A subsidiary of Chinese genome giant BGI Group, which manufactures gene sequencing equipment, has received initial approval to go public on Shanghai’s high-tech board, although issues related to related party transactions and patent infringement risks could challenge the listing in question .
The IPO of MGI Tech Co. Ltd. meets the admission requirements and information requirements, announced the admission committee of the Nasdaq-like STAR market in a message on Thursday (link in Chinese). However, the company must state whether it can maintain sustainable and fairly priced transactions with related companies and persons with the BGI Group and its affiliated companies and develop its business completely independently, according to the committee.
In an updated prospectus (link in Chinese) in August, five-year-old MGI Tech, a major supplier of Covid-19 testing equipment in China, said it had sales of 523 million yuan ($ 81 million US) with related parties ) had transactions in 2020, which accounted for 18.8% of total revenue that year, significantly less than in 2018, when revenue from related party transactions was 1 billion yuan.
MGI Tech said in an earlier response to regulatory concerns that it had redoubled its efforts to build relationships with outside customers. The number of third-party customers rose from just 13 in 2017 to around 300 in 2020, including scientific research institutions, health organizations, disease control and prevention centers, and gene sequencing companies that sold their gene sequencing devices to third-party buyers accounted for 59.9% of total sales, down from 6. 6% in 2018.
Whether MGI Tech is at risk of being sued for patent infringement in mainland China is also a key issue for the listing committee, according to Thursday’s announcement.
As of 2019, US genomic giant Illumina Inc. has filed a number of patent infringement suits against BGI Group and its subsidiaries, including MGI Tech, in dozen of countries and regions. Courts in countries such as the USA, Germany, Sweden, Spain, Finland, Belgium and the Czech Republic have ruled in favor of Illumina.
In 2020, sales revenue from products involved in the litigation accounted for only 2.39% of total sales, MGI Tech said, adding that potential patent infringement cases could impact overseas operations.
MGI Tech intends to sell up to 41.32 million shares of the proposed Shanghai IPO for 2.53 billion yuan, which will mainly be used to fund the construction of a research and development base and the development and manufacture of gene sequencing equipment using semiconductor technology his prospectus.
In 2020, the company reported net income of 261 million yuan on sales of 2.78 billion yuan, largely from sales of its gene sequencing equipment, according to the prospectus.
In May 2020, MGI Tech raised $ 1 billion in a Series B financing round jointly led by IDG Capital and CPE China Fund.
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