Q2 2021 Genetron Holdings Ltd Earnings Call
[music].
Good day and thank you for standing by welcome to the second quarter of 2021 janitor in Health earnings Conference call. At this time, all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session.
So as a question during the session you need the best Star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would like to hand, the conference over to your first speaker for today Ms. Hokey look. Thank you. Please go ahead ma'am.
Thank you.
Hello, everyone and welcome to change on home second quarter 2021 earnings conference call.
The company's earnings release issued earlier today and is available on the company's IR website.
During this call the company will be making some forward looking statements regarding future events and results.
These statements are made under the safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.
Statements that are not historical facts, including statements about just long held beliefs and expectations are forward looking statements.
Forward looking statements involve inherent risks and uncertainties.
Further information regarding these and other risks is included in general health filings with the SEC.
All information provided today is as of the date of this call.
You can try and help us not undertake any obligation to update any forward looking statements.
As required under applicable law.
With respect to any non ifr musher discussed today 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.
She's been Wang co founder and CEO of J, Paul will discuss recent business updates and upcoming catalysts.
Other shape, our CFO will provide financial highlights related to the unaudited second quarter results aligned with today's release as well as our outlook for 2021.
Following management's prepared remarks, we'll open up the call to questions.
During the Q&A session.
Co founder and Chief Scientific Officer, Dr. Hagen, Chief Technology Officer, who comes out and.
Our Chief Medical Officer.
Who will also be available to answer questions.
With that said I would now like to turn the call over to Mr. She'd been Wang CEO Jim Trusthouse. She then please go ahead.
Okay.
Thank you Okay. Good morning, and good evening, everyone and thank you for joining our second quarter 2021 earnings Conference call.
So I would like to direct you to the supplemental earnings presentation Investor Relations website and begin on slide two.
In the first half of this year, we continued to solidify.
Our positioning as the leading physician oncology company in China.
With our comprehensive portfolio that covers the entire spectrum of catch management.
Our products allow our customers to address patient needs and challenges from early screening diagnosis and treatment recommendations.
Well as disease monitoring.
Turning to slide four in the second quarter.
We delivered strong results with 38, 1% top line year over year growth, reaching revenue of the renminbi.
$140.5 million.
Revenue growth was also accompanied by a notable margin improvements with gross margin at 67% compared to six 3% in the second quarter of last year.
Thanks to improvements in both L. D T in IBD business life.
We were pleased with the momentum in the business during the second quarter across all of our business lines.
The beginning of the third quarter continued with strong trends and positive operational momentum.
However, recent COVID-19 related restrictions in China have impacted our business activities are small cases in more regions have been announced.
Although the absolute total number of Covid cases are not notably high compared to other parts of the word.
Officials in China have continued to stay on high alert.
We maintained stringent strategies to contain the spread.
For example, in Beijing, where at Genco headquarters is located as well as being a key market for us the patient traffic to hospitals has been limited strict testing and other requirements.
Trouble within areas, where cases have been reported.
Also is also discouraged.
With quarantine rules in place.
Other result of these measures in Beijing, and other high risk areas, such as Shanghai loading in Jiangsu provinces.
<unk> has been affected over the past few weeks, particularly our OTT segment, which relies on patient traffic.
At this point, we believe that restricted operating environment is temporary andrews could be lifted sometime in the third quarter.
If the situation normalizes for Q.
Would you expect patient activities to improve from current levels similar to the rebound in the pent up demand that we have experienced a few times over the last year.
And Meanwhile, we are closely monitoring the fast evolving circumstances and continue to execute in key geographical areas that are currently less impacted.
Such as Shandong Zhejiang Tinging. In addition, our IBD segment has been growing stronger than our internal forecast say folks you normalize. This IV sales transaction and we expect it to traction do you expect it to continue.
The despite COVID-19 related disruptions, we continue to grow and expand our business lines with significant market size potential and are anticipating some key catalysts for.
For the rest of this year.
Turning to page five and six for our early screening business, we have begun the prep work.
For our manpower Registrational trial during the second quarter, the head to head tire, which compares to actually see some spring break.
This ultrasound plus F. P remains on track with our plans to proceed with the enrollment this year and we continue to project potential nampa approval of Hec screening in 2023.
We look forward to updating the market with more information on the trial over the next few months. We also plan to expand to multi cancer early screening and project.
Project to release case control CRC data for early screening later this year.
The recently in our second effort to partner with local governments as we have done with our wuxi initiate it.
We announced that we would work through its great Joe provenance and county authorities by utilizing all at GCC screening assay.
But together with our partners, we intend to carry out early screening diagnosis treatment follow up screenings and patient management for high risk liver cancer groups into one company. The project seeks to bring leading cancer early screening products and services into China's rural markets.
Nibbling, better technology, and a more equitable health care options for more people in the country.
These types of initiatives are consistent with other supportive measures laid out and then being implemented by the Chinese central and other local governments.
On the China State consoles healthy China, 20th sturdy plan. The goal is to increase five year tends to survival rates from the parent.
Roughly 40% to over 46% or a 15% growth rate.
As a leading N G S player in China, the rapid emergence of targeted and Immunotherapies will increase demand for our diagnosis and monitoring business as well.
Our Biopharma services.
Early detection, particularly liver cancer also remains a focus for the government.
And companies with differentiated technologies like us I highly encourage to introduce innovative solutions to address unmet medical needs. So overall, we remain confident about the growth prospects of the precision oncology sector in China, and we anticipate the Jing Zhang to be a continued.
Beneficiaries from policy tailwind.
So now turning to page seven on the <unk> side, our efforts are progressing well for second Marty in blood cancer. This panel continues to be well received by our Biopharma partners. So recently second lardy has inked a partnership with a leading MNC pharma.
<unk>.
Representing the first domestic blood cancer in my view.
D product that the partner has chosen to use in their clinical trials.
Our broader L. D T launch to the clinical setting, including hematology 10 centers and hospitals.
<unk> to take place.
In the next couple of months.
Other studies in solid tumors, including liver lung cancer is ongoing and we look forward to sharing some initial data later this year or next year.
Turning to slide eight.
We're very excited about our Biopharma services business as we continue to form partnership.
MRV products uncle Pet scan fusion scan etcetera. We're also collaborating with Biopharma companies to co develop C. Dx kit for their innovative drug candidates.
For example, our collaboration with system for the CTX tests for our pre tenet.
Has entered the priority review and approval process in China.
And then the U S. Our CLIA lab in Maryland is up and running <unk>.
Providing us with a solid platform to offer services for cross border trials and the CTX developments with.
With a blooming Chinese biotech biotech sector, we are optimistic about our growth in this business segment.
And then in the second quarter, we have signed an additional three Biopharma partners now totaling 40 partners and we continue to see a strong topline.
And for our diagnostics business, we expect to initiate the Registrational trial for our tissue based large panel uncle Pan scan in the next months I'll tell you.
This month's using uncle Pascal our Beijing lab achieved remarks, and was ranked first in N ccls external quality assessment of comprehensive genomic profiling panels.
We continue to be a leading OTT player in China, and then we're planning to providing other types of L. D T assets to enrich this part of business and.
And for the IBD segment that we just announced a new partnership with Shanghai <unk> genomics recall that <unk> one the Dx version of the S. Five instruments in China and with this partnership.
We will work with <unk> apply as five in Repurposing reproductive health spilled in the China market and E. Concurrently offers pre pregnancy, prenatal and any inheritance disorder testing solutions for.
Our network of AR.
Over 400 hospital partners in China.
<unk> will also supported their commercialization efforts overall, we're pleased to expand application potential up as five.
So turning to slide nine.
Recently, we also received CE mark for our aging lung cancer assay.
Let's see Mark represented the second regulatory milestone for this assay and at new commercialization opportunity.
That together with as five and our fully automated <unk> solutions, we offer end to end fast turnaround and a seamless workflow for hospitals and clinical laboratories that prefer to run N. G S testing on their own.
We believe that this offers a significant operational advantage for all potential customers outside of China.
So I will now turn the call over to our CFO, Mr. Evan shoot to provide more details on our second quarter financials.
Thank you Susan I will provide an update on our financial performance during the reporting quarter.
Note that all numbers provided in RMB terms and if that's the whole comparisons commit on a year over year basis.
Starting on slide 11.
Second quarter total revenue increased by 38% to RMB $141 million.
102 million in the same period of 2020.
Diagnosis in the monetary revenue increased by 39, 4% to $131 million in the SEC.
Second quarter this year from $94 million in the same period of 2020.
The ODT revenue increased by 15%.
$87 million.
During the second quarter of 2021 from $76 million.
In 2020.
ODT diagnostic tests soda in the second quarter 2021.
Total approximately 6840 units.
Compared to about 6700 tests in the same period of 2020.
Note that it was a tougher year over year comparison.
Due to some pent up demand in the second quarter of last year.
In this quarter, so silver OTT services included a cell so early screening test at TCT screen.
We continue to be pleased with HTC screen sales uptake in the growing adoption in the market.
We'll continue to support from our collaborations.
These include the work, we're doing with JD health trend that changing.
And the Wuxi government.
Moving to slide 12.
<unk> revenue increased by 142% to RMB $44 million.
In the second quarter of 2021 from $18 million in the second quarter 2020. The increase was mainly driven by sales of gene transfer of instruments as well as the 18 lung cancer assay.
This quarter, we have added.
Five new IBD hospital contracts.
<unk> two <unk>.
One.
Last quarter.
As of the end of second quarter. We now have a total of 50.50 hospital contracts, including 28 IBD ones. We're pleased with the trend of hospital adds units.
In this quarter and anticipate this to continue.
And expanding and expanding installation base will drive our reagent in the overall sales in the coming quarters.
Revenue generated from development services increased by 22% to RMB $9.5 million in the second quarter of 20th anyone from seven 8 million in the same period of 2020.
Biopharmaceutical revenue grow.
Gross increased substantially in the second quarter of 2021 compared to last year, we continue to focus on increasing our higher margin Biopharma services efforts.
Cost of revenue increased by 23% to RMB $46 million.
Four four for second quarter 2021, compared to RMB 38 million the same period of last year.
Moving to slide 13, gross profit increased 47%.
To RMB $95 million in the second quarter of 2021.
$64 million in the same period of 2020.
Gross margin improved to 67, 2% for the second quarter 2021, compared to 63, 1% in the same period of 2020.
Thanks to improvements in both <unk> and IBD business lines in particular gross margin for all of our key segments was 71%.
Compared to 271% a year ago for IBD gross margin was 71, 4%.
Versus 55, 3% in the second quarter of last year.
Due to higher margins in both instruments and assays.
Assays.
Sure.
Thanks to our <unk> technology, and our capability to manufacture the.
<unk> lung cancer assay with up with our own.
Raw material resources.
<unk> gross margin continues to improve.
Operating expenses increased by 66% to RMB 195 billion.
For second quarter 2021.
From RMB $170 million in the same period of 2020.
Operating expenses are broken out on slide 14.
And are as follows.
Selling expenses increased by 46% to RMB $89 million in the second quarter of Tonys anyone from $61 million in the same period of 2020 selling expenses as a percentage of revenue.
Increased to 63% slightly.
This quarter <unk>.
<unk> to approximately 60% in the same period of 2020 the.
The increase was primarily due to higher marketing.
<unk> expenses as well as employee compensation expenses.
Administrative expenses increased by 96% to RMB $55 million in the second quarter Kony as anyone from 28 million units in period over 2020.
Administrative expenses as a percentage of revenue increased to 38, 8% in this quarter from 27, 4%.
4%.
Simple same quarter last year the increase was.
Mainly driven by <unk>.
Higher headcount higher professional fees.
Otherwise infrastructure costs, such as <unk> expenses.
Research and development expenses increased by 88% to RMB $56 million in this quarter.
RMB 30 million last year R&D expenses as a percentage of revenue increased to.
40% in the second quarter. This year from 29, 3% in the same period of last year.
The increase was driven by higher R&D headcount and related expenses as well as continue the innovation efforts such as product development and clinical trial.
Activities.
As a result.
Waiting loss was RMB 100 million for this quarter compared compared to $53 million last year on slide 15.
Net loss for the period was RMB $92 million.
For this quarter compared to RMB, two 8 billion.
In 2020.
This was primarily because last year the company had.
Close to RMB, two 8 billion fair value loss on financial instruments with preferred rights.
Before the IPO.
There was now in the second quarter this year.
We're also providing non <unk> net loss net loss figures as management believes these numbers would be helpful to show the trends of the underlying business now.
<unk> loss includes share based compensation expenses fair value change and other loss on financial instruments.
<unk>, who is a preferred rights.
So now efforts nothing.
Net loss was RMB 80 million for the second quarter of 2021 compared to.
RMB $44 million for the prior year.
Basic loss per ordinary share was RMB <unk>.
20.
For the second quarter this year compared to two.
RMB 17 points, therefore for the same period of 2020.
Now I first basic loss per ordinary share was RMB 17 four.
The second quarter.
This year compared with.
RMB 2006.
For the same period of 2020.
Diluted loss per ordinary share is equivalent to a basic loss per ordinary share.
We have a strong but we have a strong cash position cash and cash equivalents.
Restricted cash and current financial assets at fair value through.
Through our profit and loss.
We're close to RMB, one 2 billion.
Or U S 188 million as of.
June 32021.
Now moving to discuss our outlook for 2021.
On slide 16.
As Jim mentioned that at the beginning of the call.
Over the last several weeks COVID-19 related restrictions have impacted many areas in China.
At this point, we believe the heightened the situation is transitory and thus we are maintaining our expected revenue guidance range of RMB $615 million to $625 million for the whole year, having said that if the current environment persists or worsens further beyond the third quarter, we would.
Back to reassess the financial projections and provide appropriate updates to the market at that time.
This concludes the discussion of our second quarter financial results I will now turn the call back to Susan.
Hey, Thank you Evan in closing.
We've ever had.
Successful first half of 2021 financially and operationally.
So as shown on slides 37.
Our strategic focus going forward.
We will be to accelerate the development of liquid biopsy based solutions across the full cycle, Kansas management.
Particularly in early screening and Marty.
While continuing to ramp up our commercialization efforts and grow our base business.
The overall notwithstanding the short term disruptions.
We remain confident that we are very well positioned in the fast growing precision oncology sector.
The macro environment in China also remains favorable for us.
And last but not least we remain highly committed to focusing on innovation to develop high quality products that would benefit more cancer patients.
So this concludes our prepared remarks portion of today's call celebrate or we're now ready for questions.
Thank you.
David.
You ask a question you will need to press star one on your telephone.
Your question. Please press the pound does husky and please standby, while we compile the Q&A Boston.
Once again for your question. Please press Star then the number one premium to <unk>.
My first question is from the line of assume genome all BD.
Your line is open. Please go ahead.
Yeah.
Hi, Thanks for taking the question.
So with HCC Green are great to see that the registration trial on track.
But if the restriction for Covid restrictions get worse are there risks to that timeline.
Im being delayed a little bit into next year could you maybe talk about that how you might be derisking.
Your plans for the rest of Europe.
Yeah.
Hi, Sanjay.
Thanks for asking the question about <unk>.
Green trial. So as you know this is one of the most of the trial that GAAP.
We're planning an up and running right now.
We have done a lot of preparation work so far this year.
And apparently the past interruption or the resurgence of COVID-19 slowdown outpaced a little bit. So however.
With everything already in place pretty much.
Do you still have a fair high level of confidence so we can start enrollment.
Within this year.
Without that if.
COVID-19 situations get.
Much worse than we are now so we may expect a further delay of this trial, but again as I said, we have done I think that is.
Much as preparation as we can and.
We were not.
Ready to data share all the details, but like we said in the.
Conference call than earning call that we will share more details.
About the design as well as the details of the sites.
Four.
As we unfold where clinical trials plans for the rest of this year.
What I can say here is that we have a planned.
The Registrational trial sites are costs.
The nation.
I would say any regional.
COVID-19 outbreaks, probably were not severely delay our step.
Steps on this important trial.
So overall I would say we're on track.
So again that we have emphasized.
Quite a few times already in the past is that we feel that we can.
Get the at the trial gone within next year, and we expect the approval sometime in 2023.
Gotcha, Great. That's very helpful. And then just in terms of.
Green adoption it seems like through your leveraging your partnership.
That's also going well.
Curious if you might be able to you know.
Elaborate further on the different partnership whether any one of them is standing out or.
If you now.
Theyre, all tracking kind of according to how you anticipated.
Different partnerships to really rollout like icon and cue and deep local municipal capital partnership.
Right. So as you could see that we're setting up all these partnerships for different purposes, but we in general focus on building the market wariness and we're focused on testing a model that can be duplicated right.
I would say here is that at the C.
The project and we see the collaboration with the government is going very smoothly we are.
Do have a plan.
To duplicate that same model elsewhere in China, and we believe this is the fundamental work we need to do not only to to generate revenue through these type of government collaboration but also to create a data and to generate the big.
Again, the healthcare economics model that we can leverage.
We still.
In our plan to.
Two to apply for.
Reimbursement coverage.
Potential level or nation national level shortly after.
Our.
Our kit.
<unk> actually seen HCC screening assays approved in 2023. So all these work are really laying down the foundation for that and we believe that with this.
After being approved by manpower ways.
The likelihood of gaining.
The reimbursement coverage.
Shortly after that this could represent a major revenue ramping up opportunity ahead.
Ahead of us.
Great and then lastly from me congratulations on the Econ genomic partnership.
Thank you.
Revenue contribution there would you be able to break that out for this year or if not could you talk about how we should think about the partnership the revenue contribution by.
In 2023.
Oh, I'm, sorry and beyond.
Okay.
Sure do you want to come on that.
Sure Sanjay. So obviously this is a new partnership.
However, we view this as.
Quite a.
Groundbreaking because.
This is the first step that we are expanding.
Beyond the oncology oncology field right I'll S. Five.
We will work with E com to apparel, our S five instruments.
Two the reproductive health market, which is with a lot of potential in China as well given the.
Current government policy to promote newborn babies.
<unk> rates.
So we.
We.
As we.
Push forward.
In partnership with <unk>, we do think that this represents.
Significant opportunity down the road.
This year this.
This quarter. Obviously this is a new partnership but in year 2022, or 23 going forward would you expect this will be.
Thank you.
Meaningful.
Revenue driver for us as well as.
That's why the instruments.
Yes, so on a science at this partnership yes, so <unk>.
The one thing to add here that we see that this is the partnership that opens.
<unk> S. Five application field beyond oncology right, just like everyone was saying that reproductive health.
Is a sector, which is the SEC actually having a lot of potential right now in China.
So we believe that this partnership or future similar partnerships could.
Sure.
It's going to generate additional revenue contribution from the.
<unk> platform.
Great. Thank you so much.
Thanks, Thank you.
Our next question is from the line of.
Young of credit Suisse.
Please go ahead.
Thanks.
Yes.
Two questions first one on sentiment.
For clients.
Girls.
Yeah.
Okay.
Breakdown in terms of IBD.
I mean.
Equipment.
Good numbers.
Oh Wow.
Yeah.
Hi.
For this quarter we had.
Relatively balanced split between IBD platform instrument versus the assets.
The instruments.
Slightly.
A little more competitive versus the assets.
Roughly 60%, 40% split.
You know as I mentioned, just now during the during the call.
We're very happy with the uptake of our IBD solutions in this quarter.
We actually have added five more new hospital contracts during the quarter versus one in Q1.
So as we continue to increase the installation base right now we have 28 hospital.
<unk> is already underway.
We expect this trend.
Which which we observed in Q2.
It's likely to continue.
A few quarters.
As you know.
We're happy to continue to.
Drive the revenue and also more importantly, too.
Drive up the.
Contribution from the IBD assays, but in particular, the <unk> lung cancer assay.
Okay great.
My second question.
<unk> screen commercialization.
No.
We understand.
Right.
Management can give us.
And in Colorado.
And in Colorado.
Commercial programs.
Green.
For our call.
Good.
The question is about a young so questions about the commercialization or the tile, yes, commercial lines business and often excuses and screen.
Actual you know.
Volume, Colorado.
Sure.
Promotional fall.
<unk>.
Channel, which channel you do most of your chicken that the pencil.
While offline.
So that's kind of how long.
Sure.
Commercialization program.
Great.
Right so.
So right now we are probably not in a position to give the.
<unk>.
<unk> of the numbers.
But I can give you some color on.
The models that were being setting up and we'll try to.
We have been trying.
And.
What I can say is that.
The partnership is there was set up last year.
Four.
The icon channel the house health check chain channel.
As well as the the collaboration.
Collaboration with Wuxi government.
We that we launched.
Towards the end of last year in Q4 last year.
We have seen significant progress that we were able to.
To make this year, which means that at.
The Spanish ships are generating.
A meaningful number of tests according to our plan.
And I want to emphasize carry that remember we emphasize the benefits of the Wuxi collaboration governments not only we're going to generate.
<unk> revenue, but also we're going to.
Partner with the local government to create.
Our cohort and closely manage the cohorts of winter with a meaningful size remember the cohort is.
And to be essentially about 150 K people right.
Ended the old efforts are progressing well and just like I said.
Addressing <unk> question earlier.
We believe that we have experience with that with the data.
We will be able to accumulate from this.
This very first pillar.
In April scales.
Up of government cooperation project interest.
Swing.
Not only will position us for a potential.
The national provincial reimbursement coverage application, but also.
And in due course, we'll actually prepare us give us more experience and data to show through other potential government and the regional government partners and that we are actually working diligently on that.
And the partnerships that we have been launching this year.
With the partnership with the city to queue and let the puncture was Qingdao online and where are we.
Working.
Hard with our partners to get through the initial phase.
So like we discussed the last earning call we feel that the more partner we work at this point.
The faster or quicker than we can educate the market and we can generate.
Good enough level of public awareness, which again eventually will help us to ramp up the revenue.
As fast as we can after the assays formally approved sometimes into 2023.
So all in all.
I would say we have to work stream at GCC screen right one important work stream.
The trial I think we are.
Quite well on track to get the trial fully launched.
And we're on track to get it.
<unk> completed the bite into next year.
With anticipated approval, sometimes in 2023 and are parallel the other very important work stream is.
Just to get through all these different commercialize.
Asian platform to accumulate data and also accumulate.
Experience.
To wrap up the revenue when everything is ready so that's what we're working on now I think general generally speaking, where we're very excited about the progress we have made and excited about the prospect of extra SEC screen us potentially the very first liquid biopsy early screening.
Asking to be proven in China that gets huge.
The commercial potential here.
Alright, great. Thanks, a lot.
And actually one thing I, probably will adhere a young is that towards your first question right. So you could see that the number of the hospital partnerships, especially the IBD the new hospital punches.
Ah I think.
The highest in the in the past quarter in Q2 are among the last quarters allow us a few quarters.
So this is.
Apparently a good evidence that the our focus on commercializing our molecular diagnostic solutions at five plus long aging Kysor panel is working well.
And we do expect that this trend will continue if not accelerating.
Yeah.
Got it got it thanks for that color.
Thank you once again for those who wish to ask a question. Please press Star then the number one completely name to be announced.
Great questions.
Taiwan.
Yeah telephones.
It is Taiwan for your questions.
Okay.
No question at the moment please continue.
Well. Thank you again for joining us for our second quarter earnings and business update call we have Chris.
The ongoing support.
You have any questions.
Thank you reach out to the IR team.
Have a good morning.
Thank you, ladies and gentlemen that concludes the conference for today and thank you for participating.
Now all disconnect.
Thank you thanks.
Yeah.
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Uh huh.
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