LabGenomics "Sustainable Growth Through Selection and Focus... Expecting Significant Results in the US"

Interview with LabGenomics CFO Sejin Oh
"Goal to Recover Performance from COVID-19 Next Year"
Sales Increase Compared to Previous Quarter... One-Time Costs Reflected

Diagnostic kit companies that saw a surge in sales during the COVID-19 pandemic are now busy seeking new growth engines. Luha Private Equity (Luha PE) is rapidly advancing post-merger integration (PMI) efforts such as entering the U.S. market and expanding digital healthcare businesses after acquiring LabGenomics. In August this year, LabGenomics acquired QDX, a CLIA-certified laboratory in the U.S. that meets medium-to-large laboratory standards. The company also reorganized its structure by recruiting specialized bio personnel. By accelerating research and development (R&D), it is introducing notable new products, including next-generation sequencing (NGS) cancer diagnostic services locally in the U.S.

Sejin Oh, Executive Director and Chief Financial Officer (CFO) of LabGenomics, explained, "We hurried and focused as much as possible to acquire CLIA labs, which is one of LabGenomics' core growth strategies. The process was delayed compared to the schedule because we thoroughly reviewed all M&A stages, including legal review, financial and business due diligence, and acquisition negotiations, to avoid missing any risks." He added, "Sales in the third quarter increased by 39% compared to the previous quarter. Not only the U.S. CLIA labs but also our core business is growing." However, he noted, "The number of COVID-19 tests sharply declined, and we confirmed the bottom in the third quarter. There may be a visual illusion that operating profit appears lower than expected."

LabGenomics reflected one-time advisory fees incurred during the M&A process in the third-quarter financial statements. Non-operating expenses increased due to corporate restructuring.

Oh emphasized, "CLIA labs have seasonality, with high sales during winter due to respiratory infection diagnostics. We expect this to be reflected in the fourth-quarter sales this year."

He also introduced ongoing corporate restructuring. "We are sorting and organizing the subsidiaries and affiliates of LabGenomics," he said. "This is to create transparent corporate governance and to focus on LabGenomics' core business through selection and concentration." He added, "In the third quarter of this year, we sold LabGenomics' subsidiary, venture capital firm Jin & Partners, and reflected the loss on disposal of investment assets as non-operating expenses." Oh stated, "LabGenomics headquarters will focus more on its core business," and added, "We are planning to merge with subsidiary Genocore BS to strengthen the medical artificial intelligence (AI) diagnostic business."

LabGenomics is also working on integrating the workspaces of research, sales, and administrative staff into one. This is to enhance mutual understanding of tasks and create work synergies. The office expansion and relocation are expected to be completed within the year. Oh said that the costs incurred during this process, which aims to gather scattered capabilities and eliminate unnecessary waste to prepare for LabGenomics' 'second leap,' were reflected in the third quarter.

Below is a Q&A with Executive Director Sejin Oh.

- How will you strengthen the medical AI diagnostic business?

▲ Medical AI can be applied in prevention, diagnosis, treatment, and monitoring areas. The fastest-growing market is the diagnostic sector. LabGenomics has focused on developing AI diagnostic data solutions. Through services such as NGS cancer prediction tests, the company has accumulated vast data. It has developed AI solutions that predict cancer early and solutions that estimate cancer occurrence probability to provide appropriate information. Some of these have led to sales.

The synergy between LabGenomics and LabGenomics Clinic allows for rapid results. The final service and diagnosis of pathology AI diagnostic solutions are performed by pathologists at testing institutions. Since LabGenomics' CLIA labs and clinics can create immediate synergy effects, discussions are underway with multiple pathology AI companies for collaboration.

The pathology AI diagnostic service market is expected to bloom rapidly. The U.S. CLIA labs are already prepared for implementation. While the technology of diagnostic products is important, the ability to dominate diagnostic services greatly affects the capacity to generate performance. LabGenomics plans to faithfully perform the function of an open platform where AI diagnostic companies can generate sales. The company is focusing on establishing a leading position with data diagnostic solutions that can easily penetrate the market with its capabilities.

- What are the core strategies going forward?

▲ Quarterly performance is improving. Despite a challenging market environment, good results continue. Sales in the third quarter increased by 39% compared to the previous quarter. Meaningful performance improvements are expected to continue in the fourth quarter. Next year, the goal is to recover sales from the period that benefited greatly from COVID-19. Additional acquisitions of CLIA labs are also under consideration. The core strategies are: first, building a digital healthcare ecosystem; second, entering the U.S. market with K-diagnostic content; third, maintaining market share in strategic business areas such as personal genome analysis services (PGS), including direct-to-consumer (DTC) services.

We are targeting overseas markets together with excellent Korean diagnostic companies. LabGenomics is pioneering sales channels in the U.S. market and collaborating with biotech firms that had difficulty achieving results in the domestic market to build a win-win structure. In the domestic contract testing market, we are considering various experimental approaches beyond the existing price competition framework. In the PGS strategic business area, including B2C diagnostics and microbiome testing, we have established channels with various companies across different industries, from large corporations such as Samsung Electronics, Amorepacific, and KB Financial Group to startups like Humanscape and BankSalad.

- You are actively recruiting external personnel, including U.S. subsidiary CEO Jo Jeong-hee. Are you also conducting personnel restructuring?

▲ I think the term 'restructuring' can be misunderstood. Many companies in the diagnostic industry are reducing personnel. LabGenomics is increasing its workforce. We do not plan any artificial restructuring. We are placing the talent needed for the second leap in the right positions. Even if there are short-term business fluctuations, we are striving to recruit excellent talent. We are introducing and supporting various systems to improve work efficiency.

- What new systems and support measures have you introduced?

▲ We are actively conducting personnel redeployment. We create new departments based on employees' desired departments and tasks they want to try.

We established decision-making bodies such as the Investment Review Committee, R&D Review Committee, and Ethics Management Committee to prevent all decisions from being made solely by the CEO or a few executives. We created a structure where key members participate in decision-making.

We introduced the Ideation System, a proposal reward system that supports ideas or business plans suggested by employees. To revitalize organizational culture, we also introduced systems such as praise relays and delivery snacks.

- What are your thoughts on shareholder-friendly policies and communication with shareholders?

▲ Diagnostic companies that benefited from the COVID-19 pandemic confirmed the bottom in third-quarter performance this year. We believe the current stock price is undervalued. We expect a revaluation opportunity soon. We plan active communication with shareholders and will conduct investor relations (IR) through LabGenomics' official YouTube channel starting with the third-quarter earnings briefing. We will closely communicate with the stock market. Since acquiring LabGenomics in January this year, the new management team has been working nonstop. If shareholders trust and support us, we will meet expectations with good management performance and results. LabGenomics has established concrete strategic plans to overcome the endemic situation. All members will unite and do their best to achieve rapid performance recovery and high-speed growth in a short time.