Burning Rock Biotech Limited

Good day and thank you for standing by. Welcome to the Burning Rock Biotech 2021 second quarter earnings conference call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. Please be advised that today's conference is being recorded. Before we begin, I'd like to remind you that this conference call contains follow-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These follow-looking statements can be identified by terminology such as blue, expects, anticipates the future, intends, plans, believes, estimates, targets, confidence, and similar statements. Statements that are not historical facts, including statements about Burning Rock's beliefs and expectations, are full-looking statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks. Uncertainties and other factors, all of which are difficult to predict and many of which are beyond Burning Rock's control. Foot-looking statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from those contained in any such statements. Burning Rock does not undertake any obligation to update any foot-looking statement as the result of new information, future events, or otherwise except as required under applicable law. And now I'd like to hand the conference over to your first speaker today, Mr. Yusheng Han, CEO of Burning Rock. Thank you. Please go ahead, sir.

Thank you. And welcome to Burning Rock Q3 conference call. I'm Yusheng Han, the CEO and founder of Burning Rock. Today we have our COO, Shannon, CTO, Joe, and CFO, Liu, in the meeting. First, I will go through some exciting highlights of our recent progress. Then our COO, Shannon, will elaborate on our product line extension. And then our CFO, Leo, will walk you through the financials. So first, let's turn to page three. Burning Rock started with the therapy selection business in 2014 and has grown to the market leader in this segment. The leading position has laid a good foundation and given us advantages moving toward new businesses of early detection, MRD, and pharmaceutical collaborations. 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 enable us to are roughly innovation and R&D studies on new products as well as fast distribution when the product goes to the market. The existing high testing volume make it plausible for us to continue lowering the cost. And that's why we aim to tackle the therapy selection, MRD, and early detection market in parallel in the coming few years. Let's turn to page four for some highlights about recent programs. First of all, we are very proud that the technology of our early detection combining a methylation-based assay and a machine learning-based algorithm has been published in Nature Biomedical Engineering. Even though it doesn't fully reflect the most recent version of our early detection product, it's a very nice endorsement of our innovation, which laid down a solid foundation for our product line development. We mentioned about the preparation of commercialization of early detection earlier this year. For those of you who are interested in knowing the progress on that, So far, we have tested over 2,000 samples through the Early Access Program, build up an operation team, a call center, and a CRM team. Our initial commercialization channel will be public hospital health management department and innovative insurance companies. We have so far presented on 10 national or regional conferences with public hospital health management, KOLs, Our validation data on the six cancer tests attracted great attention from the doctors. So far, we have entered contracting stage with six hospitals, and we see the number is scoring at a very decent pace. We have also made some exciting progress on MRD. We are developing a tumor-informed MRD testing platform called DR-PROFIT. It has shown very promising performance with sensitivity on par with what has been shown in Natarian and Archer's publications. We have started a study on lung cancer, and there are several trials for other cancer types under planning. For therapy selection, we recorded 40% volume increase in this quarter, mainly driven by the in-hospital model. It is the first time that our in-hospital model task volume exceeds 10,000 per quarter. Last but not least, I will spend some time to introduce some exciting outlook of our farmer collaboration business. We started this new business unit last year, anticipating a strong opportunity in this segment. The new BU has been growing rapidly. New contract value reached RMB 98 million during first hot year in 2021, which is three times versus the full year of 2020. I will illustrate in detail on the next page. So let's turn to page five. Farmer business is not a new business for the NGS company in the U.S., but this market hasn't been major in China until about 1.5 years ago. Some recent trends and paradigm shift drivers include the first NTA is moving toward regulating targeted therapy drug approval in a CDX model. With the pressure of volume-based government procurement, some domestic innovation pharma companies are seeking for global expansion opportunities. For targeted therapy drugs, the needs of pharma companies for NGS partners include, first, it must have high-quality products and available on both HIVP and liquid biopsy samples. The third driver is that MNCs need NGS companies that can do CDX in China. However, it's very challenging for foreign NGS companies to operate registered in China due to the regulation of HGR, which is human genome regulation. Does a Chinese company with global operation is their ideal choice? So seeing this chance, we set up our U.S. lab, which is now a clear certificate and a cap accredited. and the FAQC2 result we've published in Nature Biotechnology strongly endorsed our technology. We have also invited a very key talent to join us. We invited Shen Liang, who had nine years of experience in FDA covering molecular biodegradable device submission and two years experience in grill to join us. as the VP of RA and QA. We believe that the trend will continue in the coming years. So that's about our farmer world. Really very excited about that. And the expansion of farmer globally is the first step of our global expansion. So that's what I'm going to talk today. And the next I will shift to Shannon about the operation part. Thank you, Shannon.

Yes. Yes. Thank you, Yusheng. So now let's move to page six. It's an overview. And so I would like to give you some important updates on Burning Rock's product pipeline. First of all, let's take a look at the cancer early detection for asymptomatic people. In this sector, we have reported the validation results from the study on our six cancer products last November. We have also accumulated more data on our intent-to-use population through the Early Access Program that Yusheng has mentioned. With that, we plan to start the commercialization of our six cancer products in early 2022. In the meanwhile, we are launching a prospective study on intent-to-use populations to provide more data and also more validation clarity on clinical utility and also false negative and false positive impacts of our early detection test on people. And then on our 9 cancer and 22 cancer products, we have launched the multi-site prospective case control studies, the PREDICT and PRESSIOND earlier this year, as you might already know. Each study will recruit more than 10,000 of participants, and each study is led by a Chinese Academy member as the leading PI. Predict is expected to have the first readout by the end of 2022, and Crescent will have data readouts about 2024. And then, in terms of early-stage cancer patients, we are quite excited that we will have two products launched in 2022. The first one is a tumor-informed MRD product developed by ourselves in-house, as Yusheng already mentioned. The other one is the DetermineRx. which is the prognosis prediction and adjuvant chemotherapy benefit prediction product for lung cancer patients that we licensed in from Oncocytes to bring to the China market. For the MRD product, we are now putting together some clinical validation data on lung cancer patients and we're also initiating validation studies on other cancer types such as colon and esophageal. For DETERMA-RX, we're getting close to completing the SA transfer and Analytical Validation Studies, and we will be able to start offering this product to Chinese patients shortly. We believe the MRD product and DetermineRx will form synergy in providing precision medicine solutions to Chinese patients and doctors in lung cancer, and we really look forward to a promising market for early stage patients, which used not to be the group of patients who benefit most from molecular testing, but it's about to change. So moving on to our late-stage therapy section product line, since the NGS panels in this segment are mostly past the development phase and entering the registration pathway, so we'll focus more on registration progressives. So after our four-gene panel obtained the first NMP approval NGS panel in China in 2018, we now anticipate another approval on our 13-gene panel in the near future. But more importantly, we are now pushing the regulatory timeline on our 520-gene tissue panel and 168-gene liquid panel. For both panels, we are aiming to start the pivotal study in a few months. We think NMT approvals on these large panels, quote-unquote, will ultimately bring a paradigm shift on the competitive landscape and also broad adoption of MGS for in-hospital use. So let's move on. I'm going to break it down to the three segments each by each. So let's move on to page nine for the early detection recap. So as Yusheng has mentioned, we are glad to show that our early detection technology was published by Nature Medical Engineering earlier this year. I wanted to reiterate that this is actually an older version of both the essay and the model, as you can imagine, since the publication process took nearly two years. We have made multiple rounds of our technology ever since. Nonetheless, this endorses the novelty and utility of our technology. And then let's move to page 11. So on this page, I wanted to revisit our clinical programs for the three products, the 6-cancer, 9-cancer, and 22-cancer products. We are happy to report that the programs are all progressing nicely on track. More specifically, for our 6-cancer products, we have just mentioned that we have accumulated testing data on over 2,000 samples in the past few months through our early access program. What we have observed so far from these EAPs actually gave us a clearer estimate on the performance among the intent-to-use population, which is helping us with the design of the prospective interventional study down the road as well as our ongoing communications with regulatory. One thing that's quite promising and we can share briefly that the specificity we demonstrated in the Kids Control Thunder Study is holding very well in the real world, quote unquote. So this gave us a lot of confidence going forward. And then for the 9-cancer and 22-cancer products, both predict and question studies are progressing as planned in terms of accrual. That's about what we can share and disclose. Again, we anticipate the first readout of PREDICT by the end of 2022. So now let's move on to page 14 to talk a little bit about MRD. Page 14 shows our development progress on MRD products, which we haven't talked about actually in detail a lot previously. One key update we wanted to emphasize here is that we have most recently completed development and analytical validation of a novel personalized assay for tumor-informed MRD testing. We named the technology BR-PROFIT, which has a target LOD limit of detection approaching 4 times 10 to the minus 6, which is 0.004%. We expect to report clinical validation data of their profits on lung cancer in the first half of 2022, and we are also initiating studies on other cancer types, including colon esophageal. We also like to share some recent trends in the MRD adoption among Chinese oncologists in the past few months. Actually, earlier this year, MRD has been recommended in a consensus by Chinese lung cancer clinicians to help predict risk for relapse for early stage non-small cell lung cancer patients. In this same consensus, it's also made clear that methods used for MRD testing should be able to reach an LOD as low as 0.02%, which is five times higher than what we are aiming for. It's noteworthy that most MGS panel solutions offered for liquid-based therapy section test have LOD only around 0.1% to 0.5%, including ours, which is not enough in MRD detection. So you can imagine that this will be a new line of work in terms of technology. And in terms of the market, we are seeing trends that oncologists and pharma companies are very actively exploring MRD applications, embedding it into a lot of research studies recently. So we now expect this market to advance greatly in the coming years. So let's move to page 16 to touch briefly on the third piece in action. On this page, we briefly recap on the SEQC2 study. A lot of you might already be familiar with it. From this study, our on-call COMPASS liquid test panel showed very strong performance specifications, including sensitivity, specificity, repeatability, and robustness when compared to four other NGS liquid testing tests from the US. So this is a very nice endorsement of our liquid-based testing technology. And these results have been published in Nature Biotechnology. And we went through the results from the publication extensively last quarter, so we'll skip the details this time. But we'd love to take questions and share reference materials if you are interested in knowing more. So let's move to page 17 to see a little bit on the business side. On page 17, we demonstrate how our business has been transitioning towards the in-house model rapidly in the past few months. This is a trend that we have actually predicted from the very beginning, but it's most recently accelerated, partially driven by the pandemic. The top part here are the bar graphs showing our test volume over the past quarter. The green bar being the central lab model and the blue bar being the in-hospital model, you can see clearly that in the past three quarters, the total test volume growth has mostly been driven by the in-hospital model. So this trend matches our expectation but has been greatly accelerated due to the impact of COVID. During the pandemic, two things have changed in the hospitals. First, rigid travel restriction rules have made it much more difficult for patients from small cities to travel to top hospitals in nearby large cities or the capital city of their province. This change impacts both the central lab and in-hospital channels. These NGS tests are mostly offered among only the top hospitals. Second, almost all the hospitals have made tighter rules for doctor visits, so it's been harder to reach the clinicians, discuss about prescribing the tests, and introduce new products. However, this change, unlike the first one, actually only negatively impacts the central lab model, but positively impacts the in-hospital model. So in the bottom part on this page, we wanted to reiterate why we see the in-hospital channel as our strategic focus, because it's a stickier model, and also more product and quality driven when it comes to competition. We think the in-house student model will come to a dominant position when large NGS panels and liquid-based NGS panels obtain NMP approval, which will likely happen about two years down the road. We believe Burning Rock is well positioned in this paradigm shift and we do, however, we do recognize, on the other hand, that since the in-house student model have lower unit price than the central lab model. We will see lower blended AST in such transitioning process. So this is what I have on the product and business side, and I will turn to Leo to walk you through the financial numbers. Leo.