Q4 2020 Genetron Holdings Ltd Earnings Call

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good day, and thank you for standing by welcome to the genetron Holdings Limited conference call at this time. All participants are in listen-only mode off. The speaker's presentation. There will be a question-and-answer session to ask a question during the session. You will need to press star one on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press * 0. I would now like to hand the conference over to our first Speaker today, Please take over by.

Hello everyone and welcome to June twenty fourth quarter and full-year twenty-twenty earnings conference call. The company's earnings release was issued issues earlier today and is available on the company's wage, like during this call the company would making some forward-looking statements regarding future events and results. These statements are made under the Safe Harbor provision of the US private Securities litigation Reform Act of 1995.

Statements that are not historical facts including statements about genetron health beliefs and expectations of Florida statements and false information regarding these and other risks is included in genetron health finally to the FCC all information provided today is as of the date of this call and ginger and help them undertake any obligation to update any forward-looking statements except as required under applicable law with respect to any non-ifrs measures this month during today's call. The company's reconciliation information related to those measures can be found in the earnings release issued earlier today.

Allow me to introduce the management team on the call today season Wayne.

Co-founder and CEO of Canton House full recap some of our recent announcements and discuss upcoming Milestones chief medical officer took ecstasy data and plans for this assets talk to you to our CTO will go over our early screening technology and strategy. Kevin shoes off will provide financial highlights related to the fourth quarter and full-year results online in today's release in addition to 20 21 Revenue Outlook.

Following Management's prepared remarks we'll open up the call to questions our co-founder and chief scientific officer will also be available to answer questions. I would like to turn the call over to mister Steven Wang. See you all change on help season, please. Go ahead.

Thank you. Okey. Hello everyone. Thank you for joining our fourth-quarter and full-year 2020 earnings conference call. I would like to direct you to the supplemental earnings M wetting our investor relations website and begin on like to in this past year ching chong continue to solidify our position as a leading position oncology company in China who is a comprehensive portfolio that covers entire spectrum of cancer management adjusting needs and challenges from early screening diagnosis and treatment recommendations as well as continuous disease monitoring and care.

If you turning to slide 5 throughout 220 despite challenges brought on by the copy nineteen the dynamic delivered a strong financial results month. We were excited to successfully complete our IPO on NASDAQ while making cigarettes and Commercial and Technical progress across all of our business lines our total revenue office lights 31% year-over-year the 425 million in 2020. We were pleased with acceleration in year-over-year growth during the second half of the year after reporting 28% year-over-year growth in the first half of 2020.

Sales from HTC screen. Our most advanced early screening product will have told cellular to Sonoma which is currently commercialized as ldt service in China as well as our ivd revenue and hopefully our S5 instruments and long 8 sa both grow significantly more often. Our robust Revenue growth was accompanied by strong margin improvements improved sg&a operational efficiencies, and the resulting narrowed losses compared to a year 2019.

Given a series of a key announcement in the past month in HTC degree. I would like to spend the next few minutes to focus on this exciting asset of hours off. Let's move to slide seven.

Yesterday we announced exciting new data of 1615 patients from our prospective cohort study of a HTC screen in which month. We reported data that has better sensitivity and comparable specificity versus the current standard-of-care improve will go into the details being a little bit.

Recall that HTC screen is powered by Jean Johnson Innovative Factory mutation capture technology, which enables detection of multiple methylation alterations in parallel with patients in cell-free DNA from blood sample HTC screen is the first product out of this platform and we are pleased to see all the progress we have made as you may know. The liver cancer is endemic in China accounting for almost half of the global instances with over 350,000 annual new cases in debt.

Respectively and it's estimated that among that 120 million high-risk liver cancer population China around seventy-four million or HP.

The potential Market opportunity of hccscreen is a massive with the estimated time of over $7 according to the process delivery research. We are excited about a potential that should see screen but more importantly we're also very proud that we're contributing to address a critical unmet need that could benefit hundreds of thousands patients save save many lives and Elevate societal.

The marketing environment have already screening and detection also continues to be promising the Chinese government remains supportive around policies initiatives that focus on early detection and treatment dead.

A few months ago. We announced that HTC screen was selected by the National Cancer Center in China and the VC municipal government for use in its Public Health Initiative of which we see is committed to administering 150,000 test over a period of the three years for its local residents who are high risk individuals for a month.

This project has kicked off in the first quarter of last year allowing us to realize some of the tests orders, you know, Revenue this pilot model set us off a good place for future commercial break in the reimbursement roadmaps morning. Hopefully, we are generating large-scale real-world data from this collaboration which offers tremendous strategic value as we continue the project on expanding our earliest when you pop line beyond beyond liver cancer, we are advancing in digestive lung cancer assay development and we look forward to sharing some early data incorrect. Okay. Wow this year.

also early 2021

We establish exclusive strategic partnership for HTC screen, which should not changing a subsidiary of Sino of Alabama to co-promote hccscreen in the hospital Market.

In China did not see anything has estimate. It's 30% plus Marcus year and hepatitis antiviral drugs a sales team of over seven thousand less and a network off over 2000 General and liver disease focused hospitals since the announcement the teams from both companies have already set up a dedicated group to focus on the initial rollout to about a 5200 hospitals. We expect this partnership to become more productive and allow us to launch hccscreen effectively into the key hospitals over the next few quarters.

the way this developments in addition to our partnership was icon singtel has now covered the major market segments including hospitals for human contact in the medical exam centres month, which we expect to really help us ramp up our spring Revenue this year beyond the let me now pass the quartering

Who will discuss our new spring data that we just recorded? Thank you soon. Please turn to slightly cracked his screen investigators study referred to as here after I hit study in 2050 be possible Pages recall that studies the collaboration between the internet unless no help that are just starting in 2019 the protocol call four to six months Tops on this patient. You were able to complete follow-up works for a total 1615 pigeons.

results from studies show screen a cheap 88% D and Landstreet percent specificity

40.9%

PV and 93.75 some braids 980 screen before the better.

And a comparable specificity vs. Ultrasound and be combined which stands here also some plus SP just 71% off and 95% is specificity an important analysis is stratified by tumor size as young and slide can hear of the patients that include offensive humor sizes formation 49% of the cases identified by hccscreen are in early-stage or less than three centimeters. And this fish is our expect to have birth and advanced stage pages.

In terms of Security based on similar size if the screen is just 85% sensitivity for summer size of license three centimeters 96% for home sweet to five centimeters 80% or larger than 5 centimeters.

11:00 be called at a previous reported computer data 297 patience, which we showed 92% just DVD and manage 3% May I speak with you?

If you look at the 95% confidence interval members and compared the small and large data sets of the screen depend which is a large.

Kitchen, cool for more towards sensitivity the lower bottom number improved pretty to 80% from 62% Whereas the specificity also. I'm going to 91% from 89% with this Improvement the bigger sample size the more confident about our test performance You Found the courage data, you plan to release it and you know tightened China in the second quarter of this year to have dialogue with regarding the divorce study, which will be a head-to-head comparison.

Compare if you screen and ft currently finalized clinical sites and apis.

U.s. Plan for the screen first or recipient of the bricks through device designation as the result is endemic seems to move a little slower new us or next step is to perform confirmatory study on high-risk cohort in our lobby marinade level is now clear certified that would be used with us studies for each screen as well as to serve Global pharmaceutical companies are indeed and commercialization. I would now like to pass the code our ctcl doctor who are drilled little deeper hour early screen technology namely mutation capsule and our overall strategy hccscreen. You sent me a technology thirteen decision. You have to if you end up in house

Absolutely distinctive features that are worried beneficial in the development of this technology of the detection with masturbation operations. And the main stations focus on condition month should you should know by police in matters such as pathetic museum is noon to 10 is the nutrition signal and providing technology is Dead Issue other methods, you know, you can detect the two types of markers in the action without having to bring your patience and the methylation analyzes.

The combined detection of rotation and an exhibition these shows the scenery in the detection of HTC which is conceived in the screening of colon cancer.

The second feature of your impact is that the cfd samples domestic and I think that information if you preserve and Amplified in the Middle East can be used without sacrificing sensitivities. If it were to be the same page, yeah decent to the prophetic of using the panel of mutation and an activation markers musician cancel every and also be used for holding on how long has the function of de novo discovery of methylation size that could do that not ready.

The Limited from one place is always the person act in the development and application of the multiplex feature off The Taproom enables comprehensive providing of almost all types of there being based markers from one example so that we can compare the performance of the markers and select the background for the final product.

For them all the beauty in Casa lever is collected for the Envy of one summer Tab and always used to prefer new markers for other two programs panels for single unsurpassed can be easy to combine the multi cancel payment. Please print multiple time and cost-saving giving given less samples and the patient with checking iPad. I still see screen represents represents the first product out of our technology platform ginger has advantages of both his office technology and access to a large real world cohort strategy is to find the best performing biomarkers in each single cancer. I see and conduct money back to you starting with the long-term goal of efficiently combining these athletes and the cloud data to create a panel for Marcy cancer screening.

Today more details about our technology and applications. I'd like to mention that we will be hosting a dinner with Science magazine next week on the 31st June. I really discussing our technology and other politics together with daughter Anna Marie Lennon director and professor of divisions of gas neurology and hepatology as a dejar Hopkins University's roommate school of medicine. I look forward to speaking at this event and hope some of you can join us off. I don't know. I'll turn the call over to our CFO to provide more details on our first quarter and full-year financials heading home.

Thank you. You too, man. I will provide an update on our financial performance. Please. Note that all numbers provided our in our terms and that's all comparisons are made on a year-over-year basis starting on slide fifteen in the fourth quarter total revenue increased by 30% to 134 million up from $103 a year ago.

Diagnostics and monitoring Revenue grew 44% to 124 million up from $86 million in 2019. The increase was driven by the growth the revenues generated from both the provision of ldt services particularly in early screening and the self ivd product.

Ldt Revenue Rose by 49% to 97 million vs. 65 in 2,019 ldt diagnostic tests. So the uniforms totaled approximately 5340 units representing a decrease of 16% from a year ago primarily due to the Resurgence of COVID-19 in our Keystone territories in the first quarter in late December and January. There was notable cover the Resurgence in China particularly in the Northern parts of the country, including our headquarters.

Industrial city next to Beijing record that northern China is our key markets and this Resurgence had resulted in major disruptions in hospital and the page traffic sales and marketing activities and also other limitations and restrictions as such we will negatively impacted by these issues particularly in our own business. This negative impacts is 10th throughout the first two months.

Of this quarter coupled with typical slow down during Chinese New Year in March. We are starting to see volume recovery and we are optimistic that the trends will be more normalized in the coming few quarters.

In addition a few days ago the Chinese government updated the regulations supervision and administration of medical devices, which included language to form their regulatory framework of ldt services specifically, the guidelines stated that self-developed diagnostic assets will be allowed.

Based on clinical needs subject to certain standard and that's there is no marketed products available more detail the rules and guidelines. I expected to come from the number.

And the National Health commission in the next few months as a leading ldt provider genetron welcomes Tighter and clearer regulations set a higher wage for the industry.

And believe that this will be beneficial for us in the long run.

Additionally offsetting. Some of the cobit headwinds was a fact that our average selling price has increased compared to the same period in 2019, which it was that tributable to a shift to higher-value products such as Uncle pen scan and it also better pricing management.

You know.

Early screening test h t t screen so was sold in the form of reality T services contributed to Growing portion of the ldt revenue as a walk-in touchdown earlier are expended collaboration with Russia in November has resulted in strong hccscreen sales coupled with contribution from icon. We expect hccscreen sales to ramp up further based on our three commercialization channels the 10. Hinging for the hospital Market government procurement contracts and expansion pack icon medical examination Network.

Ivd Revenue grew 30% to twenty seven million up from about twenty 1 million in 2019. The increase was driven by post and the sequencing platforms notable in June 2020 marked one year since the number of approval of Ginger S5 instruments hour-long. I say was approved a few months after together these products suck a highly efficient in hospital in jest solution within with a 2-day turnaround time from sample to report.

FirstLight 16 Jun Shan has signed additional contracts during the quarter and now has forty directing Hospital contracts of which 22RE hospital at or speak with the equipment's compared to last quarter with $38 and 20 respectively.

Development services Revenue decreased by 39% to 10 million from 17 a year ago. Mainly resulting from Les sequencing services.

Sequencing Services has a low-margin. So we deliberately reduced that within the development services revenue from biopharma Services increased strongly compared to a year ago. We are optimistic biopharma Services trends

despite higher Revenue cost of Revenue decreased 13% to fifty million in the fourth quarter from fifty-seven million a year ago. The decrease was primarily due to a better scale and the lower cost of certain reagents.

This brings us to slide 17 gross profit increased by 84% to eighty four million in the first quarter up from 46 million in 2019. Overall gross margin increased to 63% for this quarter compared to 45% off all year in particular gross margin was 69% compared to 61% a year ago.

thanks to

To better scale and also our focus on margin improvements through both product product mix optimization and better prudent price management page for our ivd segment, of course margin improved significantly to 62% versus 36% in 2019 attributable to a better mix of instrument than Isis.

Pharma services are emerging also improved due to our shifted Focus to biopharma Services operating expenses increased by 33% off 273 million up from 131 million a year ago. Operating expenses are broken up working out on flight 18 among which selling expenses increased by 4% slightly to RMB seventy-two million in the quarter from sixty nine million a year ago. However, selling expenses as a percentage of Revenue decreased to 54% versus 67% in 2019.

This decreases for primarily due to better scale and also different Revenue mix.

Administrative expenses increased by 53% 55% to forty four million compared to $29 million in 2019 as a percentage of of Revenue off the ratio increased to 33% from 28% a year ago. The increase was mainly due to more headcount for administrative staff and also sharing a compensation as well as hire professional fees.

Research and development expenses increased by 64% to 53 million from 32 million in 2019. The increase was the issue was driven by continued Innovation efforts including

product development clinicaltrials has these higher R&D headcount and also share-based compensation as a percentage of Revenue the ratio increased from 31% in 2019 to 40%

As a result of this expenses operating loss or what's 89 million.

444 cue versus $85 a year ago.

That's a loss for a. Improved 273 million compared to $135 a year ago. We're also providing knife laws figures as long as management beliefs. These numbers would be helpful to show the trends of the underlying business. Now, I first met a loss exclude share-based compensation fair value change for financial instruments with preferred rights. So now effort now, I first met a loss also improved significantly 263 million for the fourth quarter compared to $86 a year ago.

Basically, the last I share was RMB $0.16 compared to 1.06% a year ago now efforts. Basically, it's a loss for this quarter was RMB $0.14 compared to $0.68 in 2019 Dodge the equivalent to basically the lost a share.

Now briefly discuss our full-year results covered on slide 19 total revenue for year 2020 increased by 31% to $525 million from 323 million in 2019.

Diagnostic Diagnostics in the monetary Revenue the rules 43% to 386 million up from 270 million in 2019 revenue-generating ldt Services increased by 24% to 292 million compared to two thousand two hundred thirty-five million a year ago rev from ivd products increased by $169 million 169% to ninety four million from thirty-five million 2019 revenue from development services decreased by 28% to thirty nine million 2020.

gross profit increased by 80% to 260 million in 2020 from 145 million 2019

this resulted in an increase of gross margin to 61% for the full year 2020 compared to 45% in 2019.

operating expenses increased by 17%

lost for the. Was 3.1 billion year 2020 compared to six hundred and $676 million in 2009.

No, I first loss improved during the year 2020 and it was 260 million compared to 280 million in 2019.

Basically lost ordinary share was

RMB 10.18 for 2020 as compared with a basic lost ordinary share of RMB 5.4 1019. Now I first basically lost by Cher was RMB 0.72 for 2020 compared with a 6.2 for for 2019. We have a very strong cash portion of position Cash Cash equivalents in the financial assets that are fair value will close Monday to RMB one point five billion or us 232 million as of December 31st 2020 now moving to discuss

Our Revenue outlook for 2021 on slide twenty based on current environment.

And providing no further major COVID-19 related disruptions in our key markets. We are forecasting Revenue growth to be in the range of 45% to 47% which represents 2021 Revenue in the range of 615 to 625 million.

This concludes the discussion of our financial results our now tend to call back to student.

Thank you, then moving on to discuss other updates and upcoming Milestones on flight 22 on the early spring inside review that reported for new data as quite often, especially considering these are perspective data from a large patient who who shared earlier. We're contract to initiate our registration on trial for HTC screen in the second quarter month. I also mentioned in the beginning of the call the later this year. We plan to provide kids Control Data from our Collective cancer early screening study.

On the analysis of monitoring side, we plan to initiate a reservation or trial of large panel on Copan scan in the second quarter. We also expect our CDX test for our pre-owned to gain approval this year regarding mrd. Is we are advancing the validation of second Marty illogical for studies for select select a mythology book and expect commercialization to start in the first half. This asset was exclusively licensed from immigrant late last year. In addition. This product wage also compliments Albom our service business line since second Marty could be used in clinical trials for hematology cancer drugs.

We continue to generate many productive discussions in our biopharma partnership probably as a result. Additionally. We are working on mrd projects in solid tumors with a focus on liver and colorectal cancer. We project that we could have mrd data in liver cancer in the second half this year of first half of next year.

In closing we had a very strong year in 2020 and a good start to the 2021 so far.