Q4 2021 Burning Rock Biotech Ltd Earnings Call
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Now I'd like to hand, the conference over to your speaker today, Mr Horn CEO .
Thank you.
Welcome to burning about 2021 annual conference call.
Shanghai, the CEO and founder.
And today, we have our COO and.
If you're Apple and the Navy.
And so I will recap the highlights of 2021 and are worth in the program.
Then I will go through.
All 22 after that.
The leading position has laid a good foundation and given us advantages moving forward for new business.
Early detection MRV in pharmaceutical collaboration.
We have strong branding on our technology and product quality, which help us attract talent.
And the network, we have built across thousands of oncologists and hundreds of hospitals.
After the initiation of RMB started on new products such as.
So that's all.
Oh God distributions when they go to the market.
Two years.
Let's turn to page four.
And in the hospital.
Husky model with a reliable and South Korean model.
Several days ago, we achieved an FDA approval.
And Jeff Kip.
It's a 19 kit for non small cell lung cancer, but it's meeting if not bigger than all first kit.
All the existing approved.
We have talked several times about our tumor informed and market knowledge.
He has shown very promising pocono's, what's the sensitivity on par with what you saw in the tower and ultra its publication.
What happens to some exciting readouts that will relieve an ACO and Shannon will elaborate more on that.
So pharma collaborations the growth trend continues.
The new contract value reached RMB $183 million.
In 2021, which is five seven times versus 'twenty 'twenty full year.
In terms of early detection. The Noncancerous development is on track and the first launch cohort will readout in 2022.
The commercialization of six cancer early detection, it's almost ready.
We will collaborate with our partner hospital, so start commercialization once the Covid Lockdown is released.
Now, let's turn to page five.
In page five I'll walk you all talk about what we can expect in 2022.
The therapy selection for that line will start to contribute revenue, including including determine.
Which we licensed in from uncle sites and my choice I saw the Plaza, which we licensed in from Europe .
The trend of what new hospital model growth will continue.
With more new contract.
Hospital, EMR tie bulk product contracted with existing hospitals.
With a growing top line, we expect the operational efficiency of therapy selection better than that.
Our better than before.
For MRP, we launch the commercialization in March based on the solid data we have.
Accumulated.
The initial feedback from the market is quite powerful.
As I said Oh.
One minutes ago, we will release the data on lung cancer.
Yeah, and additional studies in other type of thing so far under planning.
The business of pharmaceutical Colbert collaboration will continue to grow and contribute higher value to 12.
So our revenue this year.
Early detection, we have two loss.
Our development started going all over 10000 subjects.
No.
The first intend of use population multi cancer interventional, Saudi in China, we'll launch.
Let's turn to page six I'll spend.
One minute, explaining the meaning of the new approved 19 kit.
Although it's still a small panel that's very meaningful step compare with existing approved panels.
First a DNA input is only 13 nanogram.
This means that.
Much much lower than all the other capital sequencing base kit, meaning it can be applied to small samples from newmont.
The Monterrey pumped a biopsy.
And the second is that it's the first fit that copy number variation if approved.
And Oh, Matt.
Jim that it's included in GAAP.
And also what is the.
Kit with open site.
Our fusion.
So that's basically Oh, we'll look at all about that.
22, now I will turn to Shannon about the put up by that much.
Yeah.
Okay. Thank you.
Move on to page eight.
The overview of our early detection product development road map might look very familiar to you because we have actually shared.
For quite a few times in the past calls.
So the overall program.
Our previously communicated.
They're our exclusive product and toward commercialization.
I don't think advancement and validation work on having the.
Please go ahead.
So you are now.
19 third product.
And then if we go to.
To page nine here.
We have a little bit more detail.
The most recent three months, we have two pillars.
I think are worth mentioning first our 16th or product.
During our last corner.
<unk> talked about the crews active and intervention on studying our intended.
Intended use population that you're working on.
And we learned most recently obtained approval from the human genetic resources or any change in China, and now ready to start and crude oil.
And the second thing we want to share report without our first beta.
Data readout on the 19th of product.
From the case control pilot validation study plummet.
The performance so far looks quite promising.
Because arguably.
Alright, and finalize it couldn't share more details right here, but we are submitting the resolve some promise to it now.
So you can accomplish this year. So please stay tuned on that if you're interested.
And also on the Frac nodes predict study, which we have talked about many times.
It's a larger scale Tuesday keep control cohort studies. It was expected to have some data readout later this year. However, due to the recent Kobe situations in China, we are having a mild loans on the enrollment and we now expect to complete enrollment will predict each one with you.
A month and we will have to be a readout in 2023.
So now let's go on to page three on this page our publication or early detection technology also speak.
At the bottom.
I'm from the inflammation, which are our two most recent poster which will be shown.
Coming ACR conference.
And on page 11.
Here, we show a little bit more detail on one of the posters and this culture, we really heard of analytical validation data for al just sink in.
Concerts.
And we were able to demonstrate limit of detection between 0.32% and there goes my 1% across different tumor types.
Again, we might have to pay close attention to at least cooking ICR. If you are interested.
So now that's.
Actually skip the next couple of pages and John .
Page 15, do are cool and I'd like to spend some time to talk about our progress on enlighten.
Good point.
This graph on page 15 actually come from an interesting reveal articles on <unk> P. M on emerging applications in solid tumors.
I think they are a good demonstration on the evolving knowledge and have you been uncontrolled gout there might be that's why we couldn't hear an introduction sort of the.
The main message here is that you can potentially.
Youth E. Two clinical scenarios. The first one is the so called landmark analysis, where MRV.
That's right up your operation.
She's therapy for cancer patients.
It serves as a highly significant predictor for prognosis.
Almost none of them all.
All studies across all kinds of attacks.
Terry do you want them.
Again and again.
Second is the so called surveillance and reconnaissance where MRV inside of his lungs.
Longitudinally and repeat quickly along the way.
Possible hypothesis here is that such monitoring through MRV pass, maybe able to flag relapses on or ahead of time.
Before readout radiological.
However, and earlier intervention based on them argue monitor them can lead to survival game.
Actually far less cleaner than the prognosis prediction he finds itself in.
It has been graphene some reason.
Hum.
Accomplishing conclusion published on you know on the surveillance analysis.
It's more a debate on that.
And then on page 16 in vigor through one zero study.
Sean here.
It's a very important study to demonstrate clinical utility of MRV beyond prognosis prediction based on the landmark analysis.
In this study it was shown quite clearly even though from a retrospective analysis that only MRI contribution benefited from that.
You won't know therapy, but not the warmer if you wanted to patients.
Of course more evidence needs to be generated and you're also seeing some conflicting data out to transform empowered field, one zero cause still a long way before who consensus.
And are the utility I think Mr standards Nonetheless.
We have some great Congresses and.
Turning loss and burning rock. We are also actively collaborating with Chinese conditions validates our mrna technology in the form of utility for our MRM products on.
On the right side on page.
Page 16.
<unk>.
The application for lung cancer by Chinese clinician led by Doctor leave alone.
And this was developed and published about exactly a year ago. So this is an example to show the fast adoption of MRV by Chinese characters and we are witnessing right now similar to what's been discussed and other.
Other cancer types, such as colorectal cancer.
So lets skip page 17 go directly to page 18, we wanted to show you some of our own programs is.
Page 18 outlines burning locks development validation works for our emerging product in the upcoming ACR conference. We have two posters showing of first data readout, our personal lives and Mardi technology concept.
Lung cancer and colorectal cancer with factory, we have market shows a marked two pages on that in addition, as mentioned before we have also launched a <unk> product commercialization based on you are pumping them just a couple of weeks ago.
So now I'll take a few minutes to talk a little bit about our end market validation data itself.
On page 19, we compared our be our project, which is again a personalized emerging approach with our liquid biopsy panel group something like lung cancer patients from the <unk> study.
Very interesting rates.
We use.
So tumor not you've called tumor informed to calling for the fixed panels and we compared those with personalized approach. So this is meant to compare and contrast, whether and how much. The personalized approach is more sensitive than the fixed approach and you can see here Wow those six panel MPR process.
Generated highly significant.
Predictions for prognostic.
It was still indeed more sensitive because it identified more and Mardi constipation, and Denmark and also showed higher relapse free rate among MRV market patients.
I also wanted to point out that.
So on the squad.
[noise] rguest acceptable risk.
For patients who relapse in the full amount of cohort, which we most recently had to be done.
Hum.
The format of cohort containing about 200 patients.
I'm already enacting patients are satisfied beyond Crawford actually achieved a 12 month recurrence free rate of greater than 95%. So we were we are right now preparing for publishing these data somewhere.
During this year.
So on the next move on page 20, let's take a quick look on all the data in colorectal cancer.
Even though this is smaller cohort showed similar results as in lung cancer.
They are profit showed greater sensitivity.
Panel approach when comparing their pumps is rank among pre operative baseline samples and then put a landmark analysis closet entry showed greater specificity than the tumor not eat calling approach again, we will be able to show more details during our ACR poster presentation. So stay tuned if your interest.
It in more detail so now I'll turn to our CFO to walk you through our financials.
Great. Thank you Shannon.
First let's turn to page 22, we would like to briefly recap the COVID-19 situation in China.
As we called back in November during our last quarterly results Covid was spreading in China.
In late 2021, despite that challenge, we closed the fourth quarter with strong volume and topline numbers, which will go through a little later than that.
Heading into 2022 Covid impacts in China did not go away.
Despite all that we have strong numbers during January to February 2022, I will walk you through that as well.
But the current wave in March is looking pretty severe.
Actually the west I have seen things, China imposed a nationwide lockdown back in the first quarter 2020, when the Covid first two objects, we lifted some of the impacts that we saw during March.
The slide page here for your reference.
And we noticed that the Shanghai has many of China's top oncology centers.
<unk> market for us and we.
It is heavily impacted for the month of March.
And then go to page 23.
We list out our volume numbers and trends.
First of all we think it's once or twice you wanted very much special year compared to 2020.
And going into the trends that we saw back in 2021, first Cobra disruptions and tightening or increase the preference for hospitals to Robin's yesterday.
In House has resulted in a stepwise change in the second quarter of 2021.
In a quarter, we saw a strong jump in volumes in the hall.
Hospital channel.
So continued strength in the in hospital segments throughout the year.
Looking down the volumes of the Central lab channel, which is the.
The green bars here.
Stocking in the second quarter of 2021, the stepwise change in the industry that we just talked about next two headwinds of our central lab volumes as more tests were shifted to the in hospital format, but notably Central lab volumes turned to positive growth in the fourth quarter of 2021 and that trends improved.
In January and February this year, so thats one of my own. These mostly supported by the new products that we launched which are highly differentiated in the market in China.
And looking at some of the numbers here for Central lab or the volume growth of Central lab was negative 10% year over year. During the third quarter of 2021 that turns to a positive 3% during the fourth quarter and that further improved to 11% in January and February 2022 year over year.
They are moving on to page 24, we lift a volatile.
All of the metrics for the in hospital segment in summary, we have achieved more share.
Outgrew the industry. So the impulse beauty formats in our installed base I E. The number of hospitals that we have completed contract.
Revenues from increased at a faster pace.
2021 compared to the previous years.
But let's have to our financials on page 25.
We closed the fourth quarter in a stronger position versus where we were when we reported our third quarter results earlier.
Sorry, backend about 2020 , one we went through our volume metrics on page 23, so without revenue figures fourth quarter improved further in terms of year over year growth rate and sequential trend compared to the third quarter of 2021, primarily driven by our volume growth in each of the segments.
Looking at Central Labs third quarter revenue was down 12% year over year returns back to negative <unk>, 8% in the first quarter and fourth quarter and that improved further to positive single digits year over year.
In January and February combined in 2022.
As we noted earlier regarding the COVID-19 situation in China with caution.
The impact of the Collins Amin called wave in China. So we at the moment, we call them take the January February number.
As an indication for our first quarter it will need to see how.
How large of an impact that mix and if there is any change to the Covid zero strategy in China.
And as a side note, we have seen or Antivirals, arriving in China in the recent couple of weeks, while there has been no.
Official change of strategy that we have seen more sense so far.
And then second looking Abington hospital segments, we had a high base back in fourth quarter of 2020.
We recorded our best quarter floating hospital for the fourth quarter of 2021.
We grew 25% in revenue terms or 62% in volume terms in the fourth quarter.
We explained in our previous earnings call that the volumetric leads revenue metrics due to our billing and revenue recognition for the in hospital channel, we booked a majority components upon our customer receiving the test kits.
We booked the remaining minority components when we receive payment. So generally strong volume trends I would expect should drive continued revenue growth over time for the hospital segment.
I should also mention the Biopharma service segments, which is growing rapidly coming off a small base, though we expect biopharma revenue to accelerate in 'twenty to 'twenty two driven by the rapid rise of project backlog that we have built during 2021. After you shouldn't have called out earlier in the call.
Next going to ASP and gross profit margin trends. These are broadly stable within each of the central lab and hospital channel.
As we've noted before in hospital revenues are chunkier and to have quarter over quarter fluctuations. So it's more representative to look at.
Margins of that segment over a rolling four quarters on that basis, it's largely stable over time.
Now turning to operating expenses.
Some context during 2021 we expanded our organization in preparation for Sui business goals number one accelerated in hospital penetration for the patient testing business and new product launches.
Number two our leak detection clinical program execution.
All that we have two large studies each over 10000 subjects Tony ongoing we are launching another 10 thousands are intending to use population interventional study this year.
And number three detection commercialization, we're happy to see these efforts starting to bear fruit, particularly for one or two.
So happy to report that the organizational buildup.
Has been largely completed at the end of 2021. So in terms of the direction of travel go into 2022, we would not expect significant further head count increases in 2022.
Head count as the largest components of our Opex, we expect opex increase to slow significantly.
Course of 2022.
And translating this too.
Our opex growth, excluding clinical studies have more or less peaks on a sequential basis in the fourth quarter of 2021 in terms of year over year trends, we had a rising base throughout 2021, so the year over year increase will come down as well as we progress into 2022 now.
Now I'd like to briefly touch on each of the Opex lines first R&D the increase in fourth quarter 'twenty. One was primarily driven by good progress of our early detection clinical programs as enrollments and testing accelerated during the quarter and also driven by R&D talents increased back in 2021.
A second look at ourselves in marketing year over year increase was 80%.
Compared to the fourth quarter of 2020, but if we strip out early detection related and one off items. So if we just focus on recurring items for our patient testing business the rate of increase was about 40%.
Going forward as the customer and Newport coverage build outs was largely complete at the end of 2021, we would expect sales and marketing increased to slow significantly in 2022.
Along with continued topline growth, we expect to see operating leverage on the sales and marketing line starting in the second half of 2022.
Then looking at the G&A line, the increase was mostly driven by expansion of head count and our physical footprint during 2021.
Driver of the increase was our new early detection lab and office building about 70000 17000 square meters in size.
About 183000 square feet.
In terms of outlook. The G&A line should generally follow our opex trend as we outlined in his earlier you were looking at improving operating efficiency for this line as well.
Turning to our guidance for 2020 to our initial guidance for the year is RMB topline $620 million, an increase of 22% over 2021 this guidance.
Guidance includes new products from our cancer patient testing business, including our personal lives MRV products, which we launched this month and that is gaining good traction the guidance does not bake in any early detection revenue as we're still at an early stage.
Early detection commercialization.
Lastly, looking at our cash balance at the end of 2021, our cash equivalents plus short term investments.
That's about $1 5 billion RMB or U S dollars $236 million, which we think is it.
Patient for funding all our existing programs.
So with that we'd like to conclude our operating remarks, sorry, our opening remarks and turns to Q&A. Please.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key again, if you would like to ask a question press star one on your telephone.
First question comes from Max Masucci with Cowen and company. Your line is open.
Hi, Thanks for taking the questions.
First one on some of the licensed products. It sounds like the term <unk> is becoming a more meaningful contributor to revenues it would be great to hear about the adoption trends you've seen for determine of our action, whether you see an opportunity to sign additional agreements like this.
To bring other <unk> based test to a large Chinese precision oncology market.
Progress on detour ox, we don't.
Hello.
Yeah, so on <unk>, we don't.
Recall revenue or volume by individual products, but we had a good trend.
It's all about <unk>, it's not just you talked about <unk>, we also caught.
Caught us at the start of the call. We also have another product.
From the Oems.
On the.
By choice plus HRD score.
Dr <unk> measurements.
And that product is also receiving good feedback in our markets.
And our <unk> product formally launched.
<unk> and.
It is also gaining good traction so we believe new products is it going to be an important driver for this year and then Marty we think has strong potential over a multiyear time horizon and there's a bit of synergy between MRV and determine regarding early stage lung.
Cancer patients. So that's how we look at it in terms of new products we have.
We have an open mind and we've been looking at products.
But we also need to bear in mind, how that the product fits into the China market. We believe that the two we have in licensed.
Good sense, having strong potential market.
With strength on our products, having good validation data.
So with that we still apply that same framework when we look at potential products.
So I guess that's.
We have a licensing opportunities.
That's great.
So moving on to.
The reason and NPA approval would just be curious to hear now that we have the official approval.
What sort of demand you're expecting for the use of one <unk>.
With Biopharma partners and then also.
The clinical setting.
Curious if you are expecting.
Prior users of the original.
Generation 2018 version of lawn care and switch over to the nine gene kit.
So for the 19th.
The first meeting is that.
Bidding off.
His tender.
It would take a lot of advantages.
So put it in a heartbeat hospital model.
And then got so with.
Officially approved kit something on Ta is critical.
Most of that time.
Parameter of the kids are important so we think that the 19 kit.
<unk>.
At a lot of competitiveness of our.
Existing affiliate line.
And so in terms of pharmaceutical collaboration I think yes.
We think that the.
<unk> diagnostic.
Bye bye the effort of both farmer and.
The technology company.
We'll bring up.
Our future.
<unk>.
The market.
The demand I think that we have already talked about several times after the amendment of the requirement.
And then on the companion diagnostic need.
Literally crazy.
And that will accelerate to the pharmaceutical collaboration as well.
That's that's great final one for Leo.
Yes.
It's been over two years, we have over two years of experience with Covid. So far so it's nice to hear.
Some of the trends that you've seen in terms of the bounce back once the lockdowns are lifted.
So it sounds like there's still some major disruption here in March but just curious as we look at the 2022 guidance, how we should think about.
A rebound in your in your business edge.
As the Lockdowns are lifted just based on the experience <unk> had some hard.
Yes.
I think first.
Take a brief step back we tried in principle, we tried to breakout COVID-19 and ex COVID-19 impacts in the past.
But.
Conceptually we.
We think that may not make sense because China.
So far has always kept a COVID-19 euro policy and pace and as more infectious disease becomes.
The biggest impacts that generates on the markets.
So despite that how were looking at this is number one.
She has a number to taking share.
The markets and primarily that was down for the hospital strategy. So regardless of Covid impact we will want to do these two.
If you look at our historical volumes, we were growing at high double digits before Covid hit China. So it's kind of a hot fast too.
Breakout number quantitatively, but looking at the guidance for 2022, we have built in the <unk>.
Sense of caution.
As we have seen the pound impact on the grounds.
Although we wait for any opportunity.
How that might change or if you might be official.
<unk> strategy in China might change, although it's too early to speculate at this stage, so we need to keep it in and close by.
All of this so as we execute and we progress into 2022.
We will keep you informed regarding the latest trends and our guidance.
Great. Thanks for taking the questions looking forward to the data at ACR.
Thank you Max.
Thank you and as a reminder, if you would like to ask a question press Star one on your telephone. Our next question comes from Alexia <unk> with Morgan Stanley . Your line is open.
Thanks, Thanks for taking my question I have two questions. The first one is on the its actually a follow up on the Mds approval. So we understand that in terms of the OTT based markets. The India market is actually quite crowded.
Steve registration pathway is that it's actually very lengthy and unclear. So.
Just wanted to better understand what are the key hurdles that we have here while the AD.
Other players.
We're still working on.
So that means we're able to have panic multiple registration certificate for the India, Kip and if that's applicable to the registration of our future products.
And yes, and also even the early detection products in the outer years.
And.
On top of that.
Will it be like any changes or thoughts on the commercial strategy now that adding two products could be officially out of the hospital procurement.
This is my first question.
Sorry, I muted.
So if you look at tenders up hospitals.
The price will follow with.
Some key parameters such as the number of the gene.
Hi, Paul.
<unk> got the debt.
You can detect.
And also.
Hum.
Other conduct such a service and efficiency.
Efficiency.
Turnaround time, so 19 days.
Hi.
The comparison is quite strong compare with the existing kit available in the market.
As I said that is the first period again detect detect.
Copy number variation.
Also if a 1919 passing.
Most James can be to pass it now so if you look at the diffusion.
So the first year with open detection of any infusion so quite a different problem.
So both sides of our fusion that can be can be detected by the advocate. So we think that is a strong.
Product in the market and in terms of the future registration.
To the audience, but if you look at the company who are competing for registration if not have crowded.
<unk>.
Probably so five to six companies have the competitiveness.
In a market.
And people are competing for.
Liquid biopsy and also.
Probably a bigger panel.
And in terms of early detection.
We.
The registration early detection, we talk to the Ah <unk>.
<unk>.
Reported.
It's a totally new product.
Right.
Also.
We think that the.
Good.
Conversation is.
Encouraging.
Multi cancer early detection certainly in China.
Other technology, that's new from the other product.
The agro risen quite complicated calculation.
Our school based on tens of thousands of sites.
Which is totally new.
The NPA regulation, so we think that the future is bright.
You could do a lot of effort and that is why we are launching.
The first.
Big large scale interventional authority to add.
To add approval too.
Some of them.
Some very important data for registration.
Does that answer your question.
Yes, yes. Thanks, My second question is related to the commercialization.
Commercialization of the six cancer product and also the MRV products. So it.
Yeah, Maggie obviously started commercialization of regency and <unk>.
Early detection as I recall, the last time was that it's been contracting with a couple of hospitals just wondering like corvette.
Right.
Indicators that we should be.
Yes in terms of the hospitals.
Uh huh.
Could go go through the hospital in terms of all the volume in order to make the volume come up.
No.
And that need our onsite.
Onsite.
Our employees too.
Two.
To cooperate and collaborate with the doctors and nurses in the.
How is that.
Carmen.
With the COVID-19, the most important thing that people.
Forgetting about health care costs.
They're locked in their home at home.
And.
I think that sorry.
It's quite easy to make a conclusion that a wednesday covia come in.
I think that I'll start with the.
Most important thing.
That's why I think that's all.
We will start to commercialization once the Covid lockdown disbelief.
And.
But there are some numbers that I can.
I think that though.
For the.
For the health of our top pop.
Population.
In the normal situation.
The high value.
Consumer will not be impacted a lot by the COVID-19 .
COVID-19.
I think they will come back after the COVID-19.
For the NRT commercialization is on.
B.
It's only early stage.
In fact.
So since we launched the <unk>.
March.
The response from from the doctors are really.
Quite positive.
I mean, the educational situation for MRV.
Nowadays is different from what we can see.
Like two years ago, two years ago, when we talked to the doctors.
They will deal with it at all.
The positive whether it means that my neck surgery is not that successful nowadays they will not say that because the guy.
They have been influenced by the.
Global opinion leaders.
They they noticed that MRV is a very useful tool.
Tool for them.
In the early <unk>.
Already kind of early stage cancer patients.
That's correct.
Thank you. Thank you.
Welcome.
Thank you again, if you'd like to ask a question press. The Star then the one key on your Touchtone telephone.
Again Thats star one.
I'm showing no further questions in the queue. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Thank you.
Okay.
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Okay.
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Yeah.
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