[Post-IPO]⑩ EDGC, Subsidiary Merger and COVID-19 Kit Impact... This Year Is Different

[Asia Economy Reporter Hyunseok Yoo] Genome analysis and diagnostic service company Eone Diagnomics Genome Center (EDGC) is expected to turn profitable this year. Although EDGC expanded its size through mergers and acquisitions (M&A), it had not escaped losses. However, the absorption merger of its subsidiary and the COVID-19 diagnostic kits developed by its affiliate Solgent are expected to contribute to improved performance this year.

EDGC provides genome analysis and diagnostic services based on next-generation sequencing (NGS) technology. It was established in 2013 as a joint venture between the medical corporation Eone Medical Foundation and Diagnomics in San Diego, USA.

In the public offering market, the lead underwriter SK Securities proposed a public offering price range of 4,700 to 5,700 KRW for EDGC. At that time, SK Securities projected that EDGC would record sales of 11.7 billion KRW and an operating loss of 1.9 billion KRW in 2018, and achieve sales of 34.8 billion KRW with an operating profit of 3.7 billion KRW last year. The net income for 2020 (12.2 billion KRW) was applied in determining the public offering price. SK Securities explained, "The reason for applying the estimated net income for 2020 in pricing is that it is appropriate to apply the price-earnings ratio (PER) to the estimated net income at the point when stable sales growth from existing non-invasive prenatal testing and newborn genetic testing, sales of industry-linked customized products, entry into the liquid biopsy market, and increased sales of personal genome analysis services become visible."

The finalized price for EDGC was 6,500 KRW, far exceeding the upper limit of the proposed range. The subscription competition rate for general investors also recorded 810.33 to 1, making it a hit in the public offering market. The company announced that the 46.3 billion KRW raised from the public offering would be used for facility funds, research and development funds, and operating funds. On the first day of listing on the KOSDAQ, which was successful in the public offering market, the stock price rose sharply. On June 26, 2018, the first day of trading, the stock closed at 11,100 KRW, up 23.33% from the opening price of 9,000 KRW, representing an increase of about 71% compared to the public offering price.

After listing, EDGC stated that as the medical and healthcare market shifts toward a "patient-customized precision medicine" trend and the genome analysis market continues to grow, it would steadily expand sales of existing products. It also planned to secure new growth engines through aggressive market preemption with new services. In its first year after listing, EDGC recorded consolidated sales of 21.5 billion KRW and an operating loss of 6.8 billion KRW. Sales exceeded previous estimates, thanks to mergers and acquisitions. In September 2018, EDGC acquired a 49.0% stake in EDGC Healthcare (formerly CNS Healthcare) and incorporated it as a subsidiary. This company is a medical device specialized distribution company with domestic hospitals and clinics as clients.

In 2019, EDGC recorded sales of 56.7 billion KRW and an operating loss of 8.6 billion KRW. Although sales exceeded projections, operating losses persisted despite expectations of turning profitable. The company explained, "Operating losses continued due to increased investment costs for research and development (R&D) to develop future growth engines, personnel recruitment to build a foundation for expanding new businesses, and new investments for business diversification."

However, different results are expected this year. The reason is EDGC Healthcare, acquired in 2018. In May, EDGC decided to absorb and merge EDGC Healthcare. EDGC Healthcare recorded sales of 50.8 billion KRW and an operating profit of 3 billion KRW last year, and profits are expected to increase significantly this year. The company owns its affiliate Solgent, which developed the third COVID-19 diagnostic kit following CoGen and Seegene.

EDGC expects that after the merger is completed, sales and operating profit for this year will reach 120 billion KRW and 25 billion KRW, respectively. The merger date was June 6. A company official said, "Through the merger, distribution margins of EDGC Healthcare and sales of kits developed by Solgent will be reflected. Our internal goal is to turn profitable by the end of the year."

Along with this, EDGC plans to strengthen its existing business. In March, EDGC launched YouWho, a service that reveals an individual's genetic lineage through DNA analysis. It analyzes individual racial distribution across 95 countries and 22 ethnic groups on six continents worldwide, providing characteristics of major ethnicities and country information. EDGC aims to conduct 100,000 tests by the end of this year. This business is a direct-to-consumer (DTC) service.

DTC genetic testing allows general consumers to receive genome analysis services directly without going through hospitals for specific items such as skin and hair loss. Although the DTC market has not grown due to opposition and regulations from the medical community, recent expansions in permitted items have raised growth expectations. A company official explained, "It is still in the early stages, so progress is slow, but we plan to continuously develop the service by upgrading content. We expect that as word spreads, the number of cases will increase rapidly."