It is very common that companies are sought after because they are led or endorsed by well-known backers. However, does the endorsement fairly represent a company’s intrinsic valuation or long term stock price? For rational investors, the answer is obviously “no”.
Multiple factors are used to assess the value of a company: fundamentals, market share and competitiveness, innovation capabilities and prospects. Following well-known backers seems to be a short cut, but this may backfire, because you may miss well-performing securities or even make wrong decisions. In the final analysis, the value of a company is determined by the business model and technology, not simply by attracting well known investors.
In the life sciences space, in fact, a company with well know investors sometimes commands an unsustainable and even unjustifiable valuation, while a company without well-known investors but featuring equal or better innovation, technology and a strong team has a much lower valuation. Clearly, the role of well-known investors in driving valuations can be exaggerated and is often unwarranted at least in the short run. Let’s take a look at Grail Inc. and AnPac Bio Medical-Science Co., Ltd. (“AnPac Bio” hereafter).
Grail Inc., a well-known private company who is dedicated to the development of early screening for cancer, has been highly sought after in the primary market, with a current valuation at about 3.2 billion dollars, attracting famous investors include Microsoft’s co-founder Bill Gates and Amazon’s Jeff Bezos. Grail Inc. did have a good management and an aggressive plan to develop and validate its novel cancer screening technology with one of the largest perspective cancer screening enrollments to date. On the other hand, AnPac Bio (Nasdaq: ANPC), a biotechnology company with operations in China and the United States focused on early cancer screening and detection, without those well-known backers, is only worth 107 million dollars.
It is surprising that although the valuation of Grail Inc. is much higher than that of AnPac Bio, it is not difficult to find through direct comparison that AnPac Bio’s overall strength in terms of level of innovation measured by technology uniqueness and number of issued patents, performance including early stage cancer detection sensitivity and specificity, cost-saving, commercialization process, sample size are either equal or stronger than those of Grail Inc. in general. For example, Grail Inc.’s multi-cancer prototype blood test method can detect 12 deadly cancers signal in the early stages, which is still under development. AnPac Bio has been able to screen 26 cancers using its CDA technology and equipment. Grail Inc. has just launched a Circulating Cell-free Genome Atlas Study (CCGA), recruiting a total of 135,000 research subjects. However, the sample size of AnPac Bio’s early cancer screening has already exceeded 140,000. Another group of numbers that may also surprise you comparing the companies: the sensitivity and specificity numbers of lung cancer, by AnPac Bio CDA, are 85.2% and 93% respectively for stage I lung cancer patients; by Grail Inc.’s Gene Test, the number are 59% and 99% for stages I, II and III lung cancer patients; for esophageal cancer, AnPac Bio recorded 75.0% and 99% for stage I esophageal cancer patients, while Grail Inc. recorded as 76% and 99% for stages I, II, and III esophageal cancer patients. Now you may confuse that why investors ignore such an undervalued company, but chase for a potentially overvaulted company? Maybe Bill Gates’ Bio and Jeff Bezos’ endorsement are more valuable than Grail Inc. per se.
So far AnPac Bio is the only early cancer screening company from China to successfully go public in the U.S. The reason for that is that NASDAQ and US investors value AnPac Bio’s innovation ability, foresight in the industry, as well as trust the strong track record of its founders and management team. In terms of innovation capabilities and foresight, AnPac Bio has signed research agreements with multiple US universities and academic medical centers and owns 121 issued patents in about 20 countries and region. Also, AnPac Bio is a global company with operations in US and China, which operates a CLIA lab in San Jose and is setting up a second lab in Philadelphia. According to an estimate, of China’s approximately 900 million strong labor force, if we assume a 10% market penetration for early screening of cancer, with the price of 400 Yuan for one person who performs one cancer screening per year (AnPac Bio was ranked as No.1 in terms of number of people screened in 2018 in China according to a report by Frost-Sullivan), the annual benefit of AnPac Bio could reach 36 billion Yuan.
As for experience and strength, AnPac Bio has a team with highly successful track record and proven innovation capabilities. Dr. Chris Yu, the co-founder and CEO of AnPac Bio, is a successful serial entrepreneur. He has been an executive or co-founder of several listed companies in the United States and China. He is the first or principal inventor of over 300 patent applications spanning semiconductor, materials and life science. Dr. Chris Yu has a proven history of developing cutting-edge products with long-term profit and sustainability, with global sales figures reaching over $4 B for innovative products developed under his leadership.
Nevertheless, AnPac Bio’s stock has been undervalued since its IPO this year. Perhaps only when Gates and Bezos realize they should have invested in AnPac Bio, will others start to regret missing a good investment in the life science space.