LabGenomics① Bio-Diagnostics Game Changer? Presenting a New Solution in Korea

As news spread that Labgenomics' acquisition of Clearlab is imminent, Labgenomics' stock price rose 33% from 7,100 KRW at the beginning of this month to the closing price on the 26th. Among bio-diagnostic companies, it was the only one selected as a KOSDAQ Rising Star.

Labgenomics is a top-tier domestic diagnostic specialist company that has built a diverse diagnostic business portfolio ranging from PCR diagnostics to NGS (Next Generation Sequencing) diagnostics and immunochemical diagnostics. There are only a few domestic diagnostic companies, including Labgenomics, that cover all three diagnostic areas.

For example, SD Biosensor is a company with strong expertise in manufacturing immunochemical-based point-of-care diagnostic kits and reagents, while Seegene excels in manufacturing multiplex PCR diagnostic kits for exogenous diseases. Labgenomics' core competitiveness lies in its balanced experience across all three areas. In addition, Labgenomics possesses the rare know-how of operating a Central Lab, which is another strength of the company.

This is why Labgenomics can successfully carry out the acquisition of the US-based Clearlab. CLIA refers to the US Clinical Laboratory Improvement Amendments certification system, and labs certified by CLIA can provide LDT (Laboratory Developed Test) diagnostic services without requiring FDA approval.

To understand why Labgenomics and other diagnostic companies aim to acquire US CLIA Labs, it helps to look at the structure of the contract testing markets in Korea and the US.

In Korea, when a patient requests a test at a hospital, the hospital requests contract testing from a contract testing institution (lab, nonprofit medical institution). Then, the National Health Insurance Service reimburses the hospital for the test fees, and the hospital pays the contract testing institution after deducting its profit margin.

In contrast, in the US, when a patient requests a test at a hospital, the hospital requests contract testing from a contract testing institution (lab, for-profit corporation). Then, private insurance companies directly reimburse the contract testing institution for the test fees, separate from the hospital's profit margin. Additionally, private insurance is well-developed in the US, and insurance reimbursement rates are known to be on average more than four times higher than those covered by public insurance in Korea. Special tests such as cancer diagnostics can be priced 6 to 10 times higher. Furthermore, under Korean medical law, contract testing institutions must be nonprofit medical institutions, whereas in the US, contract testing institutions operate as for-profit corporations such as joint-stock companies.

The CLIA system certifies certain contract testing institutions through the US CDC. CLIA-certified labs can provide diagnostic services using LDT (laboratory-developed tests) without FDA approval. The US operates this exceptional system because general public access to healthcare is very limited and medical fees are extremely high. The system aims to allow patients and prospective patients easier access to the diagnostic market, especially in the relatively low clinical risk area of in vitro diagnostics.

The market size of US CLIA Labs alone is approximately 70 trillion KRW, with an average annual growth rate of 3.1%. Representative companies include LabCorp (formerly Roche Diagnostics) and Quest Diagnostics, which not only record tens of trillions in sales but are also valued at tens of trillions in corporate value. Because these companies select diagnostic reagents or kits necessary for testing themselves, CLIA Labs hold hegemonic control over the diagnostic product market in the US diagnostic industry.

In the past, a major domestic molecular diagnostic company, S Company, led the US market entry by supplying diagnostic products to large US CLIA Labs since the early 2010s, and for this reason, it was highly valued relative to its business performance. In 2016, the company recorded annual sales of 53 billion KRW and operating profit of 10.6 billion KRW, with a market capitalization of about 900 billion KRW, reflecting a price-to-earnings ratio (PER) of 130 times.

Labgenomics has introduced a new agenda to the domestic diagnostic industry, which is pursuing growth strategies by supplying diagnostic kits to US CLIA Labs, by planning to directly operate a mid-to-large scale CLIA Lab through acquisition. Since it already possesses central lab business operation capabilities and diagnostic kits to supply to US CLIA Labs, a sharp visible growth in scale and a revaluation of corporate value are expected in the future.

During the COVID-19 period, domestic diagnostic companies' diagnostic technologies were recognized worldwide. Although the technology is excellent, many companies struggle to secure profitability due to the small size of the domestic diagnostic market. Most diagnostic companies seek growth through entry into the US market because the US diagnostic market environment is overwhelmingly favorable. As Labgenomics is the first domestic company to acquire a mid-to-large US CLIA Lab, attention is focused on whether it can successfully lead the US market entry of domestic diagnostic companies.

This content was produced with the assistance of AI translation services.