing industry during extraordinary times. According to the latest financial data, the company seized the opportunity of surging demand for nucleic acid testing brought by the COVID-19 pandemic between 2020 and 2022, with its revenue skyrocketing from pre-pandemic normal levels. It achieved revenue of RMB 1.815 billion and a period profit of RMB 372 million in 2022, hitting a historical peak [1]. During this period, the company achieved rapid business scale expansion through large-scale deployment of nucleic acid testing capabilities.

However, this growth model highly dependent on a single business has significant vulnerabilities. After the COVID-19 dividend faded rapidly in 2023, GenePlus’s revenue plummeted to RMB 473 million, a decrease of approximately 73.9% [2]. This drastic performance fluctuation fully exposes the unsustainability of the “pandemic-dependent” business model, and also reveals the deep-seated problems in the business structure design of many gene testing enterprises. The company stated frankly that the performance decline was mainly due to the gradual termination of COVID-19 nucleic acid testing services after the pandemic ended, marking the complete dissipation of the occasional growth dividend [1].

Facing the reality of the fading COVID-19 dividend, GenePlus quickly adjusted its strategic direction and refocused resources on core business areas such as precision oncology diagnostics and organ health monitoring. This transformation decision reflects the company’s clear understanding of long-term development trends: shifting from occasional demand-driven to rigid clinical demand-driven, and from single testing services to full-cycle health management solutions.

From a business structure perspective, GenePlus has built a full-cycle precision prevention and treatment system covering “early screening and prevention - companion diagnostics - MRD recurrence monitoring” [3]. In the early screening field, the company’s “GeneMorning®-8 Cancer Early Warning Genetic Test” adopts non-invasive targeted methylation technology, enabling early warning for 8 high-incidence cancers including lung cancer, colorectal cancer, breast cancer, liver cancer, and thyroid cancer; in the companion diagnostics field, products such as “GenePeace® (1021 Comprehensive Medication Genetic Test)” and “GeneQuick® (188 Medication Genetic Test)” analyze tumor gene mutations through deep sequencing to accurately match targeted drugs, immunotherapy, and chemotherapy regimens; in the recurrence monitoring field, “GeneGuard® (Personalized MRD Test)” designs individualized probes based on over 5,000 tissue prior results, with a sensitivity of 0.01%, which can warn of recurrence 3-10 months earlier than imaging on average [3].

From a financial perspective, GenePlus’s transformation journey is characterized by “moderate revenue recovery, continued but narrowing losses”. The company’s revenue rebounded to RMB 557 million in 2024, a year-on-year increase of approximately 17.8%; its revenue in the first half of 2025 reached RMB 285 million, representing a further 12.6% year-on-year growth, indicating that its core business has regained a firm footing [2]. More notably, the company’s gross margin has continuously improved from 41.9% in 2022 to 68.5% in the first half of 2025, and this significant improvement in the indicator reflects that the product structure is adjusting towards higher value-added directions [1][2].

However, improvements in profitability still face challenges. The company recorded a net loss of RMB 424 million in 2024, and the loss further expanded to RMB 414 million in the first half of 2025. The main reason was a fair value loss of RMB 362 million recorded in the first half of the year, rather than a decline in product competitiveness. The adjusted net loss actually showed a narrowing trend, decreasing from RMB 88.235 million in the same period last year to RMB 47.656 million [2]. As of the end of June 2025, the company’s cash and cash equivalents on hand were only RMB 96 million, while its net current liabilities reached as high as RMB 1.775 billion, and funding pressure is increasingly prominent. This is also the core reason why the company chose to promote its Hong Kong IPO at this time [1].

From the perspective of market competition pattern, GenePlus has ranked among the top players in China’s precision diagnostics solutions market, ranking third among the top five by revenue, with a market share of approximately 2.7% [1]. However, in terms of supply chain, the company’s procurement from its top five suppliers accounted for 68.1% of total procurement in the first half of 2025, and the risk of supply chain concentration cannot be ignored [1]. This structural shortcoming precisely reveals the common predicament faced by many gene testing enterprises.

The gene sequencing industry chain shows obvious characteristics of a “smile curve”, with upstream suppliers of instruments, consumables and reagents controlling core technologies and enjoying the highest entry barriers and profit margins. According to industry research data, global enterprises with the ability to independently develop and mass-produce clinical-grade high-throughput gene sequencers are mainly concentrated in three companies: Illumina, Thermo Fisher, and MGI [4]. Among them, Illumina maintains a global installed base share of approximately 66% with its MiSeq, NextSeq and NovaSeq product lines, forming a de facto market monopoly [5].

This highly concentrated upstream market pattern places great restrictions on midstream and downstream enterprises in supply chain selection. Taking Novogene as an example, the company clearly stated in its prospectus: “Due to the current monopoly position of foreign upstream manufacturers, the company has a limited range of choices. Therefore, the company mainly conducts long-term cooperation with suppliers through procurement from domestic agents or direct procurement from manufacturers.” [6] This passive situation not only compresses the profit space of enterprises, but also lays hidden dangers in terms of supply chain stability.

The OEM export model exposes gene testing enterprises to multiple risks. First is cost risk: the high prices of imported equipment and consumables directly erode the profits of midstream and downstream enterprises; second is supply risk: fluctuations in international supply chains (such as geopolitical conflicts, logistics disruptions, etc.) may lead to “supply cut-off” crises for enterprises; third is innovation risk: relying on external technology platforms leaves enterprises subject to others in core technologies, making it difficult to form differentiated competitive advantages.

From the perspective of value distribution in the industrial chain, upstream equipment and reagent suppliers seize most of the profits, while midstream service providers are trapped in the dilemma of “small profits but quick turnover”. Taking GenePlus as an example, although its gross margin has increased to 68.5%, there is still a large gap compared with the gross margin of over 80% commonly seen in upstream enterprises [1]. This uneven value distribution fundamentally stems from the unequal right to speak in technology.

More critically, the OEM model causes enterprises to lose the initiative in product pricing, market development and other aspects. When competitors also rely on the same suppliers, homogeneous competition in products and services is inevitable, which eventually evolves into a price war quagmire. This is the fundamental reason why many gene testing enterprises have considerable revenue scale but weak profitability.

In recent years, changes in regulatory policies have had a profound impact on the gene testing industry. The National Medical Products Administration (NMPA) has increasingly strict approval and supervision of in vitro diagnostic (IVD) reagents, with longer product launch cycles and higher requirements for clinical verification. This makes the OEM model that relies on rapid iteration face greater uncertainty. At the same time, the gradual promotion of volume-based procurement policies has further compressed the living space of enterprises without cost advantages.

From an international perspective, the United States is accelerating restrictive measures against Chinese genomics suppliers, which makes supply chain security a strategic priority for more and more enterprises [5]. In this context, enterprises highly dependent on imported equipment and consumables face not only cost pressure, but also strategic risks.

The primary path to break through the OEM model is to realize independent and controllable core technology. This path has been verified in the practice of Antu Biotechnology. Three gene sequencers recently approved by Sikun Bio, a subsidiary of Antu Biotechnology, mark the company’s 100% independent R&D in core components and biochemical raw materials, completely bidding farewell to the OEM model [7]. The successful case of Antu Biotechnology shows that through continuous high-proportion R&D investment, Chinese enterprises are fully capable of competing with international giants in the high-end field of sequencers.

The key to independent core technology lies in building a complete intellectual property system and patent layout. Enterprises need to accumulate independent intellectual property rights in core links such as sequencing chemistry, optical systems, fluid control, and bioinformatics analysis to form a technological moat. At the same time, attention should be paid to breakthroughs in source technologies, rather than just improvements at the application level. Only by mastering underlying technologies can we truly realize independent and controllable supply chains.

The growth trajectory of MGI provides another important reference for the industry. As the leading domestic enterprise in the gene sequencer field, MGI has gained the ability to compete head-on with Illumina and Thermo Fisher through continuous R&D investment [7]. In the first half of 2025, the company’s total sales of full-read length sequencing business instruments exceeded 700 units, a year-on-year increase of 60.35%, with new sales of clinical field equipment increasing by 72.81% year-on-year [7]. This achievement fully proves the feasibility and sustainability of the independent R&D route.

While promoting independent core technology, enterprises also need to enhance risk resistance through supply chain diversification. Specific strategies include:

Avoid over-reliance on a single supplier, and introduce second and third suppliers when conditions permit to form a competitive pattern among suppliers. This can not only improve procurement bargaining power, but more importantly, reduce the risk of supply chain disruption.

For components and consumables with a high degree of localization, actively seek cooperation with domestic suppliers. In recent years, with the rapid development of the domestic life science industry, domestic suppliers have made significant progress in quality control and supply stability, which can fully meet the needs of clinical applications.

For core raw materials and key components, establish an appropriate safety inventory, and build backup production bases when feasible to respond to sudden supply interruptions.

Antu Biotechnology emphasized in its sequencer products that “ensuring supply chain stability and security from the source, and effectively avoiding delivery risks caused by fluctuations in international supply chains” [7], which should become an industry consensus.

Traditional gene testing enterprises mostly adopt a service-oriented business model, that is, providing testing services to customers through laboratories and charging testing fees. The limitations of this model include: heavy assets, high marginal costs, difficulty in large-scale replication, and high dependence on orders from hospitals and research institutions.

The key to breaking through the bottleneck of this model is to transform to a product-oriented business model, that is, developing independently salable IVD kits and instruments to realize the sales of “instrument + reagent” integrated solutions. This transformation can bring multiple advantages: first, product sales enjoy higher gross margins; second, customer stickiness is significantly improved (once entering a hospital, subsequent reagent procurement is continuous); third, the scale effect is more obvious, with marginal costs decreasing as sales volume increases.

Novogene’s exploration in this direction is worthy of reference. The company’s independently developed “Human EGFR, KRAS, BRAF, PIK3CA, ALK, ROS1 Gene Mutation Detection Kit (Semiconductor Sequencing Method)” was approved in 2018, and achieved revenue of RMB 30.557 million in 2019, accounting for 1.99% of the company’s main business revenue [6]. More importantly, the gross margin of this product is far higher than that of the company’s other businesses, demonstrating the profit advantages of the product-oriented business model.

While individual enterprises break through the OEM model, the healthy development of the entire industry also requires the support of a platform strategy. Specifically, it includes:

The value of gene testing lies not only in the testing itself, but also in the in-depth interpretation and clinical transformation of testing data. The “one of the earliest large-scale multi-omics baseline databases in the industry” built by GenePlus is exactly the embodiment of this strategy [1]. By accumulating and operating large-scale population data, enterprises can develop diagnostic products with higher clinical value, and provide enabling services for drug R&D, clinical research, etc.

Gene testing enterprises should actively establish in-depth cooperation with hospitals, pharmaceutical companies, and research institutions to form a cooperative network covering the entire chain of “R&D - clinical - commercialization”. GenePlus has served more than 1,000 hospitals (including 30 of China’s top 100 hospitals), and established cooperation with more than 200 pharmaceutical companies and more than 500 clinical research institutions [1]. This extensive cooperation network is an important part of its core competitiveness.

By building regional testing centers, testing capabilities can be extended to grassroots levels and radiated to surrounding areas, which can not only improve the accessibility of testing services, but also form a scale effect. The regional laboratory network layout of enterprises such as KingMed Diagnostics and Da’an Gene provides a useful reference for the industry.

In the process of promoting strategic transformation, enterprises also need to make full use of policy dividends while ensuring compliant operations. Specifically, it includes:

The special approval channel for innovative medical devices of the NMPA provides an accelerated approval path for innovative products with independent intellectual property rights. Three sequencers of Antu Biotechnology and the six-gene detection kit of Novogene were all approved through this channel [7][6], greatly shortening the product launch cycle.

With the popularization of the concept of precision medicine, more and more gene testing items are being covered by medical insurance or supported by commercial insurance. Enterprises should actively participate in the formulation and pilot of relevant policies to strive for a larger market space for their products.

Gene testing involves a large amount of sensitive personal health information, and enterprises must establish a strict data security management system to ensure compliant operations and avoid legal and reputational risks caused by data leakage or illegal use.

According to forecasts from multiple research institutions, China’s gene testing market is in a period of rapid growth. The market size has grown from RMB 7.2 billion in 2016 to RMB 37.4 billion in 2024, and is expected to reach RMB 153.6 billion by 2030, with a compound annual growth rate (CAGR) of approximately 25.8% over the next five years [7]. This growth is mainly driven by the following factors:

With the increase in cancer incidence and the progress of treatment methods, the market demand for tumor gene testing will continue to grow. Especially in sub-fields such as minimal residual disease (MRD) testing and companion diagnostics, the growth potential is huge.

The country’s policy support for the precision medicine field continues to strengthen, and various favorable policies from innovative medical device approval to medical insurance coverage have created a good environment for industry development.

The cost of high-throughput sequencing technology continues to decline, making gene testing services more accessible and helping to expand market coverage.

The consumer-grade gene testing market has grown from RMB 4.6 billion in 2020 to an estimated RMB 8.2 billion in 2024 [8], opening up new growth space for the industry.

They should continue to deepen the transformation to a product-oriented business model, and increase investment in IVD product development, especially products with rigid clinical demand (such as oncology companion diagnostics, genetic disease testing, etc.). At the same time, they should strengthen strategic cooperation with upstream suppliers, or participate in upstream core technology development through investment and mergers and acquisitions, and gradually reduce dependence on a single supplier.

They should focus on specialized cultivation in segmented fields, and avoid competing with large enterprises in the generalized market. By establishing technological and service advantages in specific disease fields or specific application scenarios, they can form differentiated competitiveness. At the same time, they can consider forming strategic cooperation with large enterprises to become part of their regional service network.

They should avoid entering the highly competitive traditional testing service field, and instead focus on emerging application scenarios (such as single-cell sequencing, spatial omics, methylation testing, etc.) or innovative technology directions (such as POCT sequencing, nanopore sequencing, etc.). The competition pattern in these fields has not yet solidified, and there are opportunities to overtake on curves.

Gene sequencing technology is still evolving rapidly, and the emergence of new technologies may subvert the existing market pattern. The response strategy is to keep close track of cutting-edge technologies, and follow up new technologies in a timely manner through a combination of independent R&D and external cooperation.

Changes in regulatory policies may have a significant impact on the industry. The response strategy is to closely follow policy trends, actively participate in the policy-making process, and ensure that products and services meet regulatory requirements.

Intensified industry competition may lead to price wars and declining profit margins. The response strategy is to maintain profitability through differentiated competition and cost control, and avoid falling into homogeneous competition.

The uncertainty of international supply chains requires high attention. The response strategy is to promote supply chain diversification, accelerate domestic substitution of key links, and establish appropriate safety inventory.

GenePlus’s strategic transformation from nucleic acid testing to precision oncology diagnostics is a microcosm of the entire gene testing industry seeking sustainable development in the post-pandemic era. This case profoundly reveals the vulnerability of the “pandemic dividend-oriented” business model, as well as the urgency of transforming to rigid clinical demand and building core technical capabilities.

For the entire industry, breaking through the OEM export model and achieving independent control is a systematic project that requires coordinated efforts in multiple dimensions such as core technology R&D, supply chain system construction, and business model innovation. The successful practices of enterprises such as Antu Biotechnology and MGI prove that Chinese gene testing enterprises are fully capable of achieving breakthroughs in core technology fields and transforming from “followers” to “leaders”.

Looking forward to the future, with the continuous expansion of China’s precision medicine market and the acceleration of domestic substitution, the gene testing industry will usher in a new round of development opportunities. Enterprises that can grasp the direction of technological change, build independent supply chain systems, and realize business model innovation will stand out in this historical opportunity and lead China’s gene testing industry to a higher-quality development stage.

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[1] Eastmoney.com - Analysis of GenePlus’s Hong Kong IPO

[2] Yahoo Finance Hong Kong - COVID-19 Dividend Fades, GenePlus Steadily Restarts Its Journey

[3] Phoenix Net - Authoritative Interpretation of GenePlus’s Precision Oncology Prevention and Treatment System

[4] Eastmoney Securities Research Report - The Upper Stream of the Sequencing Industry Has the Highest Technical Barriers, MGI’s Independent R&D Breaks the Monopoly of Foreign Enterprises

[5] Mordor Intelligence - DNA Sequencing Market Size, Trends and Forecast Report

[6] Shanghai Stock Exchange - Novogene’s STAR Market Prospectus

[7] Zhengzhou Economic & Technological Development Zone Management Committee - “Arm-Wrestling” with International Giants, Gene Sequencers Realized “Made in Henan”

[8] Gelonghui - 2025 Domestic Market Development Status and Trend Analysis Report of the Consumer Gene Testing Industry