[COVID-19 Vaccine Stock Analysis] Somagen Gains Stock Price from Moderna but Earnings Remain 'Gloomy'... "Strengthening Business in the Second Half"

Recently, news about the development of vaccines for the novel coronavirus infection (COVID-19) has been emerging from various places. American pharmaceutical companies Pfizer and Moderna announced that their respective COVID-19 vaccines showed 95% immunity efficacy in Phase 3 clinical trials. This news excited people worldwide who were exhausted by COVID-19. Expectations grew that the world could return to the pre-COVID-19 outbreak era. These expectations were also reflected in the stock market. Global stock markets have continued to rise daily, buoyed by prospects of economic recovery. In the domestic stock market, especially, the stock prices of companies grouped as Pfizer and Moderna-related stocks surged sharply. The reasons these companies are grouped as related stocks vary. Some seem reasonable, but others are somewhat questionable. Accordingly, Asia Economy conducted an in-depth analysis of KPX Life Science, AB Pro Bio, and Somagen, among the 'COVID-19 vaccine-related stocks' recently attracting attention in the domestic stock market.

[Asia Economy Reporter Yoo Hyun-seok] Somagen (Reg.S) has been known as a COVID-19 vaccine theme stock since 2014 by providing genomic analysis services to the American pharmaceutical company Moderna. However, the revenue obtained through Moderna accounts for only a part of its performance, and the company’s performance remains sluggish. The company plans to overcome the poor performance by strengthening services in the second half of the year.

Somagen provides genomic analysis service solutions such as next-generation sequencing (NGS), direct-to-consumer genetic testing (DTC), and microbiome analysis following its Sanger sequencing (CES) method. As of the third quarter of this year, NGS accounted for 81.8% of total sales, followed by CES (17.51%), DTC (0.38%), and microbiome (0.73%).

The third-quarter sales amounted to $11.94 million (approximately KRW 13.3 billion), with an operating loss of $6.01 million (about KRW 670 million). Compared to the same period last year, sales decreased by 7.4%, and losses continued. The CES business segment was sluggish. Up to the third quarter of this year, it recorded $2.09 million (about KRW 230 million), whereas last year it recorded $4.09 million (about KRW 460 million). Despite the third quarter having passed, this year’s sales are only half of last year’s.

A company official said, "We believe that the COVID-19 sequencing analysis, DTC, and microbiome analysis service markets have also been somewhat impacted. Our main clients are university research institutes, government research institutes, and hospitals, but as the spread of COVID-19 worsened, universities and research institutes either suspended operations or operated only essential parts, which affected sales." He added, "The CES business segment, which provides results on the same day as sample receipt, was heavily affected in the early stages of COVID-19."

Somagen plans to strengthen existing businesses and launch new services next year to improve performance. Regarding the DTC genomic analysis service, it plans to upgrade the product to provide useful information to consumers starting from this year’s Black Friday. Additionally, for the microbiome segment, based on assets such as 246 patents and 300,000 sample data acquired from the U.S. company uBiome in December last year, it plans to launch hospital-linked analysis products (services) in the second half of next year.

Through these efforts, the company aims to improve its performance. At the time of listing, Somagen set its performance targets for next year at KRW 40.3 billion in sales and an operating loss of KRW 1.2 billion. The break-even point is expected in 2022, with projected sales and operating profit of KRW 60.6 billion and KRW 5.8 billion, respectively.

A company official emphasized, "We plan to actively utilize approximately KRW 44 billion raised through listing on the KOSDAQ market for research and development (R&D), marketing, and promotion in the DTC genomic analysis and microbiome analysis service sectors," adding, "In the mid to long term, we will expand service areas to various disease-related diagnostic fields such as autoimmune diseases, obesity, and metabolic syndrome by leveraging core microbiome patents and data we hold."

Meanwhile, Somagen has been providing DNA (genetic information) and RNA (ribonucleic acid) sequencing analysis services to Moderna since 2014 under a contract. It is understood that about KRW 1 billion in sales is generated annually from Moderna, accounting for approximately 4% of last year’s sales. A company official said, "Somagen has been providing RNA sequencing analysis services to Moderna since 2014," and added, "Currently, it is using the CES method, and we expect orders for the NGS method in the future."

Somagen was established in the U.S. by Macrogen, a listed company, in 2004. It entered the KOSDAQ market last July and is also the first foreign company to be listed through a technology special listing. Based on its experience participating in major U.S. government projects, it maintains a market share of around 10% in the U.S. NGS service market.