Q2 2021 Burning Rock Biotech Ltd Earnings Call

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Ladies and gentlemen, todays conference call is due to begin shortly and till such time your line with meat on music hold please continue to standby we thank you for your patience.

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Good day, and thank you for standing by welcome to burning Rock biotech 2021 second quarter earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To answer questions. During the session you eat to press Star one on your telephone please be advised that today's conference is being recorded.

Before we begin I would like to remind you that this conference call contains forward looking statements within the meaning of section 21 E off the Securities Exchange Act of 19 of 34 as amended.

As defined in the U S. Private Securities Litigation Reform Act of 1995. These forward looking statements can be identified by terminology such as expects anticipates future intends plans believes estimates target competent at similar statements.

Statements they are not historical facts, including statements about that breathing Ralph beliefs and expectations are forward looking statements such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks I'm sure.

These and other factors all of which are difficult to predict and many of which are beyond burning routes control for.

Looking statements involve risks uncertainties and other factors that could cause actual results to differ materially from those contained in any such statements.

Burning rock does not undertake any obligation to update any forward looking statement as a result of new information future events or otherwise, except as required under applicable applicable law.

And now I'd like to kind of the conference over to your first speaker today, Mr. You shouldn't Hunt C E O all spending well. Thank you. Please go ahead Sir.

Thank you.

And so welcome to burning Rock Q3 conference call.

Hum.

All right.

Today, we have our Oh Shannon.

T O, Joe and CFO Lille in Omidria.

First I will go through some exciting highlights of our recent progress and our fuel Shannon will elaborate on.

So that line extension and then notwithstanding Lille will walk you through the financials.

So first let's turn to page three.

Furthermore, all started with the therapy selection business in 2014 and has grown to the market leader in this sector.

Our living position that has laid a good foundation.

Given us advantages moving toward our new businesses to new business.

Early detection MRV and pharmaceutical collaborations.

Oh, we have strong branding on our technology and product quality will help us attract pellets.

And the network would have built across thousands of oncologists and hundreds of hospitals, we never allow us to Leslie.

Innovation and the R&D start as our new products as well as fast faster institution distribution when they put out go to the market.

So your existing high testing volume make it possible for us to continue our.

Lowering the cost.

And that's why we aim to tackle.

Sorry, if you said that flagship MRV in early detection market in parallel in a coming a few years.

Let's turn to page four.

For some highlights of our recent progress.

First off our we're very proud of that.

Tech knowledge of our early detection combining of methylation based assay and our machine learning based algorithm has been published in nature Biomedical engineering.

Even though it doesn't truly reflect the most recent version of our early do you have some product.

Very nice endorsement of our innovation, which lay down a solid foundation for our product line development.

We mentioned about the preparation of commercialization of early detection earlier this year.

For those of you who are interested in knowing the progress on that.

So far we have passed that over 2000 samples through the early access program.

Hey, Robyn operation team, a call center and our CRM team.

Our initial commercialization channel will be a public hospital health management Department and in a way to insurance companies.

We have so far presented on Penn National original conferences with hopefully a hospital.

Health management Kols.

Validation data on the fifth cancer test attracted great attention from the doctors.

So far we have entered contracting stage with six hospitals and weigh out well see that number scoring very decent pace.

Pace.

We've also made some exciting.

Progress on MRV.

We are developing a tumor informed MRV passing platform court the op profit.

He has shown very promising performance with sensitivity on par with what has what has been shown in the tower and then I'm sure it's competitions.

We have started a study on lung cancer and there are several trials for other cancer types under planning.

With therapy selection.

We recorded 40% volume increase in this quarter, mainly driven by the EMA Hospital model. It is the first time that our in hospital motto task volume.

10.10000 per quarter.

Last but not least I will spend some time to introduce some.

Some exciting outlook of our former collaboration business.

We started this new business unit last year and anticipating a strong opportunity in this segment.

The new <unk>.

The new B you have been growing rapidly rapidly new contract value reached RMB $98 million during first half year in 2021, which is three times versus the full year of 2020.

I will illustrate in detail on the next page.

So, let's turn to page five.

Pharma business, it's not a new business put it and yes company U S.

But this market hasn't been a major in China until.

About having the right.

Alright, one five years ago.

Some recent trends and the paradigm shift drivers include the first yeah, Ta if moving to where regulation targeted therapy approval in a C. D X model.

Second with the pressure off volume based government procurement.

Domestic <unk>.

Pharma companies are seeking for global expansion opportunity.

We're targeted therapy drugs.

In need of pharma companies will ingest partner include.

If not it has a high quality product.

And available on both have IP liquid biopsy samples.

<unk>.

Registration capability in both U S and China, sometimes also in Japan, Europe and other developed countries.

The third the third criteria is that.

The third driver is that I must say.

These needs and Jeff's comedy that can do celiac and China. However, it's very challenging portfolio and yes comedy to operate.

Registration trial in China due to the regulation of STR will just human genome regulation.

That's a Chinese company and yet the company with global operation is their ideas idea trial.

So seeing this chance we set up our U S lab, which is now a clear certificate.

Certificate and the cap credit credit.

And so the ethical SEC to resolve we published in nature biotech knowledge strongly endorsed our tech knowledge.

We have also embedded.

The key talent to join up with anybody that Sharon Leung who had nine years of experience.

FTA covering.

Molecular diagnostic devices submission in two years' experience in inkwell to join us as our VP of our Oregon and Kuwait.

Believed that the trend will continue in the coming years. So that's up a little firmer with really very excited about that.

And so the expansion of pharma globally as a first step of our global.

Sure.

So that's all what I'm going to talk today and the next Oh ship to Shannon <unk> about the operating part.

Thank you Shannon, yes, yes.

Yes. Thank you yourself. So now let's move to page six is an overview and I would like to give you. Some important updates I'm burning rock product pipeline first of all let's take a look at the outcome for early detection for asymptomatic people.

In this sector, we have reported the validation results from the study Oh six cancer product last November we have also accumulated more data on our intent to use population clearly the early access program that you had mentioned was that we plan to start the commercialization of our six cancer.

Product in early 2022.

Meanwhile, we're launching a prospective study I intend to use population to provide more data and I was there more money. These encouraging clinical utility and so Fox not Stevens pass positive impact of our early detection past uncle.

And then our night cancer in 'twenty two cancer product, we have launched yeah. My teeth guide posts active case control studies.

Critics and questioned earlier this year as you already know.

Each study will recruit more than 10000 participants and each study is blocked by a Chinese Academy member as a leading tea I predict it exactly to have the first read out by the end of 2022 and question Oh, well have data readout about 'twenty 'twenty four.

And then in terms of early stage cancer patients and we are quite excited that we will have two products launched in 2022.

The first one is a tumor informed MRV products to basketball ourselves in house. After shown already mentioned the other one is to determine our act, which is the prognosis predictions and adjuvant chemotherapy benefit prediction product for lung cancer patients that we licensed in from uncle sides to bring to the China market.

Well the MRV product, we're now putting together some clinical validation data in lung cancer patients and we're also initiating registration studies on other kinds of times, such as colon and you've got the deal.

Could you talk about Iraq.

We're getting close to completing the transfer and analytical validation study and we will be able to start offering this product to Chinese patients shortly.

Yeah M R&D product and to come I'll ask well formed synergy and providing precision medicine solutions to Chinese patients and doctors in lung cancer, and we really look forward to a promising market for any states cushion.

Which is not to beat a group of patients who benefit most from molecular testing, but it's about to change.

Moving on to our late stage therapies back some product line.

I'm just kind of in this segment are mostly passed the divestment phase and entering the registration path today.

Tomorrow Oh legislation.

Proventus, so actually our forging panel obtained the first and then get approval and just kind of in China. In 2018, we now anticipate another approval or.

Search engine panel in the near future, but more importantly, we're now pushing the rocketship regulatory timeline I'm on slide 22 tissue panel and 168 gene liquid panel for those panels, we are aiming to start the pivotal study.

In a few months, we think an anterior approach on these large panels quote unquote will ultimately bring a paradigm shift on the competitive landscape and it was a long adoption up in Europe.

As for in hospital use.

So let's move on to break it down to be at the three segments. Each by each so let's move on to page nine for the early detection a recap. So asking you shouldn't have mentioned we are glad to show that our early detection technology was published by May.

Sure about medical engineering earlier this year I wanted to reiterate that this is actually an older version of the assay and the model as you can imagine things yeah competition process took nearly two years, we have made multiple around apple working off our technology ever see nonetheless.

Endorses, the novelty and utility of our technology.

And then let's move to page 11, so on this page.

I wanted to reflect that our clinical programs mm for the three product the fixed costs are 1922 cancer product and we're happy to report that the programs are progressing nicely on track more specifically for us exclusive product.

We have just mentioned that we have accumulated passing data on over 2000 samples in the past few months through our early access program. What we have observed so far from this makes me.

Actually gave us a clearer estimate on the performance amounted intend to use population, which is helping us with the design of the prospective emulation study down the road as well as our ongoing communications with Golar tree.

One thing that I'm quite promising.

We can't share briefly that the specificity, we demonstrated that just kind of show some of the study is holding very well in the real world quote unquote. So this gave us a lot of confidence going forward.

And then for the 19th or in 'twenty to kind of get caught up both predict and crash and studies are progressing as planned and comes up in Korea, but that's about what we can share and to close again, we anticipate the first read out predict by the end of 2022.

So now let's move on page move onto page 14 to talk a little bit about MRV page 14 shows our divestment program MLD products, which we haven't talked about actually in detail a lot previously.

One key updates we wanted to emphasize here is that we have most recently completed the last month and analytical validation of novel Personalised FDA for tumor informed on my detecting remain the technology beyond profit, which has a target al do.

Limit of detection approaching four times 10 to the minus fixed such a thorough point they were down 4%.

It's back to report clinical validation data I've got profit on lung cancer in the first half of 2022, and we are also initiating studies in other cancer types, including colorectal esophageal.

I'd like to share some recent trends and adopt.

Adoption among Chinese oncologists in the past few months actually earlier this year and Mardi is.

Recommended a consensus by Chinese lung cancer patients to help prevent the risk for relapse for early stage non small cell lung cancer patients.

This thing consensus it's also make clear that not theirs.

Yes for MRV testing should be able to reach an L. O D as low as 0.2%, which is five times higher than what we are aiming for.

It's noteworthy that most in gas panels solutions offered for liquid based therapy section test.

Half hour O D only around 0.120, 0.5%, including ours.

There is not enough market protection. So you can imagine that this will be a new line of work in terms of technology.

And in terms of the market, we are seeing trends that oncologists and pharma companies are very actively exploring on MLD applications embedded that into a lot of research studies was in life. So we now expect this market to advance going through in the coming years.

So let's move to on page 16, two to touch briefly on the first person action on this page with basically a recap on the S. Interested to study a lot of you might already be familiar with it.

From this study are uncle compact liquid test panels shipped very strong performance specifications, including sensitivities like especially kinase inhibitor candidate robustness, one compared to four other liquid testing pets somebody you asked them. So this is this is a very nice endorsement of our liquid.

Just on testing technology and these results have been published in nature Biotechnology and we went through the results from that publication extensively last quarter and so we'll keep the details at this time, but we'd love to take questions and share reference materials, if youre interested in no more.

So let's move to page 17 to see a little bit on the business side on page 17, we demonstrate how our business has been transitioning toward thing in hospital model.

And.

In the in the past few months.

Is this a trend that we have actually had predicted from the very beginning but it's most recently accelerated partially driven by the pandemic.

Top part here are the bar graph, showing a tach Wally AUM over the past quarter, the green bar being the central that model in the Blue bar being the in hospital model you can see clearly that in the past three quarters. The total test volume growth.

That's mostly being driven by the in Hopkinton model. So this trend mattress, our expectation has been greatly accelerated due to the impact of Covid.

During the pandemic two things have changed in the hospitals first rigid travel restriction rules has made it much more difficult for patients from small city to travel to top hospitals and nearby log students or the capital city of their pilot.

This change impacts both the central App and in hospital channels.

We have tests are mostly offered among only the top comp sale.

Second almost all the hospitals have made tighter rules for doctor visits so it's been harder.

To reach the clinician, that's about prescribing a test and introduce new products.

This change I like the first one actually I mean activity impacting central that model, but positive impact that we have that model.

So in the bottom part on this page we wanted to reiterate why we see it in costumes and hospital channel as our strategic focus because it's a stickier model and also more product and quality driven when it comes to competition I think the in hospital model won't come to a dominant position.

Sharon when large <unk> panel and liquid and gas panels, Upton and N P approval, which will likely happen about two years down the road.

Beloved burning rock is well positioned in this paradigm shift and we do however, with to recognize on the other hand that since the in hospital model has lower unit price than the central that model with obviously lower blended ASP in such transitioning process.

So this is what do I have on the product and doesn't side and I'll turn to Leo to walk you through the financial numbers now.

Thank you Shannon.

Moving to our financials, firstly I'd like to recap our therapy selection testing volume growth in the second quarter, which is shown on page 17 testing volume is the most important metric representing progress of.

China and our share of the NGL market in the second quarter overall volume growth was strong at 40% year over year.

Central lab and in hospital volumes combined reached a total of close to 20000 units during the second quarter, we believe that both the absolute scale and the growth rate of our volumes in the second quarter was industry leading in China.

Now moving to slide 19 by channel first in hospital and hospital volume growth strong at 70% year over year to over 10000 units in the second quarter.

While central lab volume growth was more moderate at a 12% year over year growth.

As Shannon mentioned, the paradigm shift from Central lab to in hospital is accelerating in China that is what we anticipated strategically a number of years ago and we've been a clear leader in the in hospital segment. We are pleased to see the accelerated progress that we'd be able to achieve in the second quarter.

As of the end of June we are officially contracted with 34 hospitals to supply our NGF testing kits and there's a backlog of an additional 22 hospitals that we look to complete contracting.

In terms of the coverage breadth, we are working hard on a hospital contracting effort with a target list of the nation's top 100 to 150 oncology centers.

Which represent the lion's share of China's <unk> testing market. So that our tests can be offered at more hospitals in house. The contracting lead time has been long historically about two years or in some cases, even longer and we hope to accelerate this as <unk> becomes more mainstream in China, we have seen.

And why is the acceptance of a N G. S. After the top tier hospitals, such as the very top lines in Beijing, and Shanghai have had and just test installed in house. We have also seen increasing interest this year and then just from heads of hospitals.

These trends are we think this will help us accelerate our in hospital effort.

Then moving on to slide 20 to talk about our Central Lab channel.

Our growth has moderated in recent periods and our observation.

And some of this is publicly available data from listed peers in the industry. We think this is an industry wide phenomenon.

Lab slowdown we think there are two factors behind this slowdown first is on Covid, which has been on and off in China and on page 21, we have laid out the impacts on Covid in China.

On a page for example back in January Beijing, Shanghai has schools shops for a period of time, it may Guangzhou and other parts of southern China were significantly impacted and starting in July we had cases in travel restrictions that started in Nanjing and eastern China and this spread nationwide.

In China.

And as Shannon mentioned before because and just adoption is concentrated at the leading hospitals located in major cities in China any travel restrictions impact patient flow as patients in other parts of the province or outside of the province make up a significant bulk of the overall patient mix.

This is particularly true for tier one cities, such as Beijing, Shanghai, Guangzhou, where we have significant business volumes.

So the Covid impact on engineers, we think is very different compared to traditional testing, which is more commoditized than well penetrated into community in lower tier hospitals and.

In addition to the traveling impact hospitals may also reduce the number of appointments offered when there are cases reported in the city.

And so we just went through the Covid factored out of the two factors impacting central lab. The second factor is related to Audi T. O Laboratory developed tests regulation in China.

Al did you use the model that our central lab testing relies on it differs from the most typical testing format in China actually.

For the typical norm. The test is performed within the hospital the patients a pace to the hospital rather than paying to third party.

Outside companies historically L. D T regulation in China has been a great area, where rules and regulations regarding tests administered outside the hospitals were not spelled out in full and this resulted we think in low entry barrier and cut so competition in this channel.

It is becoming clear this year that's L. D T will be regulated in China, and this should be a positive for burning luck.

The new medical device regulation in China that came into effect in June this year. It makes it very clear scope for L. D T and specifically article 53 of that regulation states that for areas, where there is no approved IV D products L. D. Ts will be allowed for qualified medical wins.

<unk>.

N M. P. A is leading the work on drafting the detailed implementation rules related to the article 53 related to the medical device regulation. We have participated in discussions related to the rulemaking and we think clear regulation and that OTT will erect higher entry barriers for the central lab.

And help reduce competitive intensity from low quality offerings in this channel which is important.

The long term.

Under this increasing regulatory backdrop hospitals are also putting more scrutiny and more control L. D. T. S conducted outside of the hospital, we sold some hospitals tightening or cutting entirely outside L. D Tees in the second quarter.

We think the industry is changing for the better with increasing regulatory focus and scrutiny and we've been able to take market share leveraging the strengths of our hospital business.

We are accelerating our efforts to put out tests in house as more hospitals.

Then we'd like to talk about our financials, which is on page 22.

As we move from a testing volume to revenue metric the shifting mix from Central lab to in hospital is having an impact on asps or average sales price in the short term, we charged lower prices of IV D testing kits that we supply to hospitals in the in hospital segment compared with the.

L D T testing service prices that we charge to patients in a central lab channel, we like we'd like the L. E. N G. S testing could be a meaningful business for our partner hospitals, we can turn them to generate more revenues by capturing more volume shift from the hospital.

The ASP difference across the two channels does mean, that's during the transitional period of more in hospital testing, which we expect to be a number of quarters. Our blended ASP will be reduced in other words, all revenue growth rates will be numerically lower compared to our volume growth rate during this transition.

Phase.

For the second quarter, our overall revenue growth was 19% year over year, which is lower than the 40% volume growth rates for the S. P. A reason that we just explained.

By channel Central lab growth was single digits at 7% year over year.

In hospital revenue growth was strong at 40% year over year and.

And would you noticed there is a difference between our in hospital revenue growth and volume growth numbers volume growth was at 70% in our second quarter.

This is primarily to do with our billing and revenue recognition for this channel not that we changed our prices in the second quarter.

Billing and revenue recognition there are two components. The first which is the majority is books upon the test kits being shipped and received by the customer.

This component correlates with volumes in the quarter. The second components. The minority is spokes when payment occurs payment terms generally follow each hospital's own supplier terms and differ among hospitals generally this is a few quarters. So in summary volume growth in hospital should lead.

Revenue growth overtime.

Then moving to our pharma revenue segments, which is coming off a small base and growing at a fast rate. We are seeing a rapid buildup of backlog as we stand and discussed and we mentioned on page. Five. These are typically multiyear projects and also subject to our partners clinical progress and we expect.

<unk> contribution from this segment to our overall revenue overtime.

Before we go to our guidance for the year, we'd like to recap the Delta variant impacts on China, which we are laid out on page 21, as we mentioned before and just adoption is concentrated at the leading hospitals located in major cities in China during Covid flare ups.

Non pharmaceutical interventions and by this I mean, mainly travel restrictions.

The number one containment two in China.

Has delta spread more easily versus earlier variance, we saw a stronger reaction function.

And why the travel restrictions in August versus earlier for layoffs in the year and this will significantly impact our third quarter volumes.

We observed that's July being worse than June and August being a significantly worse than July.

So for the third quarter, we expect central lab volumes to be down actually on a year over year basis.

We expect in hospitals to keep growing because of the structural industry shift towards in hospital and our strength in the in hospital channel.

For the remainder of the year, we expect our business to continue to grow chiefly through in hospital we.

We expect volume growth to remain strong.

The U S. P. A drag from channel mix shifts will leads to a lower revenue growth rate. So all in all combining the COVID-19 impacts and the accelerated channel shift effect, we are reducing our full year 2021 revenue guidance to RMB $500 million.

And after talking about our quantitative guidance for 2020. One we also like to talk quantitatively about how we think about our growth drivers going forward and this is shown on page 23.

For our therapy selection business the industry is shifting towards in hospital as N. G. S increasingly becomes mainstream and more hospitals take greater control of MTS testing in the near term. This allows us to gain additional market share through our strength in that segment.

In the long term mooring hospital testing allows our product and regulatory advantages to play a greater role.

Sets us apart from low quality competition. So we believe we are keeping a beneficiary out of this industry trend.

In addition.

You said I mentioned at the start of the coal burning work is more than just therapy selection over the years, we have developed a pipeline of products.

Early detection.

D.

We have expanded our presence beyond China with our lab in California operational and starting to serve pharma CTX projects that started in Q2 this year.

'twenty 'twenty two will be the first year that we start commercializing our six cancer detection test.

We have been preparing for that since we completed product developments for this product back in November last year as the operational readiness. The commercial traction. So far are strong as you certainly discussed at the start of this call.

In addition to early detection. We also have our M D product data release and commercialization in 2022. So we think 'twenty 'twenty two sets us up well to kick off multiple additional revenue growth drivers going forward.

And with that we'd like to conclude our prepared remarks and open up for questions. Please.

Thank you ladies and gentlemen, we will now begin the question and answer session.

If you wish to ask a question. Please press star one on your telephone is like for your name to be announced if you wish to cancel your request. Please press the pound or hash key please standby, while we compile the question and answer roster once again, ladies and gentlemen, the star one for questions.

Your first question comes from the line of Douglas Schenkel from Cowen. Please go ahead.

Hi, good morning, and good afternoon.

Just maybe a couple of follow ups quickly on those final comments on guidance in terms of pacing, meaning Q3 versus Q4, if I'm listening correctly.

It sounds like with the trends.

Moving in the wrong direction in the central lab, but continuing to improve.

In the field that you would expect those to somewhat offset over the next two quarters and would you expect both Q3 and Q4 revenue to be about the same or is that the wrong interpretation of pacer.

Yeah, Doug Thanks for the question on pacing I guess its helpful to go back to page 21, and we can see the <unk>.

But impact in August was quite significant so that.

Made Q3 very challenging.

All of our <unk>.

<unk> so two P M.

If going back a bit.

Because of Covid for the Central lab.

For Q4, we don't rule out another COVID-19 flare up a we're not certain whether it's going to be as bad as August we hope he wants but we do want to leave some some buffer room there so.

Absent of any a significant COVID-19 playoffs again, we think TOEFL Q4 should.

Proceed a bit better.

And this is the typical seasonality that we do see.

But you know what if COVID-19 is it's becoming more difficult to predict.

Understood, Okay, and then one more.

Guidance for the year in the second quarter operating spend came in a little higher.

Than we expected how should we think about operating spend over the balance of the year.

Yeah. So I guess, it's it's helpful to go back to the business for a little bit regarding opec's thereof.

Areas that we are adding our spend our first is on leak detection and as I mentioned, we are looking to partner with hospitals and insurance companies. So we have on the funnel.

For the hospital segments sales personnel for the insurance segment we.

We have marketing teams are then on the back end, we have call centers and other operational support elements. So.

We started adding the organizational head count and infrastructure for the detection slots in this year and these will remain in place and if the business traction is going well and we'll certainly look to add more.

All of these elements and in addition.

On these early.

Early detection clinical programs.

We are adding.

The pie of programs that we are executing so overtime and this will hit R&D line overtime, Oh detection clinical expense will increase.

We do have quite a few large studies underway already and we're looking to until up additional and launch additional studies down. The road. So early detection will will be a incremental driver and in addition to that as we think about the M. R. D. As we think about additional.

Product launches that.

That we.

Also for oncology patients we are also building.

Building up our sales and marketing team over time.

For the oncology patients business, so that is adding a spend as well.

Then on the overall footprint, we have a new building.

Wrenches about double the space of our parents.

<unk> and Guangzhou that he's going to house, our early detection.

Operation, including the lab function, which will support the largest clinical study and.

The commercialization effort, so the overall footprint, which will hit the P&L G&A line.

He is also increasing so I would expect the opex levels to remain at this place Oh, and even trend up overtime.

More dependence on commercial and clinical progress.

Great.

One one last one for me a clear bright spot in the quarter was the performance at the Biopharma the pharma services line.

Recognizing that can be lumpy.

The value of contracts entered into in the first half of the year was was pretty impressive.

Can you share anything in terms of mix of projects or applications that you're working on with your biopharmaceutical partners.

Do you expect this to trend over time and you know how we should view this.

As a future indicator for Ngls test adoption in China.

I'm wondering how much weight you put on these trends as you think about the outlook for adoption of NGL space.

Tools in Europe European market.

Okay got them I can try to answer that question in terms of the product and that's where our pharmaceutical collaboration business. It's.

It's a blend between biomarker service studies and companion all the way to companion diagnostic collaboration and we have most recently I think we also mentioned in our announcement actually have.

Cooperation with impact on Therapeutics M. A C D acts collaboration in both the U S and China, and we are seeing more and more both more and more domestic both domestic and U S innovative drug development companies.

I'm showing interest in <unk>.

In our pipeline and in our registration on capability to be able to serve a C. D X projects in both the U S. In China. So we are we're.

We're seeing a bit of a trend towards a larger C. D acts on collaboration.

Project come back, but we are to having a lot of biomarker service exploratory studies collaborations with domestic.

Company is as well so I guess the short answer is that it's a it's a mix and then four in terms of the adoption I think Oh I'm more clear trend is towards that more and more.

Companies are complete in China, and they are now adopting the C V acts on concepts and so I think it's a transition to M. D. S from from traditional like I E. R. PCR to ingest it still gradual and it's case by case because they are Biomarkers for example.

D L. One where you don't need in July and then there are bound markers, where you could do either IHT or or NGL rpms beyond U S. And then there are more and more biomarkers that you have to do and yes. So the transition there is case by case, but we do see a very sharp.

Into the BD acts concept, which means that a lot of the drug company. If they are working on how COVID-19 therapy or immunotherapy drugs in China are now I think it's part of the requirements from regulatory that do you have a biomarker.

Energy.

From the almost a very beginning and especially going into the approved approval phase they have to have a clear strategy for biomarker and companion diagnostic person, which was not true a couple of years ago. So we think we are pretty excited to see that in China.

Finally, because that seemed to actually for the U S market for a long time.

Alright, great. Okay. Thanks, very much I wanted to say.

One more thing about the pharma business. So this is not about one or two codes that are dominant.

Contract value actually consists of a consists of many projects was different.

Volumes in different Oh.

So I would say that.

Really a trend and so very healthy.

From my observation.

Thank you. Our next question comes from David Li from Bank of America. Please ask your question.

Right.

Management for giving me the chance to.

Asked a question. So my question is regarding homes.

Hum.

Stricter regulation on the overall.

China Health care policy.

It seems like a trend that.

The government is going to have a lot of the stricter regulation also oh the data, especially the genetic data are do you have.

Any feeling that.

Oh.

Especially for our business, which are world class and have collected the.

Data from the patient do you think we will have some of the risks are.

Hum.

The future. Thank you.

Ah well central outcome and that's a very important question.

For for medical data Youre right that the government is getting stronger and stronger about the security.

And it was a it was not.

Actually we start we started to care about the security of data.

Long time ago and with.

We report to the government could have communicated communication wisdom.

Time to time to let them know, how we regulate the data inside.

And make sure that the data.

Generated in China kicked in China.

So the first the first.

Our government Department would need to talk about U S. T. R. I think so far would have.

You have a good channel of communication.

And we.

We don't think that will be a high.

High risk for a.

So far in Iraq, because we're always doing the way that they've got the government bond to suit.

Right right. Thank you.

Youre welcome and David just to add as Michel mentioned human genetic resources H G. R. That's.

That's the most importance we think.

Related to the life sciences or biotech industry as we have seen.

The negative impacts already about increasing its share of regulation hitting a few.

Company's full violating HDR regulations in the past so we have paid a lot of attention.

Two a shower regulation and ensure that we are fully compliant to.

<unk> HDR regulation biosecurity, another relevant laws and regulations in China, which we like to mention that you know out of the <unk>.

<unk> was approved projects you can notice it's.

It's actually a publicly available and then you can notice our position out.

Of the approved list, where we have a decent track record in this space. So we are confident to maintain.

Good standards going forward in this regard.

Thanks, Lou that's helpful.

Thank you. Our next question comes from the line of Sean <unk> from Morgan Stanley. Please ask your question.

Well, Thanks Raj mentioned my question.

One follow up on what can you talk about where the pharma business.

I think COVID-19.

Do you have any better income.

Oh no.

No.

Obviously won't come off.

Yeah.

Yeah, but it hasn't panned out.

Can you talk about the well completion.

Hum.

Companies in this industry will come Banca Biopharma.

Hum.

Hum.

I think the Texas loans.

That's a good question.

I have two more questions okay.

Early detection zynga.

Okay.

Increased marketing program, so we have them.

Arthur.

Hum.

You would think that caused that competitive dynamic.

Going forward.

As a follow up.

Net profit.

China.

Clinical cancer.

Okay.

How do you think about it.

Single B.

What about cancer.

Action.

On the way.

Hmm.

Okay.

Back in August you can oh.

Mhm, Colorado tend to go in public debt.

Yeah, Yeah yeah.

Yeah.

Okay.

Yeah.

Typical kind of attention.

Right.

Okay.

Thank you.

Hi.

Thanks for asking Sean Ah I can take the question.

So in terms of a ballroom this business. So the first things that you are right that.

The total market is increasing dramatically and that is why I think that not only burning rock mentioned about pharma business, but.

But I.

Our competitive advantages that we are probably if not the only ones that are quite.

I do.

Ward, who can.

Who can register the CDI in both U S and.

And in China.

In terms of an <unk> platform and as I mentioned that we are.

We hired Sharon now Dr. Sharon <unk> to join us and her background.

Fantastic about the demonstration.

Judge attrition in both U S and China as Youre working with FDA for over nine years for IBD.

Approval.

So Ah and Nash.

Mentioned that the quality is that not a factor. So we are the only one who has the endorsement of FDA heading the word that I would call gate no matter of IP sample and liquid biopsy.

Our quality as amount of best wishes.

Farmer really care about quality they kept out the.

Whether it be a job can be approved that are highly related with the quality of the test.

So.

Yeah, that's about the farmers were seeing that there will be some competition, but in terms of registration in both U S and in China, and all and the SEC.

Things about it and then Steve will want to lending quanta land in China's selecting high quality partner.

We are the first choice all up there.

And the second question about the early detection, we have seen that the single cancer testing is getting more and more especially for a.

For calling cancer and recently there was some sort of liver cancer early detection.

Our I worked a lot with it you know.

Is that the market is just the beginning so every everyone has their space.

But we're learning a lot we care about.

The multi cancer early detection.

Yeah.

You know from the very beginning we continuously believed that saw that that will be a bigger future.

The reason is that so.

Any any product you have the good thing about the <unk>.

The scenario after commercialization, we think if we think that dataset.

We've talked about with him.

Within about a person who wants to go.

Health Checkup.

Every year and Haynesville her needs.

Whether she or.

He has some problems in certain Oh, it's not about a single type of Oregon.

She wanted to chat so that is why we would think that the.

I think everyone has their market in the future, but multi cancer early detection has the biggest one.

And in terms of.

Ah Peng multi cancer early detection, if they look at a data probably burn as well.

As the company has the best data in China, and if you look at a child, leading let by the claim or the P. I.

The only the only two trials for multi cancer early detection that has passed the <unk> approval that is unnecessary.

Greensville trial, so the only trials that all come from burning rock. So it's from my phone the view.

We for multi cancer early detection, we do have serious players sorry, we don't have to its competitors in the market in China.

Yes.

Alright, thank you.

We have reached the end of the question and answer session. So with that we conclude our conference for today. Thank you for participating you may all.

With us today.

[music].

[music].

[music].

Good day, and thank you for standing by and welcome to the burning rock biotech 2021 second quarter earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To answer questions. During the session you Press star one on your telephone please be advised that today's conference is being recorded.

Before we begin I'd like to remind you that this conference call contains forward looking statements within the meaning of section 21 E off the Securities Exchange Act of 19 of 34 as amended and that's defined in the U S. Private Securities Litigation Reform Act of 1995. These.

Forward looking statements can be identified by terminology such as expects anticipates future intends plans believes estimates target competent at similar statements statements. They are not historical facts, including statements about that breathing rock springs and expectations.

All forward looking statements such statements are based upon management's current expectations and current market and.

Operating conditions and relate to events that involve known or unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond burning well control.

Forward looking statements involve risks uncertainties and other factors that could cause actual results to differ materially from those contained in any such statements.

Ralph does not undertake any obligation to update any forward looking statement as a result of new information future events or otherwise.

Sept as required under applicable applicable law.

I'd now like to turn the conference over to your first speaker today, Mr. You shouldn't Han C E O all spending well. Thank you. Please go ahead Sir.

Thank you.

So welcome to burning Ralph Q3 conference call I'm used to enhance the CEO and founder.

Theyre all performing well.

Today, we have our C O O Shannon.

Joe and CFO Leo intermediate.

First I will go through some exciting highlights of our recent progress.

It was you or Shannon will elaborate on our product line fashion, and then that was Seattle, Lille or walk you through the financials.

So first let's turn to page three.

Turning where all started with the therapy selection business in 2014 and has grown to the market later in this assessment.

The living in a position to have laid a good foundation.

That's given us an advantage, it's moving towards a new businesses new business of early detection, hi, Marty and pharmaceutical collaborations.

Oh, we have strong branding on our technology and product quality, which should help us attract talent.

And the network, we have built across thousands of oncologists and hundreds of hospitals you never allow us to lastly.

Innovation and the R&D study as all new products as well as fast faster distribution distribution when they put out go to the market.

The existing high testing volume make it possible for us to continue.

Lowering the cost.

And that's why we aim to tackle.

Sorry, if you said that lots of MLD and early detection market in parallel in a coming a few years.

Let's turn to page four.

For some highlights all about risks in the program.

First off our well very proud that this tech knowledge of power or did you have some combining of methylation based assay and our machine learning based algorithm has been published in nature.

And in Europe.

Even though it doesn't truly reflect the most recent version of our early do you have some product.

Very nice endorsement of our innovation, which lay down a solid foundation for our product lines.

The nice thing about the preparation of our commercialization of early detection earlier this year, but those of you who are interested in knowing the progress on that so far we have tested over 2000 samples through the early access program.

Robyn operation team.

Our center and now see our EM team.

Our initial commercialization channel will be partly hospital health management Department and in a way to insurance companies.

We have so far presented on 10 national original conferences with a public hospital.

Health management Kols.

Well it isn't data on the fifth Kansas has attracted great attention from the doctors.

So far we have entered contracting stage with six hospitals and way out we see that number scoring at a very decent pace.

Pace.

We've also made some exciting.

Progress on MRV.

We are developing a tumor informed MRV passing platform court be a profit.

He has shown very promising performance with sensitivity on par with what has what has been shown in the tower and then I'm sure. It's a competition.

We have started a study on lung cancer and there are several trials for other cancer types under planning.

With therapy selection.

You quoted 40% volume increase in this quarter, mainly driven by the EMA Hospital model. It is the first time that our in hospital motto path volume exceed 10.10000 per quarter.

Last but not least I will spend some time to introduce them to some exciting outlook of our former collaboration business.

We started this new business unit last year and anticipating a strong opportunity in this segment.

The new.

The new P. You have been growing rapidly rapidly new contract value.

RMB $98 million during first part here in 2021, which is three times versus the full year of 2020.

I went through in detail on the next page.

So, let's turn to page five.

Pharma business, it's not a new business for the company and U S.

But this market it hasn't been a major U S and China until.

About half an hour one five years ago.

Some recent trends and the paradigm shift drivers includes the first <unk> T a S.

Moving to where regulation targeted therapy approval in a C. D Act model.

Second with the pressure off volume based government procurement, some domestic innovation farmer companies seeking for global expansion opportunity.

<unk> targeted therapy drugs the needs of pharma companies and jazz partner include first we must have a high quality product.

And available on both how about liquid biopsy samples second registration capability in both U S and China, sometimes also Japan, Europe and other developed countries.

The third the third criteria is that.

The third driver.

This is nice and jazz companies that can do city actually in China.

Never.

Very challenging with portfolio company to operate.

Registration trial in China due to the regulation of <unk>, which is human genome regulation.

That's a Chinese company and that company with global operation is their ideas idea trial.

Seeing this chance, we set up our U S lab, which is now a clear certificate.

Certificate and a cap of credit credit.

And the ethics will seek to resolve the week published in nature biotech knowledge strongly endorsed our tech knowledge.

We have also invited a third key highlights to join up with anybody that Sharon Leung who had nine years of experience in FDA covering.

Molecular diagnostic device submission and two years' experience in inkwell to join us as our VP of Oh in Alright, and Kuwait.

We believe that the trend will continue.

So that's up about summer with really very excited about that.

And so be it.

Pablo globally as a first step of our global expansion.

So that's what I'm going to talk today, and then that's all out.

The ship to Shannon <unk> about the operating part.

Thank you Shannon.

Yes, Thank you and yourself. So now let's move to page six is an overview and I would like to give you some important updates I'm burning rock product pipeline.

First of all let's take a look at the outcome for early detection for asymptomatic people.

In this sector, we have reported the validation results from the study Oh six cancer product last November we have also accumulated more data on our intent to use population through the early access program that you have.

And with that we plan to start of commercialization of our six cancer product in early 2022 in the Meanwhile, we're launching a prospective study I intend to use population to provide more data and I was there more money. These encouraging clinical utility in Arizona Fox not Kevin Bach positive.

The impact of our early detection tests alcohol.

And then Oh night cancer in 'twenty, two cancer product, we have long ski a multi site Post's active case control studies.

Critics and questions earlier this year as you already know.

Each study will recruit more than 10000 participants and each study bloodline of Chinese Academy member as the leading P. I predict it exactly to have the first readout by the end of 2022 and questions Oh, well happy to read out about 2024.

And then in terms of early stage cancer patients. We are quite excited that we will have two products launched in 2022.

The first one is a tumor informed MRV products developed by ourselves in house.

After showing already mentioned the other one is to determine our ax, which is the prognosis prediction and adjuvant chemotherapy benefit prediction product for lung cancer patients that we licensed in from uncle sides to green to the China market for MRV product, we're now putting them together some clinical validation data on lung cancer.

Patients anywhere else the initiating validation studies on other kinds of times, such as colon and esophageal.

Could you talk about Iraq.

We're getting close to completing the transfer and analytical validation study and we will be able to start offering this product to Tommy's question shortly.

Blair, Yeah, MRV product and become Rx, well formed synergy and providing precision medicine solutions to Chinese patients and doctors in lung cancer, and we really look forward to a promising market for any states cushion.

Which is not to beat a group of patients who benefit most from molecular testing, but it's about to change.

Moving on to our late stage therapies back some product line since the <unk>.

You have panels in this segment are mostly passed the divestment phase and entering the registration pathway.

Tomorrow I'll legislation.

Proboscis, so actually our forging panel obtained the first and then get approval and just kind of in China. In 2018, we now anticipate another approval or.

13 gene panel in the near future, but more importantly, we're now pushing the rocketship regulatory timeline I'm on slide 20 of the tissue panel and 168.

Liquid panel well.

Those panels, we are aiming to start the pivotal study.

Mark we think and I'm doing a truth in this large panels cogent coped, well ultimately bring a paradigm shift on the competitive landscape and it was a long adoption up in Europe.

As for it in hospitals.

So let's move on to break it down to be at the three segments each by each.

So let's move on to page nine for the early detection a recap so asking you shouldn't have mentioned we are glad to show that our early detection technology, what's published by nature about medical engineering earlier. This year I wanted to reiterate that this is actually an older version of both FDA and EMA.

Auto as you can imagine things yeah competition process took nearly two years, we have made multiple around Apple working off our technology ever see Nonetheless, this endorses the novelty and utility of our technology.

And then let's move to page 11. So on this page we wanted to reflect that our clinical programs mm for the three product the fixed cam so 19% 22 kinds of product.

We are happy to report that the programs are progressing nicely on track more specifically for us exclusive product.

We have just mentioned that we have accumulated passing data on over 2000 samples in the past few months.

Our early access program, what we have observed so far somebody smoking and actually gave us a clearer estimate on the performance amounted in countries use population, which is helping us with the design of the prospective interventional study down the road as well as our ongoing communications with the regulatory.

One thing that's quite promising.

We can't share briefly that the specificity we've demonstrated that this country. All center study is holding very well in the real world quote unquote. So this gave us a lot of confidence going forward.

And then for the 19th or in 'twenty, two kind of caught up both predict and passion studies are progressing as planned and ties up in Korea, but that's about what we can share and to close again, we anticipate the first read out after that by the end of 2022.

So now let's move on page move onto page 14 to talk a little bit about MRV page 14 shows our divestment program MLD products, which we haven't talked about actually in detail a lot previously.

One key updates we wanted to emphasize here is that we have most recently completed the last month and analytical validation of novel Criminalised FDA for tumor informed on my detecting remain the technology would be up.

<unk>, which has a target limit.

Limit of detection approaching four times 10 to the minus six such a thorough point there there are 4%.

It's back to report clinical validation data via a profit on lung cancer in the first half of 2022, and we are also initiating studies I know COVID-19.

Including colon and talking to you.

We'd also like to share some recent trends.

Adoption among Chinese oncologists in the past few months actually earlier this year or do you have the right recommended in a consensus by Chinese lung cancer patients to help predict the risk for relapse for early stage non small cell lung cancer patients.

And this thing consensus it's also make clear that my third.

For MLD testing should be able to reach an L. O D as low as 0.2%, which is five times higher than what we are aiming for.

It's noteworthy that most under GAAP panels solutions offered for liquid based therapy selection test Uh Huh Al O D. Only around 0.120, 0.5%, including island, which is not enough market protection. So you can imagine that this will be a new line of work in terms of technology and it.

But the market, we are seeing trends that oncologists and pharma companies are very actively exploring the application of embedding that into a Lotta research studies is in life. So we now expect this market to advance going between in the coming years.

So let's move to on page 16, two to touch briefly on the first piece of action on this page we briefly recap on the S. Interested to study a lot of you might already be familiar with it from this study are uncalled compact liquid test panel shouldn't I always strong performance.

The patients, including sensitivities because like what's your visibility on the no button with one compared to four other Andrey has liquid testing kits in the U S.

So this is they're just a very nice endorsement of our liquid based on testing technology and these results have been published in nature Biotechnology and we went through the results from the positive publication extensively last quarter and so we'll keep the details at this time, but we'd love to take questions and.

Sure reference materials, if youre interested in no more.

So let's move to page 17 to see a little bit on the fitness side on page 17, we demonstrate how our business has been transitioning toward thing.

Hospital model.

Rapidly and are in the in the past few months is this a trend that we had actually predicted from the very beginning but it's most recently accelerated partially driven by the pandemic. The top part here are the bar graph, showing a tach walling them over the past quarter.

The Green bar being the central that model in the Blue bar being the in hospital model you can see clearly that in the past three quarters. The total test volume growth has mostly been driven by the in Hopkinton model. So this trend matches, our expectation has been greatly accelerated due to the impact of Covid.

It.

During the pandemic two things have changed in the hospitals first rigid travel.

Restriction rules have made it much more difficult for patients from small city to travel to top hospitals and nearby large meetings or the capital city of their pilot. This change impacts both central App and in hospital channels, because India has passed a mostly offered among only the top hospitals.

Second almost all the hospitals have made tighter rules for doctor visits so it's been harder.

To reach the clinician, that's about prescribing a test and introduce new product.

This change I like the first one actually only negatively impact central that model, but positive impact it wouldn't have that model.

So in the bottom part on this page we wanted to reiterate why we see the in costume in hospital channel as our strategic focus because it's a stickier model and also more product and quality driven when it comes to competition I think the in hospital model will come to a dominant position.

Sharon when large NGF panel and liquid and gas panels, Upton and NPA approval, which will likely happen about two years down the road.

Beloved burning rock is well positioned in this paradigm shift and we do however, we do recognize them all.

The other hand that since the in hospital model has lower unit price than the central that model with us to lower our blended ASP in such transitioning process.

So this is what do I have on the product side and I tend to Leo to walk you through the financial numbers now.

Thank you Shannon.

Moving to financials, firstly I'd like to recap our therapy selection testing volume growth in the second quarter, which is shown on page 17 testing volume is the most important metric representing progress of.

China and our share of the NGL market in the second quarter overall volume growth was strong at 40% year over year.

Central lab and in hospital volumes combined reached a total of close to 20000 units during the second quarter, we believe that both the absolute scale and the growth rate of our volumes in the second quarter was industry leading in China.

Now moving to slide 19 by channel first in hospital.

Hospital volume growth strong at 70% year over year to over 10000 units in the second quarter.

While central lab volume growth was more moderate at a 12% year over year growth.

As Shannon mentioned, the paradigm shifts from Central lab to in hospital is accelerating in China that is what we anticipated strategically a number of years ago and we've been a clear leader in the in hospital segment. We are pleased to see the accelerated progress that we'd be able to achieve in the second quarter.

As of the end of June we are officially contracted with 34 hospitals to supply LNG is testing kits and there's a backlog of an additional 22 hospitals that we look to complete contracting.

In terms of the coverage breadth, we are working hard on a hospital contracting effort with a target list of the nation's top 100 to 150 oncology centers, which represent the lion's share of China's <unk> testing market. So that our tests can be offered at more hospitals in house.

The contracting lead time has been long historically.

It's two years or in some cases, even longer and we hope to accelerate this as <unk> becomes more mainstream in China.

We have seen wider acceptance of a N G S. After the top tier hospitals, such as the very top lines in Beijing, and Shanghai have had and just test installed in house. We have also seen increasing interest. This year and then just from heads of hospitals and we like these are trends. We think this will help us accelerate.

Alright and hospital ethics.

Then moving on to slide 20 to talk about our Central Lab channel.

Our growth has moderated in recent periods and our observation.

And some of this is publicly available data from listed peers in the industry. We think this is an industry wide phenomenon. The central lab slowdown. We think there are two factors behind this slowdown first is on Covid, which has been on and off in China and on page 21, we have laid out.

The impacts on Covid in China.

On the page for example back in January Beijing, Shanghai have schools shops for a period of time, it may Guangzhou and other parts of southern China were significantly impacted and starting in July we had cases in travel restrictions that started in Nanjing and eastern China and this spread nationwide.

In China.

And as Shannon mentioned before because adoption is concentrated at the leading hospitals located in major cities in China any travel restrictions impact patient flow as patients in other parts of the province or outside of the province make up a significant bulk of the overall patient mix.

This is particularly true for tier one cities, such as Beijing, Shanghai, Guangzhou, where we have significant business volumes.

So the Covid impacts on engineers, we think is very different compared to traditional testing, which is more commoditized than well penetrated into community in lower tier hospitals and.

In addition to the travel impact hospitals may also reduce the number of appointments of it when there are cases reported in the city.

And so we just went through the Covid. The fact that out of the two factors impacting central lab. The second factor is related to Audi T. O Laboratory developed tests regulation in China.

Al did you use the model that our central lab testing relies on it differs from the most typical testing format in China actually.

For the typical norm. The test is performed within the hospital the patients a pace to the hospital rather than paying to third party.

Outside companies historically L. D T regulation in China has been a great area, where rules and regulations regarding tests administered outside the hospitals were not spelled out in full and this resulted we think in low entry barrier and cut so competition in this channel.

It is becoming clear this year that's L. D T will be regulated in China, and this should be a positive for burning luck.

The new medical device regulation in China that came into effect in June this year. It makes it very clear scope for L. D T and specifically article 53 of that regulation states that for areas, where there is no approved IV D products L. D. Ts will be allowed for qualified medical instead.

<unk>.

N M. P. A is leading the work on drafting the detailed implementation rules related to article 53 related to the medical device regulation. We have participated in discussions related to the rulemaking and we think clear regulation and that OTT will erect higher entry barriers for the central lab.

Yeah.

And help reduce competitive intensity from low quality offerings in this channel which is important.

The long term.

Under this increasing regulatory backdrop hospitals are also putting more scrutiny and more control odt's conducted outside of the hospital, we sold some hospitals tightening or cutting entirely outside L. D Tees in the second quarter.

We think the industry is changing for the better with increasing regulatory focus and scrutiny and we've been able to take market share leveraging the strengths of our hospital business.

We are accelerating our efforts to put out tests in house as more hospitals.

Then we'd like to talk about our financials, which is on page 22.

As we move from a testing volume to revenue metric the shifting mix from central lab to in hospital.

Is having an impact on ASP or average sales price in the short term.

We charged lower prices of IBD testing kits that we supply to hospitals in the in hospital segment compared with the L. D. T testing service prices that we charge to patients in a central lab channel, we like we'd like the L. E. N G S testing could be a meaningful business for our partner hospitals.

We can turn them to generate more revenues by capturing more volume shift from the hospital.

The ASP difference across the two channels does mean, that's during the transitional period of more in hospital testing.

Which we expect to be a number of quarters, our blended ASP will be reduced in other words, all revenue growth rates will be numerically lower compared to our volume growth rate during this transitional phase.

For the second quarter, our overall revenue growth was 19% year over year, which is lower than the 40% volume growth rates for the S. P. A reason that we just explained by channel Central lab growth was single digits at 7% year over year.

The in hospital revenue growth was strong at 40% year over year.

And would you noticed there is a difference between our in hospital revenue growth and volume growth numbers volume growth was at 70% in our second quarter.

This is primarily to do with our billing and revenue recognition for this channel not that we changed our prices in the second quarter.

Billing and revenue recognition there are two components. The first which is the majority is books upon the test kits being shipped and received by the customer.

This component correlates with volumes in the quarter. The second components. The minority is spokes when payment occurs payment terms generally follow each hospital's own supplier terms and differ among hospitals generally this is a few quarters. So in summary volume growth in hospitals should lead.

Revenue growth overtime.

Then moving to our pharma revenue segments, which is coming off a small base and growing at a fast rate. We are seeing a rapid buildup of backlog as we discussed and we mentioned on page. Five. These are typically multiyear projects and also subject to our partners clinical progress and we expect.

<unk> contribution from this segment to our overall revenue overtime.

Before we go to our guidance for the year, we'd like to recap the Delta variant impacts Oh, China, which we laid out on page 21, as we mentioned before and just adoption is concentrated at the leading hospitals located in major cities in China during Covid flare ups.

Non pharmaceutical interventions and by this I mean, mainly travel restrictions.

The number one containment two in China.

As delta spread more easily versus earlier variance, we saw a stronger reaction function.

And why the travel restrictions in August versus earlier for layoffs in the year and this will significantly impact our third quarter volumes.

We observed that's July being worse than June and August being a significantly worse than July.

So for the third quarter, we expect central lab volumes to be down actually on a year over year basis.

We expect in hospitals to keep growing because of the structural industry shift towards in hospital and our strengths in the in hospital channel.

For the remainder of the year, we expect our business to continue to grow chiefly through in hospital we.

We expect volume growth to remain strong.

S. P. A drag from channel mix shifts will leads to a lower revenue growth rate. So all in all combining the COVID-19 impacts and the accelerated channel shift is that we are reducing our full year 2021 revenue guidance to RMB 500 million.

And after talking about our quantitative guidance for 2020. One we also like to talk quantitatively about how we think about our growth drivers going forward and this is shown on page 23.

For our therapy selection business the industry is shifting towards the in hospital as N. G. S increasingly becomes mainstream and more hospitals take greater control of engineers testing in the near term. This allows us to gain additional market share through our strength in that segment.

In the long term mowing hospital testing allows our product and regulatory advantages to play a greater role.

Sets us apart from low quality competition. So we believe we are keeping a beneficiary out of this industry trend.

In addition.

You said I mentioned at the start of the coal burning work is more than just therapy selection over the years, we have developed a pipeline of products.

Early detection.

D.

We have expanded our presence beyond China with our lab in California operational and starting to serve pharma CTX projects that started in Q2. This year 'twenty 'twenty two will be the first year that we start commercializing our six cancer detection test.

We have been preparing for that since we completed product developments for this product back in November last year as the operational readiness. The commercial traction. So far are strong as you certainly discussed at the start of this call.

In addition to early detection, we also have our MRV products data release and commercialization in 2022. So we think 'twenty to 'twenty two sets us up well to kick off multiple additional revenue growth drivers going forward.

And with that we'd like to conclude our prepared remarks and open up for questions. Please.

Thank you ladies and gentlemen, we will now begin the question and answer session.

If you wish to ask a question. Please press star one on your telephone is like for your name to be announced if you wish to cancel your request. Please press the pound or hash key please standby, while we compile the question and answer roster once again, ladies and gentlemen. This style one quick question.

Your first question comes from the line of death Schenkel from Cowen. Please go ahead.

Hi, good morning, and good afternoon.

Just maybe a couple of follow ups quickly on those final comments on guidance in terms of pacing mean in Q3 versus Q4, if I'm listening correctly.

It sounds like with the trends moving in the wrong direction in the central lab, but continuing to improve.

In the field that you would expect those to somewhat offset over the next two quarters and would you expect both Q3 and Q4 revenue to be about the same or is that the wrong interpretation of pacer.

Yeah, Doug Thanks for the question on pacing I guess its helpful to.

Go back to page 21, and we can see the <unk>.

But impact in August was quite significant so that.

Made Q3, very challenging and out of our expectation so two P M.

What is going bad.

Because of Covid for the Central lab.

For Q4, we don't rule out another COVID-19 flare up we're not certain.

Whether it's going to be as bad as August we hope he wants but we do want to leave some some buffer room there so.

Absence of any.

A significant COVID-19 playoffs again, we think TOEFL Q4 should proceed.

Proceed a bit better and this is the typical seasonality that we do see a but you know with Covid is it's becoming more difficult to predict.

Understood, Okay, and then one more on <unk>.

<unk> for the year in the second quarter operating spend came in a little higher than we expected how should we think about operating spend over the balance of the year.

Yeah. So I guess, it's it's helpful to go back to the business for a little bit regarding opec's. There are a few areas that we are adding our spend first is on leak detection.

And as we Should've mentioned, we are looking to partner with hospitals and insurance companies. So we have.

On the funnel.

For the hospital segment.

Sales personnel for the insurance segment.

We have marketing teams are then on the back end, we have call centers and other operational support elements. So.

We've started adding the organizational head count and infrastructure for the detection thoughts on this year and these will remain in place and if the business traction is going well and we'll certainly look to add more.

All of these elements and in addition on.

These early detection with clinical programs.

Adding.

The pilot programs that we are executing so overtime and this will hit R&D line overtime.

Detection clinical expense will increase.

We do have quite a few large studies underway already and we are looking to until up additional and launch additional studies down. The road. So early detection will will be a incremental driver and in addition to that as we think about the M. R. D. As we think about additional.

Product launches.

That we.

After a full oncology patients we are also.

Building up our sales and marketing team over time.

For the.

Oncology patient business, so that is adding a spend as well.

And then on the overall footprint, we have a new building.

Rents, it's about double the space of our parents place in Guangzhou that is going to house our early detection.

Operation, including the lab function, which will support the large clinical study and the.

The commercialization effort, so the overall footprint, which will hit the P&L G&A line.

He is also increasing so I would expect the opex levels to remain at this place Oh, and even trend up overtime.

More dependence on commercial and clinical progress.

Great.

One one last one for me a clear bright spot in the quarter was the performance at the Biopharma the pharma services line.

Recognizing that can be lumpy.

The value of contracts entered into in the first half of the year was pretty impressive.

Can you share anything in terms of mix of projects or applications that you're working on with your biopharmaceutical partners.

Do you expect this to trend over time and you know how we should view this.

It's a future indicator for Ngls test adoption in China.

I'm wondering how much weight you put on these trends as you think about the outlook for adoption of the NGL space.

Tools in Europe European market.

Okay got them I can try to answer that question in terms of the product and that's where our pharmaceutical collaboration black Knight's it's.

It's a blend between biomarker service studies and companion all the way to companion diagnostic collaborations and we have most recently I think we also mentioned in our announcement that we have.

Collaboration with impact on Therapeutics M. A C D acts collaboration in both the U S and China, and we are seeing more and more both.

More and more domestic both domestic and U S innovative drug development companies and showing interest in <unk> in our pipeline and in our registration capability to be able to serve a C. D X projects in both the U S and China. So we are.

We're seeing a bit of a trend towards a larger C. D acts on collaboration.

From that but where you are having a lot of biomarker service exploratory studies collaborations with domestic.

Company is as well so I guess the short answer is that it's a it's a mix and then four in terms of the adoption.

I think Oh, I'm more clear trend is towards that more and more.

Companies are our drug companies in China. There are now adopting the CV acts on concept and so I think in the transition to and yes, that's where I'm from traditional like I E. R. PCR to M. D. S. It still gradual and it's case by case because they are Biomarkers for example.

L. One where you don't need in Geos, and then via our Biomarkers, where you could do either IHT or or NGF rpms beyond U S. And then there are more and more biomarkers that you have to do and yes. So the transition there is case by case, but we do see a very sharp transition.

Into that Celiacs concept, which means that a lot of the drug companies. If they are working on multiple therapy or immunotherapy drugs in China are now I think it's part of our requirements from regulatory that you have a biomarker strategy.

From the almost a very beginning and especially going into the approved approval phase they have to have a clear strategy for a biomarker.

Diagnosis Ocean, which was not true on a couple of years ago. So we think we are pretty excited to see that in China. Finally, because that seemed to actually for the U S market for a long time.

Alright, great. Okay. Thanks, very much I wanted to say.

One more thing about the pharma business. So it's not about one or two codes that are dominant.

Contract value actually consist of a consists of many projects with different.

And different.

So I would say that that is really a trend.

They're healthy.

From my observation.

Thank you. Our next question comes from David Li from Bank of America. Please ask your question.

Right. Thank you management for giving me the chance to.

That's a good question. So my question is regarding <unk>.

Hum.

Stricter regulation on the overall.

China Health care policy.

It seems like a trend that.

The government is going to have a lot of the stricter regulation on the other.

Data, especially the <unk>.

It is data.

Do you have.

Any feeling that.

Oh.

Especially for our business, which we will collect and have collected.

Now to data on the patient do you think we will have some of the risks.

Risks are.

In the future. Thank you.

Well, thanks for asking and that's a very.

Question.

Before.

For medical data Youre right that the government is getting stronger and stronger about the security.

And it was a it was not.

Actually we start we started to care about the security of data.

Long time ago, and so with.

We report to the government could have communicated a communication wisdom.

Time to time.

To let them know, how we regulate the data inside.

And make sure that the data.

Generated in China kicking in in China.

So the first the first.

Our government Department would need to talk about U S. T. R. I think so far we have.

We would have a good channel all the communication.

And.

We don't think that will be Uh huh.

Hi for for burning rock, just we're always doing the way that they've got the government bonds a suit.

Right right. Thank you.

Youre welcome and David just to add as Michel mentioned human genetic resources H D. R.

That's the most importance we think.

Related to the life sciences or biotech industry as we have seen.

Negative impacts already.

About increasing its share regulation hitting a few.

Companies for violating HDR regulations in the past so we have paid a lot of attention.

Two a shower regulation and ensure that we are fully compliant too.

<unk> HDR regulation.

Bio security another relevant laws and regulations in China.

We'd like to mention that you know out of B S. Geos approved projects.

I noticed.

It's actually a publicly available and then you can notice our position.

Of the approved list, where we have a decent track record in this space. So we are confident to maintain.

Good standards going forward in this regard.

Thanks, Lou that's helpful.

Thank you. Our next question comes from the line of Sean <unk> from Morgan Stanley. Please ask your question.

Well. Thank you very much taking my question.

One follow up question.

You talk about where the pharma business.

I think COVID-19.

Can you give any bad income.

No.

There's more policy won't come off.

Oh.

But we have a plan.

I can do about.

About that.

Hum.

And we also for the other companies.

Welcome Banca Biopharma work.

Pitching to them then.

I think the Texas alone.

So that's a good question.

I have two other small question okay. So early.

Early detection, depending a bit please.

Okay.

Increased marketing focus so we have some more.

Hum.

Do you think caused that conducting this dynamic.

Going forward.

As a follow up.

Net profit.

China cynical.

Clinical cancer.

Okay.

How do you think about it.

Single.

What about cancer.

Action.

Yeah.

As a company.

Okay.

Production of gastric cancer.

Mhm colorectal cancer going public that basket there.

Yeah.

Okay.

Yeah.

Cool.

All right.

Okay.

Okay.

Thank you.

Hi.

Thanks for asking Sean Ah I can take the question.

So in terms of our pharma business. So the first things that you are right that.

The total market is increasing dramatically and that is why I think that not only burning rock mention about pharma business, but.

But our.

Our competitive advantages that we are currently if not the only one but quite.

<unk> in the World who can.

Who can register the CDI in both U S and.

And in China.

In terms of an <unk> platform and as I mentioned that we are.

We hired a.

Sharon now Dr Sharron out to join us and her background is.

Fantastic about the you know.

Judge attrition in both U S and China as you're working with FDA for over nine years for IBD.

Approval.

So.

And as mentioned that the quality is that not a factor. So we are the only one who has the endorsement of FDA heading the word that I would call gate no matter of outside P sample and liquid biopsy.

Our quality our amount of bad so we're just Ah.

Farmer really care about quality they kept the whether it be a job can be approved that are highly related with the quality of the test.

So yeah, that's about the farmers were seeing that there will be some competition, but in terms of registration in both U S and in China and all are in.

The second thing about it and then <unk> will want to landing quanta land in China selecting high quality partner.

We are the first choice all up there.

And the second question about the early detection, we have seen that.

Single cancer testing is getting more and more especially for for.

For colon cancer and recently there was some poor for liver cancer early detection.

Our our philosophy.

Is that the market is just the beginning so every everyone has their space.

But we're learning a lot we care about the multi cancer early detection.

<unk>.

From the very beginning we continuously believed that saw that that will be a bigger future.

The reason is that.

Any any product you have a good thing about the <unk>.

The scenario after commercialization, we think if we think that that as well.

We're talking about with him within about a person who wants to go.

So a health checkup every year and he has all her needs and whether.

Whether she or.

Or he has some problems in certain Oh, it's not about a single type of Oregon.

She wanted to chat so that is why we would think that the.

I think everyone has their market in the future, but multi cancer early detection has the biggest one.

And in terms of Ah Ah Peng multi cancer early detection. If you look at our data probably burn as well as the as the company has the best data in China, and if you look at a child, leading led by the disclaimer.

Yes.

The only the only two trials for multi cancer early detection that has passed the <unk> approval that is unnecessary.

Haynesville trial, so the only trials the oil come from burning as well so.

From my phone the view.

We are four multi cancer early detection, we do have serious players like.

We don't have to its competitors.

And in China.

Yes.

Alright, thank you.

We have reached the end of the question and answer session. So with that we conclude our conference for today. Thank you for participating you may all.

With us today.