'NGS Specialist' IMBDX, Countdown to KOSDAQ Listing [Reporter Reading Securities Report]

Cancer Precision Medicine and Early Diagnosis Platform Developer
Average PER of Comparable Companies 30 Times 'Burden'

IMBDX, a Next Generation Sequencing (NGS) company, is undergoing the process of an initial public offering (IPO) on the KOSDAQ. The company plans to use the funds raised through the listing for research and development (R&D) and overseas expansion. However, there appear to be many hurdles to overcome during the IPO process. The biotech sector is sluggish due to expectations that the timing of interest rate cuts in the U.S. will be delayed. Additionally, the average price-to-earnings ratio (PER) of the comparable companies used to estimate the desired offering price exceeds 30 times, which is also a burden.

NGS Specialist Founded in 2018... Developing Cancer Precision Medicine and Early Diagnosis Platforms

IMBDX was established in 2018 and focuses on cancer precision medicine and early diagnosis platform businesses. Since 2014, the founders have secured core liquid biopsy technology through joint research. Within five years of its founding, the company achieved the number one market share in the domestic next-generation sequencing market.

It developed the first clinically applied cancer precision medicine and early diagnosis platform in Korea. The main platforms include ▲CancerFind™, an early cancer diagnosis platform ▲CancerDetect™, which detects minimal residual cancer after surgery ▲and AlphaLiquid? 100 and AlphaLiquid? HRR, prognostic and predictive diagnostic platforms for advanced cancer.

The company provides prescription and screening services to over 33 specialized medical institutions in Korea, including Seoul National University Hospital, Samsung Medical Center, and the National Cancer Center. It also has a companion diagnostic supply contract with AstraZeneca headquarters, a global pharmaceutical company, and offers AlphaLiquid HRR to stage 3-4 prostate cancer patients in Asia, the Middle East, and South America.

However, the company is still operating at a loss. Operating losses increased from KRW 2.46484 billion in 2020 to KRW 7.616 billion last year (preliminary settlement). Sales are growing rapidly. Revenue increased from KRW 169.15 million in 2020 to KRW 2.62474 billion in 2022. Last year, it achieved KRW 4.031 billion in sales.

IMBDX expects to grow rapidly as the market expands. Global consulting firm Precedence Research forecasts that the global liquid biopsy market, which IMBDX belongs to, will reach approximately KRW 8 trillion this year. It also expects the market to grow to about KRW 24 trillion by 2032, with an average annual growth rate of 14.5% from 2023 to 2032.

Comparable Companies’ Average PER of 30 Times... Biotech Sector Also Sluggish

IMBDX set its desired offering price based on earnings forecasts, as it is currently operating at a loss. The break-even point is expected in 2027. Mirae Asset Securities, the lead underwriter, projects that IMBDX will achieve KRW 49.866 billion in sales, KRW 15.183 billion in operating profit, and KRW 15.183 billion in net profit in 2027. The core of 2027 sales is expected to be AlphaLiquid? 100, with estimated sales of KRW 18.1 billion domestically and KRW 19.5 billion overseas.

Through its securities registration statement, the company explained, "Considering the growth rates of major domestic and overseas clients, continuous growth is expected over the next five years. For overseas, only five countries?Taiwan, Thailand, Turkey, Hong Kong, and Vietnam?where sales channels have been confirmed were considered for estimates, and expansion into additional countries is also possible."

There may be differing opinions on the desired offering price. Mirae Asset Securities selected four comparable companies: BodytechMed, Hologic, Sysmex, and Agilent Technologies. Their average PER is 30.26 times. Although BodytechMed’s PER was 15.7 times, the overseas companies Hologic (35.3 times), Sysmex (36.1 times), and Agilent Technologies (33.9 times) all exceeded 30 times. Generally, a PER above 30 is considered overvalued. Moreover, the recent outlook that U.S. interest rate hikes will be delayed has led to adjustments in the biotech sector, except for some companies, which could be a burden.

However, by applying a relatively high discount rate, the company appears to have reduced the burden on the offering price. IMBDX’s valuation, based on 2027 projected performance and the average PER of comparable companies, is KRW 13,160. Applying a discount rate of 24.77% to 41.49%, the desired offering price range is KRW 7,700 to KRW 9,900. The average discount rate for companies listed through technology special cases in 2022-2023 was 28.26% to 41.07%.

IMBDX plans to raise KRW 19.3 billion to KRW 24.8 billion through the listing. Based on the minimum offering price, KRW 7.3 billion will be used to expand sequencing service capabilities, KRW 10.9 billion for R&D, and KRW 800 million for overseas expansion.