Q4 2022 Burning Rock Biotech Ltd Earnings Call
Speaker 1: I.
Speaker 2: Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21e of the Securities Exchange Act of 1934, as amended and as defined in the US Private Securities Litigation Reform Act of 1995.
Speaker 2: These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, beliefs, estimates, target, confident and similar statements.
Speaker 2: Statements that are not historical facts, including statements about Burning Rock's beliefs and expectations, are forward-looking statements. Such statements are based upon management's current expectations and current markets and operating conditions, and relate to events that involve known or unknown risks.
Speaker 2: and certainties and other factors, all of which are difficult to predict and many of which are beyond burning rocks control. Forward looking statements involve risks, uncertainties and other factors that could cause actual results to differ materially.
Speaker 2: from those contained in any such statement. Burning Rock contains not to undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise except as required under a pickable law. I would now like to hand the conference over to your speaker today Mr Han to see
Speaker 3: So now let's turn to page three. In case there are some investors who are not familiar with burning rock, I hereby illustrate what we do.
Speaker 3: So our business started from tissue-based therapy selection in 2014 and then expanded to multi-directions of liquid biopsy, including liquid-based therapy selection.
Speaker 3: MRD, multi-cancer early detection.
Speaker 3: we have three business units providing products and services to doctors, farmers, and consumers.
Speaker 3: And we have three business units providing product and services to doctors, farmers and consumers. Now let's turn to page four.
Speaker 3: So in this page, we will have a review of 2010-2022. Tell your story.
Speaker 3: For the general view of our company, we completed profitability-driven organization optimization.
Speaker 3: The overall headcount has been optimized by 25%.
Speaker 3: And in that case, we still deliver strong growth in non-COVID quarters and achieve 11% year-on-year growth in 2022.
Speaker 3: And we completed a listing on London Stock Exchange, offering an alternative listing venue in addition to NASDAQ.
Speaker 3: We believe that this is a significant corporate development as it provides a fallback solution to facilitate continued trading and listing of shares in case of a delisting scenario of ADR on NASDAQ.
Speaker 3: We also noted that the latest statement from the SEC in December that as of now, there is no risk of Chinese issuers getting delisted.
Speaker 4: good for us.
Speaker 3: For therapy selection, we achieved 13 percent volume growth despite COVID challenges.
Speaker 3: selection, we achieved 13% volume growth despite COVID challenges, driven by in-hospital channel.
Speaker 3: And the 9-genes panel was approved by NIMPA providing a better weapon for in-hospital model.
Speaker 3: This is our second approved NGS-based TAP by the NIMPA.
Speaker 3: and demonstrating our capability of working with NIMPA to bring innovative diagnostic products to the market.
Speaker 3: For MRD, 2022 was a big year in terms of clinical data publication.
Speaker 3: We provided the initial readout on lung and colon cancer at AACR 2022, followed by additional publications on colon and pancreatic cancer at ASCO 2023. We also expected additional publications on lung this year at AACR 2021.
Speaker 3: And commercially, we launched our BR profit, our personalized MRD product in March.
Speaker 3: And the volume of patients that were serving keep increasing at a very good speed.
Speaker 3: For Bell Farmer, the new contract value increased 43% to RMB 263 million in 2022 and over 200% revenue growth on strong backlog execution.
Speaker 3: For MRD, oversea was granted FDA breakthrough device designation.
Speaker 3: And a thunder study for a six cancer test development was published on annual college.
Speaker 3: It's a journal with an impact factor of 51, and it's another strong proof of our technology and product. The problem is a study which is exactly 2,035 subjects.
Speaker 3: Mind-cancelled test development completed and read out.
Speaker 3: predict and present study almost
Speaker 3: 17,000 subjects, 22 cancer test development is ongoing. And Prevent Study, which is a prospective study of safe cancer test, was launched last year.
Speaker 3: And our CTO, Joe Zhang, will illustrate more about our early detection study.
Speaker 3: And now let's turn to page five. This page shows what burning rock aim to achieve in 2023.
Speaker 3: The number one goal is profitability. The goal we set is to break even, excluding R&D during a quarter in 2023. The main reason is that in 2023 and 2024, we're still a big year for
Speaker 3: MCED R&D development. The second goal is continued revenue growth.
Speaker 3: A healthy increase with probability is what we want to achieve. Our initial outlook for 2023 revenue growth rate is at 20%.
Speaker 3: And the third goal is to further our leading position in MCED as number one player in China and a top player globally.
Speaker 3: The main R&D span at that set will focus on MCD this year.
Speaker 3: Let me break down the goals into four parts.
Speaker 3: For therapy selection, we'll continue to improve the sales productivity by strengthening the in-hospital model.
Speaker 3: And for MRD, launch and install personalized MRD in top hospitals.
Speaker 3: Due to the operation difficulties of personalized MRD, it is very challenging to install this method in the hospital.
Speaker 3: However, since more and more hospitals control the outstanding of tissue samples, an MRD baseline needs tissue samples.
Speaker 3: Only an in-hospital model can bring the volume of MRD to the next level.
Speaker 3: And thanks to the efforts of our R&D and operation team, we will be able to launch the in-hospital model of BR profit in the near future. I believe it will be a strong engine for Burning Rock, Uncle Bill, and start to impact in Q4 this year.
Speaker 3: For a wild farmer, the goal is to continue its profitable growth.
Speaker 3: With the new platform of MRD and more international orders, we are optimistic to the growth of bio-farmer business.
Speaker 3: As the new platform of MRD and more international orders, we are optimistic to the growth of the biopharma business.
Speaker 3: MCED Prevent Study, which is a prospective study of over 10,000 subjects, will have an interim readout in second half year of 2023.
Speaker 3: We will continue the development study of our 2022 cancer tests in predict and present.
Speaker 3: Also, we are building the regulatory pathways with FDA and NIMPA, especially NIMPA.
Speaker 3: The commercialization will go on at selected top hospitals.
Speaker 3: Let's turn to page six.
Speaker 3: I know that investors care about our financial status. Our CFO Leo will elicit more later on. But on this page, I just want to show that we are doing a great effort to reduce the burn rate.
Speaker 3: If there's no more big scale clinical trials of MCD, the burn rate will significantly decrease in the coming two years.
Speaker 3: And if there is a new trial started, especially under NIMPA registration, I think there will be even better news.
Speaker 3: That's what I want to present today. I will pass the presentation to Joe to talk about our technologies and trials of MCD and MRD. Joe, please.
Speaker 5: Thanks Yu-Hsuan. So I'm going to introduce some updates regarding the MCED and MRD.
Speaker 5: Let's turn to page eight. So this is basically an update regarding the Burning Rocks early detection technology development. So the after publication of the basic technology in proof of concept in Nature Biomedical Engineering has been confirmed not screenshot. So this is gonna look like a cable strand that people had picked up. And the rest of the methods
Speaker 5: We actually recently made a good publication on animal oncology in regards to the SOUNDER study, which is a six cancer early detection trial we ran the past several years.
Speaker 5: And so the other very highlight part is basically we got a regulatory breakthrough, which is a we grant FDA grant us the breakthrough device designation early this year. And this is actually a very significant achievement for Burney Rock.
Speaker 5: Currently, we are actually working closely with FDA for the next step to seeking for regulatory approval in the future.
Speaker 5: So let's turn to page nine. Basically this is a slide which we presented previously talking about the Burning Rocks early detection program product development roadmap. As you can see here for the six cancer early detection product, which we oversee.
Speaker 5: And after the center study being published in an oncology last month. So currently we are actually running a program called prevent study, which is a perspective and the international intent of youth population. And this is ongoing at this moment. The recruitment is a pretty.
Speaker 5: significant number there, and we probably will update the readout later this year for the first phase. And meanwhile, actually, we are actually developing up to 22 cancer MCEV products. And there's several trials, several clinical studies related to it.
Speaker 5: And we already published in poster format in ASMO last year, we call PROMISE study. And at this moment, we actually in a very intensive preparation stage in the prediction study.
Speaker 5: which cover up to 17,000 individuals for this 22 cancer products in the future.
Speaker 5: So, like I mentioned there, the slide 10, just the layout of the 6-CANCER and 22-CANCER program, what step it is, and I won't cover too much, repeat this anymore. And so, let's just turn to page.
Speaker 5: we're going to talk about the minimal disease update. So MRD is actually one of the very important business, new business of Burning Rock in past several years. And slide 13 talk about the MRD test.
Speaker 5: So there's two kinds of utility. One is prognostic utility, which has already been proven in a lot of clinical studies in the trial. Another more important utility will be the actionable diagnosis and try to direct the therapy. As you can see showing in red.
Speaker 5: And in the United States, there's already some CMS coverage regarding-
Speaker 5: MRD utility by some other product. So that's why Burning Rock actually is seeking for all those kind of utility utilizing our own technology we call Burning BR Profit, which is summarized in slide 14. So BR Profit is our technology. It's leveraged on the whole exon sequencing.
Speaker 5: So this product already launched last year. We almost like in the anniversary, the launching at this moment. And slide 15 talk about the current pessimistic
Speaker 5: So, we are working very hard trying to get a lot of cancer covered. This is a basically a pen cancer product we can do. We have already published our non-small cell lung cancer poster in AACR last year and in AACR happened next month we'll provide update on this non-small cell lung cancer study.
Speaker 5: and the patient number will increase significantly. And for the colorectal cancer, we provide two different studies. One study already been published last year in AACR 2022. And there's another one, it's actually ongoing. It's a very brief update I'm gonna talk about later. Basically it's the ASCO GI.
Speaker 5: Early this year in San Francisco, we presented initial data, but this study is still ongoing, and we are currently actively collecting the longitudinal monitoring data point, and hopefully we'll get more readout in the future. And in ASCO-GI this year, we also have pancreatic cancer small cohort.
Speaker 5: to demonstrate not only non-small cell lung cancer as well as the colorectal cancer, we can do a lot of other cancer types, including the pancreatic cancer, which is a mostly cell cancer and also being proved hard to find the MRD in some other studies.
Speaker 5: Slide 16 basically talking about the pancreatic cancer cohort. We recruit, actually this is an observational study and we collect trendy patient baseline, which is a pre surgery.
Speaker 5: and as well as some follow like seven days after surgery and 30 days after surgery. As you can see here for pre-surgery pancreatic cancer, we got 100% positive regards to the CT DNA existence, which showing the very impressive sensitivity of this.
Speaker 5: And so, the slide 17 is another update, regardless of the colorectal cancer, like I mentioned earlier. So, we are actually still working on this. In ASCO GI 2023, we already demonstrated 127 patients in the initial cohort. And now we almost collect like 200 patients.
Speaker 5: with a very high sensitivity along with very high specificity, which we believe it will potentially generate a lot more utility other than prognosis.
Speaker 5: So I'm going to conclude my part here. Let me turn to our CFO Leo to talk about financial. Thank you.
Speaker 3: Thanks, Joe. I'd like to cover three topics. First, I'm going to talk about the fourth quarter 2022 recap.
Speaker 3: Then I'll talk about the latest trend in the first quarter 2023, and I'll talk about 2023 initial outlook.
Speaker 3: So first let's go to the fourth quarter recap and we can go to page 20. Then we can see that we finished the fourth quarter stronger than we previously anticipated. Recall that back in November we guided for 2022 full year revenue growth to be about 5%.
Speaker 3: which implies a 20-something year-over-year drop for the first quarter. We ended the quarter in a stronger performance, down only 3% year-over-year. And breaking this down a little bit further, clinical testing revenues dropped in the teens range year-over-year in the fourth quarter slightly better than we anticipated back in November .
Speaker 3: and testing for pharma customers held up very well, maintaining the triple digit growth rate that we achieved throughout 2022.
Speaker 3: And we like to take this opportunity to commend all our staff who worked tirelessly during the difficult COVID lockdown period. Our testing carried out pretty much unaffected, despite the lockdown suffered by many areas in China and in particular the city of Guangzhou where our lab is located.
We believe the resilience demonstrated by our business, the strong mentality of our staff to overcome challenges, will help us in our future growth years.
We also like to recap our 2022 full year performance. Our 2022 full year revenues grew 11% year over year. We think this is likely on the high end of growth rates achieved in a precision oncology testing industry by our own estimate.
There were three pillars that drove that strength. Number one, our dominant market position in the in-hospital segment, which we have built over the years into China's number one position. And the second driver is MRD, which is a new product that we launched in March. We believe this is a multi-year growth runway.
And Joe talked about some of the initial readouts and the future investments we're going to make in the MRD area. And the third is the farmer service segments which benefited from our top performing product portfolio and our leading position in a companion diagnostics regulatory approval capabilities in China. We also provide lone
We think these repellers will continue to drive our growth in the future, yes.
Then moving down on our P&L, we grew our adjusted gross profit, which excludes non-cash depreciation and amortization by 12% in the 2022 full year, which again is likely towards the high end of industry performance by our own estimate.
Then moving down to the OPEX lines, as mentioned in our previous earnings calls, we continue to deliver OPEX reductions as we deliver on efficiency improvement initiatives. All three OPEX lines dropped in the fourth quarter as we focused on improved sales productivity, reduction in corporate overhead and better focus on R&D projects.
If we look at the metric of gross profit minus SG&A, so take the adjusted gross profit line and subtract the sales and marketing and the G&A line, where you can see that we're showing on the slide here, we're getting closer and closer towards breakeven.
And we anticipate to hit breakeven at some quarter by this metric during 2023. The drivers behind us was laid out in our CEOs remarks. We are driving our commercial business units towards profitability, while our R&D is going to be mostly on a multi-cancer detection which will be more focused.
than the previous years. So in summary operating efficiency and breakeven excluding R&D expenses is going to be our number one priority for 2023. Next we'd like to talk about our latest trend and we'll present our latest volumes.
on page 19 of the slide deck. We can see that the fourth quarter dropped double digits compared to the third quarter, where the central lab segment dropped a bit further. And breaking out into the latest month, we can see that we hit a bad trough in December and January as COVID rammed through China.
but we have returned to positive year-over-year growth in February .
Regarding the first quarter, given the sharp drop of volumes in January , which brought the January-February two-month combined volumes to a decline of 28% year-over-year, we think it's prudent to keep expectations for the first quarter moderate. And next, I'd like to talk about our 2023 outlook.
For 2023, we have two financial metrics to track. And number one is what we talked about is the adjusted gross profit minus SG&A. We like to hit breakeven on a metric some quarter during 2023. And second, we like to continue to deliver top-line growth. And out of the two objectives, number one is of higher priority for us. And within that context, we are guiding initially for a 20% increase in revenues in 20...
no capital raise and our cash balance covers all the clinical programs that we have in place. So, we would not be in a rush to do any capital raise. And that concludes our prepared remarks. And we'd like to open for questions, please. Thank you. If you wish to ask a question.
you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again.
Please stand by while we compile the Q&A roster. We will take our first question and the question comes from the line of Alexis Yan from Morgan Stanley . Please go ahead, your line is open.
Hi, thank you for taking my question. I have two questions. Number one is that regarding the 2023 revenue growth target of 20%, can you help us maybe better understand how much of that would be from the existing a therapy selection portfolio?
and how much would be from the MRD as well as the early detection product portfolio. It may also be helpful to get a sense of MRD contribution in 2022 as context. And a second question is that
So for the new businesses like MRD and early detection, what are some of the key commercial milestones? For example, hospital contracting that we could track for the next few years. And also in terms of as well as the marketing.
We don't. We don't.
I have a very clear cut of which part will contribute how much to the percentage of growth. I can give you a general view that since, let's take the three parts, oncobium, pharma, and also early detection.
So OnCoView, I think that will be the main driver. As you know that we have a big baseline of OnCoView, including circuit selection and MRD. And within OnCoView, as I said, that the
The in-hospital model of MRD will impact on Q4 as we completed some in-hospital installment of personalized MRD technology into that. Before that, I think that therapy selection will be the main driver, including tissue-based and also liquid-based. understands this tool, so that it will increase khs response from this critical, chemical structure into non-s tennis mutes lift before and UNphe
For farmers, I think they will continue the growth, especially with the revenue. I think the trend is good, but compared to the big baseline for UncoVille, I think UncoVille will be the main driver. For multi-cancer early detection and commercialization, I think it is going to look as new as not yet.
40 hospitals, half of them are big hospitals, but as you expected, we need to do more marketing activities to educate the doctors in Class 3A hospital for them to understand the product.
and know how to prescribe to the consumers. So, yeah, I think that the growth rate of the amount of cancer early detection this year will be good, but I cannot give you the exact number of how much we can achieve. But one thing is sure that.
Since we're controlling the burn rate, we're focusing our energies and high-cost cost and modeling activities on Class III hospitals. Does that answer your question? Yes, that answered my question for now. Thank you.
Thank you. Thank you. There are no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you. There are no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.
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Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21e of the Securities Exchange Act of 1934, as amended and as defined in the US Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, target, confident and similar statements. These are not historical facts.
including statements about Burning Rock's beliefs and expectations are forward-looking statements. Such statements are based upon management's current expectations and current markets and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are not known.
are difficult to predict and many of which are beyond Burning Rock's 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. Burning Rock contains not undertake any obligation to update any forward-looking statements as a result of new information.
future events or otherwise except as required under applicable law. I would now like to hand the conference over to your speaker today, Mr. Han, the CEO . Please go ahead. Thank you.
And welcome to Burning Rock's 2022 annual conference call. I'm Yuxiang Han, CEO and founder of Burning Rock. Today we also have our studio Cho Chang and therefore Leo Li.
So now let's turn to page three. In case there are some investors who are not familiar with burning rock, I hereby illustrate what we do.
So our business started from tissue-based therapy selection in 2014 and then expanded to multi-directions of liquid biopsy, including liquid-based therapy selection.
MRD, multi-cancer early detection. And we have three business units providing products and services to doctors, farmers, and consumers. Now let's turn to page four.
So in this page, we will have a review of 10.8.10.2. For the general view of our company, we completed profitability driven optimization.
The overall headcount has been optimized by 25%. And in that case, we still deliver strong growth in non-COVID quarters and achieved 11% year-on-year growth in 2022. And we completed a listing on London Stock Exchange.
offering an alternative listing venue in addition to NASDAQ. We believe that this is a significant corporate development as it provides a fallback solution to facilitate continued trading and listing of shares in case of a delisting scenario of ADRs on NASDAQ. We also noted that the latest statement from the SEC in December was that the
that of now there is no risk of Chinese issuers getting delisted, which is good for us. For therapy selection, we achieved 13% volume growth despite COVID challenges.
driven by in-hospital channel. And the 9-gen panel was approved by NIMPA, providing a better weapon for in-hospital model.
This is our second approved NGS-based TAP by the NIMPA and demonstrating our capability of working with NIMPA to bring innovative diagnostic products to the market.
For MRD, 2022 was a big year in terms of clinical data publication.
We provided the initial readout on lung and colon cancer at AACR 2022, followed by additional publications on colon and pancreatic cancer at ASCO 2023. We also expected additional publications on lung this year at AACR 2021.
And commercially, we launched our VR profit, our personalized MRD product in March. And the volume of patients that we're serving keeps increasing at a very good speed.
For Bell Pharma, the new contract value increased 43% to RMB 263 million in 2022 and over 200% revenue growth on strong backlog execution.
And for MRD, oversea was granted FDA breakthrough device designation.
A thunder study for a six cancer test development was published on annual oncology. It's a journal with an impact factor of 51 and it's another strong proof of our technology and product. My problem is a study which is
around which is exactly 2,035 subjects, mind cancer test development, completed and read out. Predict and present study, almost 17,000 subjects, 22 cancer test development is ongoing. And prevent study, which is a prospective study.
of a safe cancer test was launched last year. And our CTO, Joe Zhang, will illustrate more about our early detection study.
And now let's turn to page five. This page shows what Burning Rock aimed to achieve in 2023. The number one goal is profitability.
The goal we set is to break even, excluding R&D during a quarter in 2023. The main reason is that in 2023 and 2024, we're still a big year for MCED R&D development.
The second goal is continued revenue growth.
A healthy increase with probability is what we want to achieve. Our initial outlook for 2023 revenue growth rate is at 20%.
And the third goal is to further our leading position in MCED as number one player in China and a top player globally.
The main R&D span SSF will focus on MCD this year. And let me break down the goals into four parts. For therapy selection, we'll continue to improve the sales productivity by strengthening the in-hospital model.
And for MRD, launch and install personalized MRD in top hospitals. Due to the operation difficulties of personalized MRD, it is very challenging to install this method in hospitals.
However, since more and more hospitals control the outstanding of tissue samples and MRD baseline needs tissue samples, only an in-hospital model can bring the volume of MRD to the next level.
And thanks to the efforts of our R&D and operation team, we will be able to launch the in-house model of PRProfit in the near future.
I believe it will be a strong engine for Burning Rock, Uncle Bill, and start to impact Q4 this year.
For biofarmer, the goal is continue is profitable growth. With the new platform of MRD and more international orders, we are optimistic to the growth of biofarmer business.
For biofarmer, the goal is continue is profitable growth. With the new platform of MRD and more international orders, we are optimistic to the growth of biofarmer business. Over.
MCED prevent study, which is a prospective study of over 10,000 subjects, will have an interim readout in second half year of 2023. We will continue the development study of 22 cancer tests in predict and present.
Also, we are building the regulatory pathways with FDA and NIMPA, especially NIMPA. The commercialization will go on as selected top hospitals. Turn to page 6.
I know that investors care about our financial status. Our CFO Leo will elicit more later on. But on this page, I just want to show that we are doing a great effort to reduce the burn rate.
If there's no more big scale clinical trials of MCD, the burn rate will significantly decrease in the coming two years. And if there is a new trial started, especially under NIMPA registration, I think that will be even better news.
That's what I want to present today. I will pass the presentation to Joe to talk about our technologies and trials of MCED and MRD. Joe, please. Thanks, Yuxi. I'm going to introduce some updates regarding the MCED and MRD.
Let's turn to page eight. So this is basically an update regards the Burning Rock's early detection technology development. So the after publication of the basic technology in proof of concept in Nature Biomedical Engineering last year, we actually recently make a good publication.
device designation early this year and this is actually a very significant achievement for Banyarach.
Currently, we are actually working closely with FDA for the next step to seeking for regulatory approval in the future.
So, let's turn to page nine. Basically, this is a slide which we presented previously, talking about the Burning Rocks Early Detection Program product development roadmap. As you can see here, for the six cancer early detection product, which we oversee.
And after the center study being published in annual college last month. So currently we are actually running a program called prevent study, which is a perspective and the international. Intent of youth population, and this is ongoing at this moment. The recruitment is a pretty significant number there and.
we probably will update the readout later this year for the first phase.
And, meanwhile, actually, we are actually developing up to 22 cancer MCEV products. There's several trials, several clinical studies related to it, and we already published the IL
in a poster format in ASMO last year, we call PROMIS study. And at this moment, we actually in a very intensive preparation stage in the prediction and prediction study, which cover up to 17,000 individuals for this 22 cancer products in the future.
So, like I mentioned there, the slide 10, just the layout of the 6CANCER and 22CANCER program, what step it is, and I won't cover too much, repeat this anymore. And so, let's just talk to, turn to page 12. We're going to talk about the minimal residual disease update.
So MRD is actually one of the very important business, new business of Burning Rock in past several years. And slide 13 talk about the MRD test utility. So there's two kinds of utility. One is the prognostic utility, which has already been proven in a lot of clinical studies in the trial.
Another more important utility will be the actionable diagnosis and try to direct the therapy. As you can see showing in red. And in the United States, there's already some CMS coverage regarding the MRD utility by some other product. So that's why Burnierock is actually seeking for all those kinds of utilities utilizing our own technology we call Burnier BR profit, which is summarized in slide.
So, BR-PROFIT is our technology. It's leveraged on the whole exon sequencing to get up to 50 tracking sites. And we designed a personalized panel trying to track 50 sites for the follow-up, trying to get the prognosis as well as the therapy guidance utility in the future. So, this product already launched last year. The webinarum is charged to you. For more information or to review more information seek out faraway spots or Susan and I will answer all questions but could you give your feedback and Start with Susan and she will help you. Get a pulse alert so people can find your research project. And of course joining us is Scalia Chris Mettler of inquiries and2003 MedicalRoundups. I think we you should also check out police officers loving usually almost like, uh, in the end,
non-small cell lung cancer poster in AACR last year. And in AACR happened next month, we'll provide update on this non-small cell lung cancer study and the patient number will increase significantly. And for the colorectal cancer, we provide two different study. One study already been published last year in AACR 2022.
And there's another one, it's actually ongoing. It's a very brief update I'm going to talk about later. Basically, it's ASCO-GI. This year, early this year in San Francisco, we presented initial data. But this study is still ongoing, and we are currently actively collecting the longitudinal monitoring data point. And hopefully, we'll get more readout in the future.
And in ASCO-GI this year, we also have a pancreatic cancer small cohort to demonstrate not only non-small cell lung cancer as well as the colorectal cancer. We can do a lot of other cancer types, including the pancreatic cancer, which is a mostly low cancer, and also being proven hard to find the MRD in some other studies.
Slide 16, basically talking about the pancreatic cancer cohort. We recruit, actually this is an observational study, and we collect trendy patient baseline, which is a pre-surgery, and as well as some follow like seven days after surgery.
the survival curve showing that very, very good how the ratio as 23.45 and showing the prognosis utility of this MRB assay. And so the slide 17 is another update regardless of the colorectal cancer, like I mentioned earlier.
a continuous follow-up. And we'll see the, there's a lot of data showing here. If you have interest, you can read that in detail later. Basically, the technology demonstrated very high sensitivity along with very high specificity, which we believe it will potentially generate a lot more utility other than prognosis.
So I'm going to conclude my part here. Let me turn to our CFO Leo to talk about financial. Thank you. Thanks Joe. I'd like to cover three topics. First, I'm going to talk about the fourth quarter 2022 recap.
Then I'll talk about the latest trend in the first quarter of 2023, and I'll talk about 2023 Initial Outlook. So first, let's go to the fourth quarter recap, and we can go to page 20. Then we can see that we finished the fourth quarter.
stronger than we previously anticipated. Recall that back in November , we guided for 2022 full year revenue growth to be about 5%, which implies a 20 something year over year drop for the first quarter. We ended the quarter in a stronger performance, down only 3% year over year. I'm breaking this down a little bit further. Clinical testing revenues dropped in a tenuous range.
over lockdown period. Our testing carried out pretty much unaffected, despite the lockdown suffered by many areas in China and in particular, the city of Guangzhou where our lab is located. We believe the resilience demonstrated by our business, the strong mentality of our staff to overcome challenges will help us in our future growth years. We also like to recap our 2022 full year performance.
Our 2022 full-year revenues grew 11% year over year. We think this is likely on the high end of growth rates achieved in a precision oncology testing industry by our own estimate. There were three pillars that drove that strength. Number one, our dominant market position in the in-hospital segment, which we have built over the years into China's number one position.
And the second driver is MRD, which is a new product that we launched in March. We believe this is a multi-year growth runway. And Joe talked about some of the initial readouts and the future investments we're going to make in the MRD area. And the third is the farmer service segments, which benefited from our top performing product portfolio and our leading position in the companion diagnostics regulatory approval capabilities in China.
We think these three pillars will continue to drive our growth in the future years. Then moving down on our P&L, we grew our adjusted gross profit, which excludes non-cash depreciation and amortization by 12% in the 2022 full year, which again is likely towards the high end of industry performance by our own estimate.
Then moving down to the OPEX lines, as mentioned in our previous earnings calls, we continue to deliver OPEX reductions as we deliver on efficiency improvement initiatives. All three OPEX lines dropped in the fourth quarter as we focused on improved sales productivity, reduction in corporate overhead and better focus on our R&D projects.
If we look at the metric of gross profit minus SG&A, so take the adjusted gross profit line and subtract the sales and marketing and the G&A line, where you can see that we're showing on the slide here, we're getting closer and closer towards breakeven. And then we anticipate to hit breakeven at some quarter by this metric during 2023. The drivers behind this was laid out in our CEO's remarks.
we are driving our commercial business units towards profitability, while our R&D is going to be mostly on multi-cancer detection, which will be more focused than the previous years. So in summary, operating efficiency and breakeven, excluding R&D expenses, is going to be our number one priority for 2023.
Next, we'd like to talk about our latest trend and we present our latest volumes on page 19 of the slide deck. We can see that the fourth quarter dropped double digits compared to the third quarter where the central lab segment dropped a bit further.
And breaking out into the latest month, we can see that we hit a bad trough in December and January as COVID ramped through China. But we have returned to positive year over year growth in February . Regarding the first quarter, given the sharp drop of volumes in January , which brought the January-February two-month combined volumes.
to a decline of 28% year over year. So we think it's prudent to keep expectations for the first quarter moderate.
Next, I'd like to talk about our 2023 outlook. For 2023, we have two financial metrics to track. Number one is what we talked about is the adjusted gross profit minus SG&A. We like to hit breakeven on a metric. Some quarters during 2023.
And second, we'd like to continue to deliver top-line growth. And out of the two objectives, number one is of higher priority for us. And within that context, we are guiding initially for a 20% increase in revenues in 2023. We'll keep track of our latest progress and update you on our guidance in our next quarterly results. And lastly, to recap our cash position and future burn rate estimates, which we showed on page six during our CEO's opening remarks.
We are sitting close to 1 billion RMB of cash balance. We are sitting on three years of cash runway, assuming no capital raise. And our cash balance covers all the clinical programs that we have in place. So we would not be in a rush to do any capital raise.
And that concludes our prepared remarks and we'd like to open for questions, please. Thank you. If you wish to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.
Please stand by while we compile the Q&A roster. We will take our first question and the question comes from the line of Alexis Yan from Morgan Stanley . Please go ahead, your line is open.
Hi, thank you for taking my question. I have two questions. Number one is that regarding the 2023 revenue growth target of 20%, can you help us maybe better understand how much of that would be from the existing therapy selection portfolio? And how much would be from the MRD as well as the early detection product portfolio?
for example, hospital contracting that we could be, we can track for the next few years. And also in terms of ourselves and marketing or market education investment, how do we assess the ROI in terms of the commercial investment? Thanks for your question, Alexis and Yixuan.
So for your first question, we don't have a very clear cut of which part will contribute how much to the percentage of growth. But I can give you a general view that since, let's take the three parts, oncovio, farmer, and also early detection.
So on CoVue, I think that will be the main driver. As you know that we have a big baseline of on CoVue, including therapy selection and MRD. And within on CoVue, as I said that the
the in-hospital model of MRD will impact on Q4 as we completed some in-hospital installment of personalized MRD technology into that. Before that, I think that therapy selection will be the main driver, including tissue-based and also liquid-based. And for pharma, I think it will continue the growth.
be compared with the rest of the use. But that can also answer your second question is that multi-cancer early detection, we have installed around 40 hospitals. Half of them are big hospitals.
But as you are expected, we need to do more marketing activities to educate the doctors in Class 3A hospital for them to understand the product and know how to prescribe to the community, to the consumers.
So, yeah, I think that the, the growth rate of our multi cancer early detection this year. Uh, will be good, but I cannot give you the exact number of how much we can achieve. But 1 thing is sure that. Uh, since we're controlling the burn rate, where we're focusing our, our energies and high cost and modeling activities. On top 3 class 3 hospitals.
Does that answer your question? Yes, that's my question for now. Thank you. Thank you. There are no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.