Q1 2022 Genetron Holdings Ltd Earnings Call
Yeah.
Good morning, and thank you for standing by and welcome to the first quarter 2022.
Jean <unk> Health earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session. You'll please press star one on your telephone please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your speaker today, Mr. Evan Hu <unk>.
CFO Jean trials Health. Please go ahead.
Hello, everyone.
Welcome to <unk> first quarter 2022 earnings conference call. The company's earnings release was issued earlier today and is available on the company's IR website.
During this call.
The company will be making some forward looking statements regarding future events and results. These statements are made under the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1995 statements that are not historical facts, including statements about Ginger house beliefs and expectations.
Our forward looking statements forward looking statements you will be hiring risks and uncertainties uncertainties.
Further information regarding these.
And other risks is included in <unk>.
Angel House findings with the S E T.
All information provided today is that as of the date of this call.
Angel House does not undertake any obligation to update any forward looking statements, except as required under applicable law applicable law.
With respect to any non I first measures discussed during todays call. The Companys reconciliation information related to those measures can be found in the earnings release issued earlier today.
Allow me to introduce the management team on the call today, So Joanna co founder Chairman and CEO of change My House, well discuss recent business updates in the coming upcoming catalysts.
I will provide financial highlights related to that on what each of the first quarter results outlined in today's release as well as our outlook for 2022.
Following managements prepared remarks, we will open up the call to your questions. During the Q&A session, our co founder and Chief Scientific Officer.
Chief Technology Officer.
Doug you shouldn't gel.
Chief Medical Officer.
<unk> will also be available to answer questions.
With that said I would now like to turn the call over to Mr. Dan Nguyen.
Please go ahead.
Thank you Evan.
Hello, everyone. Thanks for joining our first quarter, because that's the way too.
Paul.
I'd like to direct you to the supplemental earnings presentation on our Investor Relations website and begin on slide two.
As a leading provider of precision oncology product service in China.
Our comprehensive portfolio covers the entire spectrum of Acacia management from early screening circuit selection to Edmar D monitoring in the development.
A C D X with Biopharma companies.
Each of the segment, we are increasing adoption and penetration of our products.
Turning to slide four the first quarter with Roger protective puts income.
We continue to demonstrate the strength and increased awareness for our position in college platform.
The recent highlights include a new C D X collaboration agreement with Touchpad.
This is Doug.
Drug for non small cell lung cancer.
Using our mark the aging lung cancer assay.
Seeming to CE Mark of the second Marty kits for the detection of hematology cancers.
As well as patients come to us with which uses integrated DNA and RNA as templates for genetic alteration detection.
Peer reviewed publication of mutation hospitals potential.
Marty assay development and clinical and translational medicine.
It was 17.
Data presentations at the American Association for Cancer Research annual meeting.
So in the first quarter of 2022, we grow diagnosis monitoring revenue by 14%.
Two RMB 99 five minutes.
Of which IV in hospital sales rose, 18%, driven by greater adoption of our sequencing platforms and assets, including.
Including the Genco has five instruments and aging lung cancer assay as well.
We have mentioned, we plan to prioritize and to further penetrate this reimbursed the hospital market with our solutions.
We have gained solid traction here and increase the number of our contracted in hospital partners just 31 at the end of the quarter.
And are excited to build on this moment.
On the LDC side of the business, we grew revenue by 14% of which diagnostic test volume grew about 9% year over year in the first quarter. We continued to operate in a challenging environment, where its habits outbreaks and the zero carbon policies are affecting commercial opportunities across health care.
That's sort of east.
Relatively speaking within our portfolio the LDP business. It was more heavily impacted by virus containment policy, which caused declines in patient traffic to many of our LDC customers.
And development.
Services revenue more than doubled in the quarter.
Addition to higher sequencing revenues growth was also a result of an increasing biopharma partnerships and the meaningful progress, we're making with each.
Against the backdrop of a challenging operating environment, we're committed to forging ahead with our major pipeline assets that we expect with what will be key drivers for our future growth.
So on slide five let me start off with our early screening segment in.
In November 2021.
We initiated an impasse registration trial.
Our S E T C early detection assay.
Beginning the enrollment for the trial all of installation multi marker PCR based assay H C T scan.
Recall that this was a 5000 patient trial in nine clinical sites.
And we intend to select a few of these sites for our <unk> N D. S based HTC screen trial.
As a result of Covid disruptions.
It's being trial has been delayed and we now project to begin enrolling subjects in the quarter.
We continue to believe that this structure of both PCR and N D S tests.
It's the best strategy to help the most patients and they expand the addressable market for the assets.
There's a more established PCR infrastructure with readily available workflows, the many hospitals and clinics in China.
Based on the luxury asset testing needs and associate the government led infrastructure bill with since carpet PCR capabilities continue to increase across the health care system in China.
Additionally, a few months ago, a DNA methylation.
In other genetic testing were added to some Beijing and other provincial insurance progress. This June burst and establish a benchmark price of around RMB 801.
Translation based tests and around RMB, 1504, and I P. T N G based testing base.
Based on these dynamics, we believe that adding a high performing PCR based assay would be commercially viable.
We're also providing self pay patients in lower tier markets with of course, the optimal solution.
Overall, we're confident that we can deploy boasting hospital in the central lab models to increase accessibility and efficiently penetrate deliberate cancer screening market.
As for our FCC screen plants in the U S. We have started a complementary study.
With two medical institutions in the U S and it may present, the data at upcoming holiday.
So beyond liver cancer, we have developed a multi cancer products in the future. We have already shared some early retrospective CRC data during our last earning calls showing over 91% a sensitivity of 95% of specificity. We continue to expect to have CRC data published sometime in 2020.
Turning to slide six.
But on the <unk> side.
Recall that we have announced a exciting multiyear co development agreement with Astrazeneca R&D China.
For a N D S based personalized LRT test for solid tumors in China.
And Marty testing has the potential to helping the clinical management of patients.
Well before metastatic lesions and grow to the size detectable by conventional methods such as the MRI and sea to Sky.
This partnership AZ plans to use this co development MRV test or China specific solid tumor clinical trials that are designed to incorporate the use of N D. S based personalized that market test.
Ah I see up to buy this is currently ongoing and expect to finish by it by year end.
Additionally, we're also planning a pilot LDP launch in the second quarter and expect to expand our official launch before year end.
So now moving to slide eight.
The assay it would've been developed based on zinc cost pattern.
Mutation capsule platform.
Our method for detecting mutation legislation with tumor specific things the Cte DNA.
The mutation types of platforms enables multiple test analysis based on a single Cfd and Nathan.
Providing head to head comparisons between mulch.
Multiple MRV strategy.
Such as personalized the non personalized assays.
Turning to slide nine and 10.
With some of the early data, we generated from the gastric rectal and liver cancer patients.
And then the liver data data was recently published in clinical and translational medicine the.
Demonstrating the technology has potential and Marty assay development.
<unk> capital also allow us more sensitive detection in low yields CF DNA samples.
With higher conversion efficiency of CF DNA molecules.
And to me important that Marty assay.
We're also exploring Cumulus E M. R&D approach based on the same technology platform, we look forward to sharing more updates as these programs proceed.
Currently there are only a handful of companies in China that may have they kept up our capability to develop a high performing and Marty assay. We continue to be optimistic about solid tumor market in China. In particular can you talk to competitive position after the astrazeneca collaboration.
On slide 11.
For second Marty.
College coal at literacy.
Our exclusive partnership with <unk> pharma in China is progressing well, we have extended our collage.
Quarter. These assays also generating meaning dialogues with biopharma owners.
And we anticipate a few more partners just in the next few months.
So we're pleased with continued support by the health care authorities and Marty testing in hematology format lithium in China.
And we believe that our NGL space the second Marty represents a innovative and differentiated solution.
So now turning to slide 12, moving on to discuss our Biopharma services business.
In the first quarter, we have a signing on additional for Biopharma partners, increasing the total now to 64 partners. We continue to maintain a strong pipeline as we have the opportunity to form partnerships through our key products, including second Marty uncle Pet scan fusion scan and others.
So recently, we have announced our Cvs partnership.
With <unk> for several neat tenant in non small cell lung cancer.
Using our already marketed 18 lung cancer IBD assay.
As mentioned our aging lung cancer assay is already getting very good traction in the IBD in hospital use market. We're excited about this partnership as it is our second major CTX. After our first one with system for our pre tenant which has entered the nampa priority review and approval process.
In China, the trend of CTX demand is growing stronger resulting from them per se, creating focus on genomic testing for innovative targeting immunotherapies.
Gather with our CLIA lab in Maryland, we have excellent opportunities to work on cross border trials and <unk> development.
We anticipate continued strong growth in this business segment.
So now I will turn the call over to our CFO , Mr. <unk> to provide more details on our first quarter financials Kevin.
Thank you Jim.
So please note that all numbers provided RMB terms.
And that all comparisons are made on a year over year basis.
Starting on slide 15 in the first quarter, our total revenue increased by.
19, 8% to $110 million from 92 million the same period of 2021.
I can also send and monitoring and revenue increased by 14% to $100 million.
From $87 million in the same period now turning to anyone.
One <unk>.
<unk> revenue increased by 13, 5% to $22 million during the first quarter.
Did she diagnostic tests soda in the first quarter increased by 9%.
To approximately 5560 units.
We're pleased with our artist Queen himself uptake as well.
With continued support from all of our.
Key collaborate.
<unk>.
Moving to slide 16, IBD revenue increased by 18% to $18 million in the first quarter 2022 from $15 million in the last year in the first quarter last year. The increase was mainly driven by sales of post gene transfer of instrument as well as the AG lung cancer assay revenue.
Revenue generated from developing services increase.
<unk> increased by 117%.
Jude.
$10 8 million.
First quarter this year from 5 million in the same period of 2021.
This was primarily driven by both the increase of sequencing in the Biopharma services revenues.
Going to slide 17.
Cost of revenue increased by 17% to $49 million for the three months ended.
March 31st 2022, compared to 78 million in the same period of last year as a result gross profit increased by.
Increased to 62 million in the first quarter of this year from 55, many of the same period of last year.
Gross profit margin was 56% for the first quarter of this year compared to 59% in the same period of last year, specifically gross margin for our <unk> segment.
<unk> was 64% compared to 6% to 8% a year ago.
Primarily due to promotional activities related to actually see it again.
We expect this impact to be temporary and these promotional activities will end in near term.
For all of IBD segment gross margin was.
Around 50% versus 34% in the prior year, thanks to higher consumable sales.
Operating expenses increased by 48% to RMB 220 $241 million.
For this quarter from 164 million in the prior year.
<unk> expenses are broken out on slide 18.
Apollo's selling expenses increased by 52% to $91 million.
This quarter from <unk>.
60, 60 million in the same period of 2021, selling some selling expenses as a percentage of revenue increased to 82% in this year.
The first quarter of this year from around 65% in 2020, while the increase was primarily driven by.
Increased head count.
The sales and marketing team to expand insurance club business.
Loading our early screening efforts.
And because of the party partially because of the.
Covid impact the revenue growth.
Well this quarter has been affected and we expect that sales headcount to remain stable and our sales efficiency to improve in the quarters to come.
Administrative expenses increased by.
13% to RMB 50 million in this quarter from around $45 million.
In 2021.
Adam expenses as a percentage of revenue decreased to <unk> 40.
46% in the first quarter from 48% in the prior year.
R&D expenses increased by 59% to around $80 million in the first quarter of 2002 from around 50 million in the same period of last year R&D expenses as a percentage of revenue also increased to 72% in this quarter compared to 54.
54% last year, the increase was driven by both higher R&D head count as well as continued investments in core product development and clinical trial activities such as M. C C scape.
As a result.
The loss was $180 million for this first quarter compared to $109 million last year on slide 19 net loss for the period.
$175 million compared to $115 million.
For the first quarter of 2021.
For now our first net loss.
Excludes share based compensation expenses fair value change and other losses.
Financial instruments with preferred rights now.
My first name.
464 million for this quarter compared to $106 million in apparel.
Basic loss per ordinary share.
RMB 38 cents for this first quarter compared to 25.
For the same period of 2021.
But now I first net loss.
Ordinary share.
This quarter is 35 cents and for the partial year.
It was 23 cents.
Diluted loss per ordinary shares equivalent to basic loss per ordinary share.
We have a cash and cash equivalents in the current financial assets at a fair about it too.
Profit and loss.
RMB, one 559 million.
As of March 31, 2022.
Now moving to discuss our ultimate floor tenant.
'twenty two.
Let's go to slide 20.
In January our LTE revenue actually grow rather strongly with a year over year growth of nearly 30%.
However, the trend turn in the following months.
In March how did your revenue experienced single digit year over year decline.
As Covid cases were rising in Shanghai, Shenzhen, and a similar parts of the country.
In April we saw even more even deeper negative.
Double digit euro year over year decrease for all of the OTT revenue.
Many of you may have heard about the severe COVID-19 related measures in Shanghai in particular.
Let's begin now to the end of March.
Until I actually very recently.
Only until June 1st.
Basically one day ago, Shanghai is starting to gradually open up.
As a result, it has been extremely difficult for us to conduct any activities in this particular setting.
Which has had a negative impact on our business in particular Ltte remedies.
I'm going to spread has been happening.
In Beijing.
And the other cities.
And the mass testing continues.
In fact.
Our lab in Beijing.
Our headquarter is based is it.
Also participating in governmental that cause me testing programs.
While the situation is challenging for our operations and has negatively impacted our business our core business volumes.
We are very glad that ginger.
Could step up and take action against the fighting Covid took.
Together was a relevant governmental authorities.
In addition to Shanghai and Beijing fresh outbreaks.
In some of our key markets may continue to emerge.
These flare ups are addressed through the rigorous zero COVID-19 precautions.
Which way on our ability to drive growth.
In regards to our financial guidance.
In March when we provided our 2022 revenue projections, we had anticipated that a challenge challenging business environment were to persist.
And they had big thing.
Relatively conservative assumption.
Further you May proceed.
Seeing some positive signs of recovery.
We hope we can catch up some of the losses in the second half of the year.
At this point, we are maintaining our revenue guidance to.
To be around.
RMB $585 million to et cetera.
Eight minutes or around 10% to 20% of gross compared to year 2021.
We will closely monitor the COVID-19 trend and evaluate its impact to our business and to provide update in due course.
This concludes the discussion of our first quarter financial results.
Now I'll turn the call back to Surjit.
Thank you Evan.
In closing we're pleased with the success, we've achieved both financially and operationally in the face of adversity relate to coffee.
I would like to emphasize the strong aligned long term fundamentals that allow a business that position us very well.
To drive substantial growth through continued commercial clinical and pipeline development execution.
As shown on slides 22, and 'twenty three.
We remain focused on the development of liquid biopsy based solutions across the cycle cancer management.
Secondly, in early screening and Marty in the CTX, while continuing to ramp up our commercialization efforts and to grow our core.
Business.
For our IBD and hospital model. In addition to expanding hospital partner base. We have also made good progress on the inclusion of the approved IBD kits into procurement systems and or price list a more than 20 provinces.
For example.
With our ageing lung cancer assay, which represents as one of the most clinically important test for non small.
So lung cancer, we continue to believe that the government reimbursement inclusion would be could be established certain regions in.
In the next 12 to 24 months this would represent a meaningful driver for increased penetration and market share.
In addition, as you can see on slide 24, we have a catalyst rich pipeline over the next couple of years to create substantial opportunities for our organization.
Over the past few years, our investments in expanding capabilities have positioned us as a leading clarity in this market and the creative ecosystem long term strategic value.
Our organizational build out is largely completed and one of our priorities is also to improve operational Excellency.
In order to improve margins in the losses going forward.
So this concludes the prepared remarks portion of today's call operator, we're now ready for questions.
Thank you as a reminder to ask a question you'll need to press star one on your telephone.
Draw your question press the pound key.
If you would like to ask a question press star one on your telephone please standby, while we compile the Q&A roster.
We have a question from Yang Huang with credit Suisse. Your line is open.
Oh, Thanks management well it gives me an opportunity to get closer so I have a quick two questions first of all to queue. The promos.
I think you mentioned.
In March and also in April we are seeing some revenue impact.
A lot to understand what is it going to be.
The impact to our margin for the second quarter, given the lockdown and the and the other that's a good ship. That's my first question.
You mean, the magnitude of the impact.
Yes, yes margin yes.
Alright.
Oh, okay. So.
Yeah first of all and second quarter as I mentioned that April was probably the worst month, so far given the whole.
Really you know some of our key markets was deeply in a lockdown mode.
Particular, Shanghai and some north east provinces.
So actually we saw a double digit.
It's around 30% of decrease year over year for April .
The good you know.
The good thing is that you.
We see some recovery, especially in northeastern markets. So all you all know Shanghai was still in a lockdown mode for the entire Mcintyre and me.
So all in all for me.
Situation was the better.
Compared to April , but it is still negative.
Digit.
So now starting from first of June .
I think we will try to Shanghai is a graduate of recovering NOL Chao our best to capture.
Capture business opportunities I know, some pent up demand in the city.
So hopefully by end of second quarter, which means June you should we should have.
Catch up compared to last year in terms of revenue.
I think all in last second quarter.
B.
Pretty hit by the Covid.
In terms of volume and revenue.
In terms of margin for <unk>, I think that it will have.
Accordingly.
And as well given now lets you can hear me.
Second portion of the.
On the fixed cost remains unchanged.
Well, it's hard to say with a precise number but it will.
Rhode Island Us.
Yeah. So okay.
Hum.
You got to add up on that.
One thing is that are you know we have a video over this call me the outbreaks in Beijing, we have.
We mentioned in earnings call that we had started participating some of them the government, let COVID-19 testing programs.
So therefore some of our.
It essentially all used our lab capacity due to the impact of the <unk>.
It has been leveraged to provide the COVID-19 testing.
Which means that that part of what contributes to some of the revenues in Q2 as well sure.
Essentially some of the cost the fixed cost of the event.
As I mentioned, so that will serve as a stabilizing factor in terms of the overall financial metrics for Q2.
Yes. My second question is about our collaboration with AZ all the MRO.
Program, so kind of give us some kind of a more detail. It's all let's see what kind of a cancer type of we want to target it for.
And and on the cost side, the all we're going to kind of surety radovan costs, whereas the AZ and the intermodal revenue or profits in the future are going to also share with everybody.
Yeah. So.
This is obviously a very important collaboration.
We have.
The volatile with.
Congress, especially with AZ.
So as we discussed before impair peevers compensation diseases.
In fact at KOL development.
Partnership here, which means that both sides will invest into the development and validation of the SaaS day and upon the completion of the validation of the personalized and Marty.
Technology platform and that the test the AZ is committed to use these assay exclusively for their China specific.
And these assays they intended to be used on the multi.
Multi cancer essentially is a pan cancer personalized NRT assay.
I see but oh, we're going to own the IP by ourselves all the odds you also bring to join the AUM to bite off and and.
Yeah, so essentially the IP of the technology platform itself.
By US right. So in terms of the product, it's kind of like a joint ownership in certain cases.
So b commercialization upon.
As I mentioned that upon the completion of the validation and development this assay.
Will it be kind of twofold right first of all as he is committed to use these assay and pay for the service essentially for that for the assay testing service.
Again exclusively on older related started two Oh theyre related China specific trials.
That's the.
First layer of the commercialization.
You know arrangement that we have we have made.
So the other later of the regimen that is likely we will form a commercial partnership to promote.
This.
I say in a clinical site I mean, when I say can I understand that.
So serve the patients.
That commercial.
The collaboration gatehouse is actually could be a further discussion.
And.
To be finalized.
But you know that both sides are excited that we will be able to co develop.
These assay with essentially the technology from Gencon and samples and data from AZ plus the investments on both sides and we see.
Quite a bright future too.
Incorporate this SMB.
Essentially incorporate commercialize these assets in both the clinical trials as well as to serve the patients in a clinical setting and it's likely we'll be expanding this potential.
Potential collaboration to a more broader market as well.
Future.
Got it thanks.
Thank you and as a reminder to ask a question Press Star then the one key on your Touchtone telephone.
Please standby, while we compile the Q&A roster.
Yeah.
And I'm showing no other questions in the queue I'd like to turn the call back to management for any closing remarks.
Okay.
Okay. Thank you operator.
And thank you everyone. Thank you again for joining us for the first quarter earnings and business update call. We appreciate your ongoing support if you have any questions. Please do not hesitate to reach out to us.
Okay.
This concludes today's conference call.
Thank you for participating you may now disconnect everyone have a great day.
Thanks.
Okay.
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