Berry Genomics, designated as the first public company in the gene sequencing sector, is facing an uncertain future as it nears a decade of trading on the Shenzhen Stock Exchange (000710.SZ). Recent public disclosures reveal that the major shareholder and actual controller, Gao Yang, is on the brink of losing control over his substantial stake in the companyStarting February 6, 2025, the auction of 16.6 million shares owned by Gao is scheduled to occur with a starting price set at 7.96 yuan per shareEarly reports indicate interest from bidders on the judicial auction platform, signaling potential shifts in company ownership.

The stakes are substantial, with Gao's impending auction involving 51.89% of his total shares in Berry Genomics, translating to 4.7% of the company’s overall equityThe planned auction results from a dispute regarding a stock pledge repurchase agreement with Guoxin Securities, which has led to the judicial freezing of his sharesThis predicament arose as all of Gao's holdings in Berry Genomics had previously been pledged to Guoxin Securities, complicating his financial maneuvers and pushing him towards this forced sale.

A spokesperson from Berry Genomics' Securities Investment Department remarked that while there is currently no indication from other shareholders regarding interest in participating in the shareholder auction, there have been inquiries from external investors seeking information about the company's operational status and auction detailsThis reflects a growing tension and speculation around the future governance of the company.

As discussions about Gao's auction and its implications on the company’s management surface, the spokesperson added, "The potential sale of all shares held by the major shareholder could lead to a change in actual control; however, current governance remains steady." Gao still maintains influence on the board level, which might provide stability regardless of the auction results.

As of now, the public announcement about the auction remains in a preliminary phase, with various legal proceedings and potential ownership transitions still looming

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The company explicitly stated, “This auction process carries the risk of altering the control of the company,” underlining the seriousness of the situation.

Analyzing the equity structure, Chengdu Tianxing Instrument (Group) Co., Ltd. currently holds the title of the largest shareholder with approximately 12.45% ownership, followed by Gao Yang at a far lower percentageThe third-largest shareholder, Hongling Siqi (Zhuhai) M&A Private Equity Fund, possesses about 8.5%. Notably, Tianxing Instrument recently assured the company via a letter that it has no intentions of pursuing control over Berry Genomics, a statement not echoed by the third-largest shareholder.

The precarious financial state of Gao Yang is exacerbated by his pre-existing conditions; his total stake in Berry Genomics, now reduced to 31.99 million shares (around 9.05% of the company), stands as testament to a declineAdditionally, his associate Hou Ying holds approximately 14.92 million shares, with substantial portions facing similar threats of judicial enforcement.

This ongoing saga has roots that delve back to the company’s initial public offering, where both Gao Yang and Hou Ying commenced leveraging their equityGao, currently the chairman and general manager of Berry Genomics, comes with experience from BGI Genomics, where he spent eight years honing his expertise in genetic technologyBerry Genomics entered the public eye after successfully backdoor listing through Tianxing Instrument in 2017, focusing heavily on high-throughput sequencing services.

By late 2017, the company became embroiled in financial turbulence when both Gao and Hou began pledging a significant volume of their stocks for personal financial management needs, a practice that would haunt their financial dealings in subsequent years.

Stock prices for Berry Genomics debuted at approximately 60 yuan per share, peaking and plummeting within various market conditionsBy 2019, the company’s shares dipped below the 30 yuan mark, forcing Gao and Hou to further pledge their stakes in a bid to maintain liquidity

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This led to a cycle of inflated pledges, with Hou pledging over 90% of her holdings at one point.

In 2020, a slight recovery saw stocks soar to 98 yuan; however, this was short-lived, as 2021 saw another downturn with prices below 40 yuanThis series of plummeting stock prices has continued into the presentBy the beginning of 2025, prices have stagnated below 10 yuan.

Guoxin Securities previously attempted to mitigate Gao’s risks by acquiring a portion of the pledged shares, but the ongoing disputes have erupted into legal matters, leaving little room for resolutionAs Berry Genomics confronts its financial woes, it faces a grim reality of declining revenues, a trend that has persisted since 2021.

The company’s annual return shows a drop in revenue from 14.22 billion yuan in 2021, down to about 11.51 billion yuan in 2023, showcasing a worrying trend that has pushed the company into the red with cumulative losses reaching 4.27 billion yuan over these yearsThe fiscal situation was further aggravated by revenue slumps of 15.83% in 2023, our attentiveness to an ever-changing market.

Recent quarterly reports indicate an uncertain turnaround as Berry Genomics experienced a minor rebound, signaling a profit for the first three quarters of 2024; however, this was achieved in an environment of dwindling sales figuresCost-cutting measures contributed to a positive net profit of approximately 10.39 million yuan.

Historically, the company's income has been primarily driven from medical testing, contributing to its foundational developmentHowever, the growing prevalence of reagent sales highlighted a shift in revenue sources, now surpassed by the reagent sales that represent over 40% of total income in the current fiscal structure.

Industry analysts indicate that despite ongoing research and the introduction of new products, competition coupled with a mature market landscape has stifled significant revenue-driving innovations, contrasting starkly against its initial offerings like non-invasive prenatal genetic testing that once revitalized their market position.

Berry Genomics is grappling with external market conditions, tightening domestic demographics affecting growth potential, and a need for innovation in product offerings

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