[Editor's note] "If you don't go to sea, you're out." "In 2024, Chinese companies will press the fast-forward button when they go overseas. Different from the simple output of products and technologies in version 1.0, Chinese enterprises go overseas 2.0, matching overseas demand with local innovation and forming a competitive force with industrial synergy, which is the output of China's independent core technology and the global dissemination of China's wisdom and innovative spirit. Sailing to the sea, it seems that the tide is flat and the overseas market is wide, but there may be undercurrents. In the face of the unfamiliar and complex market environment and the rapid wind and rain of anti-globalization, how can Chinese enterprises break through the walls, take root and climb in the new round of "going out"? The Paper hereby launches the 2024 year-end special to outline a new picture of Made in China going overseas and record the era of going overseas.

The Human Genome Project, officially launched in 1990, is one of the three major projects in the history of human natural science in the 20th century, the other two being the Manhattan Atomic Project and the Apollo Moon Landing Program. At the end of the last century, China, as the only developing country, formally participated in this cross-century international cooperation project, undertaking 1% of the work.

Scientists from six countries, including the United States, the United Kingdom, Japan, France, Germany and China, spent 13 years and nearly $3 billion to complete the first human genome map. Nearly 20 years after the first draft of the human genome was published, the top international journal Science published six articles simultaneously in 2022, presenting a more complete picture of the human genome.

1% at the end of the 20th century means that China is not absent from major life science projects in the global field. But this was only the beginning, at that time, the core tool sequencer was still in the hands of international giants. In July 2022, MGI (688114. SH) announced that it has reached a settlement with global giant Illumina for all pending lawsuits in the United States. The patent infringement case of the Chinese and foreign gene sequencing leader, which took three years, ended with MGI receiving US$325 million in compensation.

This rare victory in the history of Chinese science and technology has put China's gene sequencer, which has already made a name for itself in the world, further at the center of the global mainstream market.

"The fact that we were able to win a lawsuit of more than $300 million in the U.S. home market actually went a long way toward reversing the world's bias against Chinese products, even beyond the significance of our life sciences alone." Liu Jian, executive vice president of MGI, told The Paper.

In May 2024, MGI's manufacturing base in San Jose, California, was inaugurated, marking the company's first complete assembly line in the United States.

At the time of the interview, Liu Jian was in California, USA. In May this year, MGI's manufacturing base in San Jose, California, was officially inaugurated, which means that the company has a complete assembly line for the first time in the United States, which can accelerate the delivery of instruments to customers in the United States. One year earlier, MGI's first large-scale production center outside of China, the Latvian base in Europe, had officially started mass production.

Liu Jian said at the time that this was the company's efforts to extend its production capacity and strength beyond China. "Europe has always been at the forefront of genomics research and innovation, and it is also one of our important markets, and the opening of the new production line in Latvia marks another important milestone for MGI in promoting the development of life science research and industry in Europe."

In the face of the more complex but larger market in the United States, Liu Jian, who is standing on the "front line of going to sea", has a lot of feelings. But he stressed to The Paper, "We will continue to work hard to do business in the United States, I believe that no matter how far the geopolitics develops, American scientific research institutions, genetic testing service companies and even ordinary people welcome competition and oppose monopoly, because only a competitive market can be dynamic, and the ultimate beneficiary is everyone, and we also need to give the American market more choices and opportunities." ”

From following to surpassing, it took 10 years

As the upstream of the gene sequencing industry chain, gene sequencers and supporting reagents are the part with the highest barriers in the entire industry chain. The domestic gene sequencer is a typical sample of localization, and MGI is an important participant in the group.

The

gene sequencer is also regarded as a "lithography machine" in the field of life sciences, and the reason why MGI independently developed and produced this "lithography machine" is not unfamiliar to the outside world. In 1999, during the period of rapid change in high-throughput sequencing technology, BGI was founded. In 2010, BGI purchased 128 Hiseq2000 sequencers, which were the most advanced at the time, from Illumina, and became the world's largest and most influential sequencing organization.

It

was at this moment that Illumina's subsequent reagent price hike and a series of "neck-stuck" measures were the direct "promoters" of MGI's birth. The company was founded in April 2016, but it can be traced back to 2013, when the company acquired Complete Genomics (hereinafter referred to as "CG") in the United States, obtained the core patented technology, and then established a sequencer R&D team to achieve technology digestion, absorption, and re-innovation.

After ten years of development, MGI has become the only two companies in the world whose sequencer products cover a full product matrix of low-throughput, medium-throughput, and high-throughput. After the release of the nanopore sequencer this year, MGI has also become the only company in the world with three different sequencing technology paths: excitation, self-illumination, and non-illumination.

In the gene sequencing industry, despite the emergence of new companies, the concentration is still high in recent years, with MGI, Illumina, and Thermo Fisher accounting for nearly 90% of the combined market share.

However, due to the early start of genetic testing technology in European and American countries, Illumina and Thermo Fisher occupy a large market share in gene sequencing equipment and reagent consumables. In particular, Illumina, as the world's largest manufacturer of gene sequencing equipment, has sold more than 25,000 sequencers worldwide by the end of 2023, covering more than 9,500 customers around the world.

Objectively speaking, Illumina's dominance in the global market is difficult to shake in a short period of time. MGI's previous prospectus mentioned that from 2019 to 2021, Illumina accounted for 74%, 78% and 71% of the global market share, respectively.

However, in terms of the domestic market, the emergence of MGI is reducing Illumina's market share. From 2020 to 2022, Illumina's market share in China was 59%, 48%, and 37%, respectively, shrinking year by year. In the past 2023, MGI sold 695 new sequencers in China, accounting for 47.3% of the market share of the new installed capacity in the upstream of the domestic gene sequencing industry, while Illumina further declined to 26.5%.

This is also the second consecutive year that MGI's newly installed sequencing equipment market share ranks first in China. "From the perspective of the domestic market, if we calculate according to the first sequencer launched by BGI in 2015, we have proved with our products, services and business that we can be number one, because we are already number one in terms of new installed capacity in the Chinese market." Liu Jian said.

Competitive Landscape of China's Gene Sequencing Equipment Market by Number of Units Newly Sold in the Year, 2021-2023.

Why go to sea? Give the world one more choice

"Although China's sequencing market is growing rapidly, it is still relatively small, accounting for only 13% of the global sequencing market. Liu Jian said categorically: We must go to sea and open up the international market.

It further said that from the perspective of the global sequencing market, the Americas market accounts for 51%, the European market accounts for nearly 25%, and the rest is the Asia-Pacific market, of which the Chinese market accounts for half of the Asia-Pacific market. "So do you want to go to sea? If you don't go overseas, it means that you can only do things in 1/8 of the global market. Liu Jian sharply pointed out that if only 1/8 of the global market is used to feed back R&D and technology, it is basically impossible to continue to become a leader in this industry.

"Others use the global market to feed the company's development, and will do more R&D investment to maintain leadership, and it will be stronger."

As Professor Chen Guoguo, director of the Department of Strategy at INSEAD, said in an interview with The Paper, in essence, going overseas is a so-called process of globalization and internationalization, and it is not a new topic. ”

Chen Guoli said that enterprises going overseas are sometimes based on factors of production, for example, Southeast Asia may have lower labor costs; Sometimes it is based on market factors, such as going to Africa for the market, where young people need more products and services, and so on. MGI is based on market factors, but it is aimed at the European and American markets.

There

is another important reason for domestic sequencers to go overseas. The sequencing market in Europe and the United States is even larger, and the reason behind it is that they are in a leading position from national policy guidance such as national precision medicine and biological manufacturing, to drug research and development, life sciences and other applications. ”

Liu Jian said that from MGI's own point of view, the above two reasons "force us to go to sea." ”

Before entering the European and American markets, Japan, which is also a developed country and has strong scientific and technological strength, was the "touchstone" of MGI. Liu Jian said frankly, "At that time, if I went to Europe and the United States all at once, the support in all aspects was not so complete, but if we could win the recognition of the Japanese market, which is known for its strictness, then many other countries, including Western countries, would also directly recognize it." ”

Since February 14, 2018, three MGISEQ-2000s manufactured by MGI have been delivered to RIKEN of RIKEN in Japan. In Liu Jian's words, this is MGI's real commercialization overseas. Even before that, some researchers in Europe and the United States had used MGI's sequencers in the form of scientific research collaborations.

RIKEN is one of Japan's national research institutes and the earliest basic science research institute in Asia, founded in 1917 by Eiichi Shibusawa, the father of Japanese capitalism. Since the 80s of the 20th century, RIKEN has had extensive scientific research cooperation with the Chinese scientific research community. The institute established the Center for Genomics in 1998 and contributes to the Human Genome Project.

Eight

months later, during ICG-13 held in October of that year, Dr. Yasushi Okazaki and Dr. Ken Yagi of RIKEN Center for Integrative Medical Sciences in Japan gave presentations on a number of RIKEN research projects based on MGISEQ-2000, a high-throughput gene sequencer manufactured by MGI.

In his presentation, Dr. Okazaki made it clear that "the MGISEQ-2000 is a high-precision and low-cost gene sequencer, and RIKEN's research projects will continue to use the MGISEQ-2000." Dr. Yagi presented WGS data from MGISEQ-2000 and Hiseq-2500 from MGI, respectively, and performed data analysis of SNVs and INDELs, which showed that the data of MGISEQ-2000 were comparable and valid.

Liu Jian was deeply impressed when he talked about the first entry of sequencers into RIKEN, "Basically, it was the first few machines of our earliest overseas version, and everyone was joking at the time, and we must not be ashamed." He also vividly remembers that RIKEN's sequencing laboratory basically collects sequencers of all generations in Europe and the United States, and it is like a global museum of sequencers, "It was the first time that a Chinese sequencer entered this museum." ”

If the European and American markets are abandoned, the voice of Chinese companies will be gone

After testing the waters well, the larger European and American markets must be conquered. "We continue to invest money in lawsuits in Europe and the United States, and the lawyer's fees are very expensive, almost calculated by 100 million yuan a year."

After more than three years of tug-of-war, the patent infringement case between MGI and Illumina, a leading Chinese and foreign gene sequencing company, has come to an end. On July 15, 2022, MGI announced that it has reached a settlement with Illumina regarding all pending litigation in the United States. Under the terms of the agreement, the parties will no longer contest the outcome of the litigation in the U.S. District Court for the Northern District of California and the District Court for the District of Delaware. As a result, Illumina will pay a net compensation of US$325 million to Complete Genomics ("CG"), a subsidiary of MGI.

In addition, MGI will drop its antitrust lawsuit against Illumina in the Northern District Court of California. Illumina will license MGI and its subsidiary, CG, for the "Two-color sequencing technology" series of patents.

According to MGI's statement at the time, the two parties also agreed that in the next three years, they will not sue each other and their customers for patent infringement and violation of U.S. antitrust laws or unfair competition in the United States, and will not claim for losses that may be caused by the existing sequencing platform.

"It is rare for a Chinese company to win a patent lawsuit in the United States and pay more than 100 million US dollars in compensation, and we may be one of the few cases, and it also has great historical significance." Liu Jian made no secret of his pride.

At the same time, he talked about the long-term stereotypes of Chinese products and Chinese brands in the European and American markets. "Frankly speaking, more and more Chinese products and enterprises are going overseas now, but after they really go overseas, problems with intellectual property rights are still very common."

If you go back 10 years, "plagiarism" is a high-frequency word in this stereotype; In the past 10 years, Chinese companies have gradually changed the impression of the global market by relying on R&D and hard work. ”

"We have launched more and more innovative products ourselves, and many indicators are even more advanced than those overseas." But Liu Jian believes that it will still take time for the bias to be reversed. And only the accumulation of typical events such as MGI's winning a lawsuit in the United States can accelerate the reversal of prejudice.

In

the U.S. market, whether there is a patent issue or not, the judgment of customers on MGI will be completely different. However, after the obstacle of patent blocking was removed, the market journey is still full of thorns.

"We won the lawsuit and got the 'ticket' to enter the U.S. market, but we still face many challenges."

In August 2022, MGI began to sell its related sequencing products based on CoolMPS technology in the United States, which means that MGI's products have officially entered the U.S. market for the first time. Nearly four months later, on January 9, 2023, and then in August 2022, MGI announced its official entry into the U.S. market. Until January 2023, MGI's subsidiary, CG Corporation, announced the launch of a full line of sequencing products in the U.S. market.

Market development has just begun, and new obstacles have appeared. Since the beginning of this year, the draft version of the US Biosecurity Act has begun to stir up the storm. The bill takes aim at so-called "foreign adversary biotechnology companies" and prohibits the use of federal funds for such companies. This casts a shadow on MGI's sequencer's business development in the U.S. market. In September, the U.S. House of Representatives voted to pass the Biosecurity Act, and uncertainty increased again.

Recently, however, the crisis has taken a turn for the worse. The 2025 U.S. Defense Budget Bill, published on December 7, does not include the Biosecurity Act; On December 18, the 2025 Continuing Appropriations and Deferrals Act (CR Act, also known as the Continuing Resolution) announced or about to be considered by the U.S. Congress did not include the Biosafety Act, nor did the names of relevant entities mentioned in the Biosafety Act, such as MGI and WuXi Logics, appear.

MGI issued a statement in September this year on the U.S. Biosecurity Act, saying that there are many errors in the accusations against our company in the Act. Again, MGI and CG, as upstream equipment providers in the gene sequencing industry, do not collect any genetic data, and the data generated by customers based on the company's sequencing platform is collected, stored, processed and controlled by customers.

"We have repeatedly stated the facts, and at the same time, we want everyone to see the leadership of our science and technology and the benefits it brings to the market, and our existence is to break the monopoly and provide new options for the world." Liu Jian said.

In any case, MGI's development in the U.S. market is far more difficult than expected.

"Despite a series of headwinds, MGI has maintained growth in the United States, and from this point of view, there is still an element of optimism. But on the flip side, our growth could have been higher, the potential is still very high, the market is too big. Liu Jian said.

In the first three quarters of this year, MGI sold more than 670 gene sequencers, a year-on-year increase of 4%. As of the end of September 2024, the cumulative sales installed capacity is close to 4,000 units. From the perspective of the performance of each region, the gene sequencer business in China achieved revenue of 1.05 billion yuan, accounting for 68%; Revenue in the Asia-Pacific region decreased by 48% year-on-year to RMB150 million, or 16% year-on-year excluding the impact of projects in the United Arab Emirates. Europe and Africa achieved revenue of 220 million yuan, accounting for 14%; The Americas achieved revenue of 120 million yuan, accounting for 8%.

Up to now, MGI has established training centers and logistics centers in the Asia-Pacific region such as Singapore, Japan, Australia and other places to build direct sales and distribution channels. The company has also officially opened its new European headquarters in Berlin, Germany, which will serve as an early experience and testing base for the company's new technologies and products. Through the establishment of R&D, production and marketing centers in Europe, the transformation of localized technology and the delivery of localized production have been completed, and the Latvian factory has completed a number of quality system certifications and undertook the production of DNBSEQ-G400 (domestic name is "MGISEQ-2000") sequencer and a variety of sequencing reagents, and completed the localization production certification.

In addition, on the basis of the existing R&D center in the Americas, the infrastructure construction of the U.S. factory will be completed in the first half of 2024 to realize the mass production of the gene sequencer DNBSEQ-G99. At the same time, the company opened two customer experience centers in São Paulo and Boston, and continued to strengthen local customer support and service capabilities.

"We must insist on going overseas, including developed markets such as Europe and the United States, as the leader of the entire life sciences and genomics in China, if MGI does not invest in and cultivate the European and American markets, then the voice and influence of Chinese life technology enterprises in the global market will become smaller and smaller." Liu Jian repeatedly emphasized.