Burning Rock Biotech Limited

Good day and thank you for standing by. Welcome to the Burning Rock 2022 Q2 earnings conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to slowly press star 1 and then 1 on your telephone. You will then hear an automated message advising that your hand is raised. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time during the conference. 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 U.S. 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. 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 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 rocks control. Forward-looking statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from those contained in such statement. Burning Rock does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise expect as required under applicable law. Please note that today's conference call is being recorded. I would now like to hand over to our speaker, Mr. Yusheng Han. Please go ahead, sir.

Thank you. And thanks for coming to Burning Rock 2022 Q2 conference call. I'm Yusheng Han, the CEO and founder of Burning Rock. So today we have our COO, CTO and CFO in the meeting. We know that Q2 was really a hard time for most of the companies in China with completely lockdown of Shanghai in April and May and hard lockdown of Beijing in May. difficulties, we still record an year-on-year increase in Q2 in terms of revenue. The growth was contributed by strong in-hospital revenue growth outside of Shanghai and Beijing, new product lines such as MRD products and pharma business. So let's review our business outline and the progress. And our COO, Shannon, will go through the development of our product line. And after that, our CFO Leo will go through the financials. So let's turn to page three. So that's a basic introduction of Burning Rock. We started with therapy selection business in 2014 and has grown to the market leader in this segment. And the leading position has laid a good foundation and given us advantages moving forward to new business of early detection, MRD, and farmer collaborations. Let's turn to page four. And this is for our business objectives in the future. So, service selection is a segment that we have working for eight years. In the past years, our main goal for this segment is to expand market share in both in-house student model and centralized model. And the in-house student model now is operating profit positive while central lab is loose-making. And we are strongly, now we are strongly leaning our strategy to in-hospital model. We have set a clear goal of making on-call BU profitable in 2023, new clinical utility evidence. And the technology development demands mature liquid biopsy technology and personalized panels. Therefore, we initiate trials in lung, CRC, and other cancers. This will be the barrier for our product and not easy to be replicated like therapy selection. The pharma business is a trend with strong needs of both therapy selection and MRD. And its thrive highly depends on the institution values such as quality and registration capabilities. And the business has been profitable and a strong growth continues. For multi-cancer early detection, we believe that it is the ultimate solution for cancer early detection. Powered by multi-dimensional testing, including methylation, plus NGS, plus machine learning, Multicancer early detection has better performance versus single cancer early detection. And by the way, in a real scenario, we cannot draw like 20 tubes of blood if you want to detect 20 types of cancers. Thus, we invest a huge resource of technology development and clinical trials. We believe that it will build strong barriers that can last for many years. And the good news is that the competition with NMPA of multi-cancer early detection registration got better recently. So let's turn to page five for our recent progress. The in-hospital model, I mean the revenue keeps strong increase. Regions excluding Beijing and Shanghai grew over 60% year on year in Q2 in terms of volume. The new product, including MRD, MyChoice, and DetermineRx, help us gain market share in centralized models. At the end of Q2, we optimized the headcount cost and started to reduce it. At the end of Q2, we started to reduce the commercial investment on college business units as well. And due to the excellent execution, impact to the revenue is very limited. uh we are so we are in a much better position uh to uh to grow uh through the through the winter and the commercial ramp of mrd is strong since we launched the product in march especially after the data readout on national cell lung cancer and crc at aacr the revenue of biopharma grew triple digits of the year on year to rmb 18 million contributed to 14% of overall revenue. And the backlog continues to build with contracted project value grew 49% year-on-year to RMB 158 million during the seven months in 2022. For early detection, the data about promise was released is a data of over 2,000 participants for nine cancer tests, reading out at ISMO in September. And for the clinical programs of early detection, the PREVENT study was launched, and it is a trial composed of 12,500 participants And it's China's first multi-cancer prospective interventional study. And let's turn to page six. In this page, I just want to utilize the graph to illustrate that the pharma business is growing really strongly. The green columns are a comparison of contract value of 2021 versus 2020. And the blue columns are comparison of contract value of the first seven months of 2022 and 2021. And this is achieved in a situation that Shanghai was totally locked down in April and May. And as we know that Shanghai is the headquarter of many biopharmers, so we would like to say that this achievement is great. And yeah, that's basically about the outline of Burning Rock. And then I will pass to Shannon to talk about our headlines.

Okay. Thank you, Yisheng. So now let's move on to page eight. So first, I'd like to take a minute and re-illustrate the clinical utilities of MRD tests on early stage patients. as the establishment of different clinical utilities will ultimately drive the market growth. So on this diagram, we can see that an early stage patient could go through neoadjuvant and or adjuvant therapies before and after surgery, and then hopefully a long disease-free period afterwards. As we all know, the most well-established MRD utility is the prognosis prediction. And multiple studies across different cancer types and different technology platforms have validated the strong and robust association between MRD status and the patient prognosis at both the landmark and the longitudinal time points. So such utility is marked as green on this diagram. You can see that they happen at different time points along the way. However, this prognosis utility itself would probably not be strong enough to drive a very high penetration of MRD tests because it would be the kind of nice to have but so what test, which is informative but not exactly actionable for clinicians. But with that said, we're now starting to see more and more truly actionable utilities of MRD tests to evolve. which are the one labeled red on this diagram. So among these utilities, the most important one, and also I think the most immediate one, is to differentiate low-risk and high-risk patients based on the landmark MRD right after surgery and to commence escalated or de-escalated adjuvant therapy regimen. So if clinical trials in the coming years can validate such MRD-guided treatment selection strategy, then the penetration of MRD tests among early-stage patients would become very, very significant. So page 9 and page 10 actually show two such examples in terms of what kind of results from trials would serve the need as validation of the MRD-guided treatment strategy. They are both very recent studies. Page 9 is the INVIGOR-10 study. which is phase three trial of atezolizumab in bladder cancer patients as maintenance treatment. So on the top corner, the top left corner here, it shows that in this trial, the whole ITT population did not show any efficacy from the treatment compared to the control arm. And then on the right, we can see that if we zoom in, only the 39% MRD-positive patients at Landmark benefited from atezol. So this is a very strong evidence. This is a great example to show that the MRD utility has to identify the high-risk group and give them more therapy. Of course, the MRD analysis in this study was only retrospective, and that's why Inverter 11 has been initiated as a prospective study and will be able to confirm if such utility can be validated in a CDX type of setup. And then page 10 is an even more recent example. This is the dynamic study in the colon cancer. Patients were randomized into two groups with standoff care or ctDNA-guided treatment strategy. So in the past ASCO meeting, which just happened a couple months ago, it has reported that the MRD-negative patients in this study who underwent far less adjuvant chemotherapy achieved similar or non-inferior recurrence-free survival compared to the standard of care group. So if this is validated repeatedly in multiple studies in the near future, it would mean that MRD negative status actually represents a group of cured patients after surgery who can be exempt from adjuvant chemotherapy. So again, studies like these will truly bring MRD into a CDX-level biomarker and greatly increase its penetration down the road. So because of this advancement, we are also witnessing more endorsement for MRD in the clinician community, including its mentioning in the NCCN colorectal cancer guidelines, in the e-small recommendations in this DNA and so on. As we have shown last time, page 11 is the consensus among Chinese lung cancer doctors for MRD. And this particular consensus has been widely talked about recently within the China doctor community. And also, as far as we know, a consensus on MRD in colon cancer among Chinese oncologists are also being written and should be expected in the near future. And with all that, on page 12, we outline the development plan for BRProfit, which is the capture-based personalized MRD essay we have developed and launched a few months ago, starting from March. The initial market response has been pretty exciting, which our CFO, Leo, will cover in later slides. And as we have introduced before, BR-PROFIT is able to reach an LOD of 0.004%. We have released initial clinicalization data on lung cancer and colorectal cancer cohorts in the past AACR. And then on the bottom half of page 12 here, we lined up our additional clinical programs and expected data readout timeline. For example, for lung cancer, For the observational studies, as the pink bar is showing on the top, we will submit the metal cohort for publication in a few months, for which I'll show some key findings on the next page. We also have two interventional studies launched or plan to launch later this year. We expect to start having data readouts from these interventional studies to validate the MRD-guided treatment selection utility in lung cancer in 2025. which is shown here as the dark red bar. And then the timeline in colorectal cancer is actually similar to lung cancer in our plan. We expect to have a large cohort of operational study results reported in early 2024, as in the light blue bar. And we're also initiating interventional studies, which expect to have data readout by 2026, as in the dark blue bar. So for other cancer types, which are in the last bar, we have initiated multiple observational studies, mostly in esophageal cancer, breast cancer, et cetera. The earliest time for data readout expected is in 2024. So our expectation for the market growth for MRD in China is also matched with the clinical program timeline outlined here. So which means that from 2022 to 2024 is what we expect to be the early market adoption period, mostly driven by the prognosis part of the MRD utility, which has been well established. And then between 2025 and 2027, when more and more interventional studies conclude, the actionable part of the MRD utility will be fully established. So we would expect for a second wave of strong growth of MRD penetration around that time. So now let's turn to page 13. Here we want to take a couple of minutes to briefly show some key results from the full meta cohort. In this study, in the meta study which contained about 200 participants, their profit was compared actually to a fixed panel approach in terms of landmark and longitudinal MRD testing. What we have observed on the left graph is that Bayer-Profit identified almost three times as many true high-risk patients as the six-panel assay at the landmark time point. This shows the superior sensitivity of Bayer-Profit as the personalized approach. And then in the middle graph, you can see that the longitudinally MRD negative patients, which are the blue line here on the top, has near-perfect prognosis in about three years of follow-up, indicating that the BR-profit MRD tests, when applied repeatedly, can pretty accurately identify the patients who are practically cured. And then on the right graph here, we can see that the prognosis separation between MRD-positive and MRD-negative patients defined by BR-profit is actually across different stage. So it doesn't matter whether you're at stage one or stage three, the prediction power stays the same. So we think this is a very strong validation for the sensitivity and accuracy of their profit. So now I'll skip page 14, which is our MRD data on colorectal cancer, because we already talked about it last time. And let's go directly to the early detection part. Since we have gone through our development roadmap for multiple times for our detection program, I'll be very brief today on this topic and just bring your attention to page 17. On page 17, there are two major updates here. First, as Yixuan already mentioned, the PROMIS study which is the pilot case-control study for our 9-cancer type assay, has been completed. The results will be released at the coming infirmary in a few days. In short, we successfully expanded the model from 6 cancers to 9 cancers. We showed promising improvement on sensitivity in some of the 9 cancers compared to the previous version, while maintaining equally high specificity and TOO accuracy. And also, interestingly, have tried to combine multi-omics data, including DNA isolation, DNA mutation, and protein markers to show the contribution of each omics data on different cancer types. We will be able to share the details of these performance in the PROMIS study in the next call, but of course, you're welcome to read down the details in our ISMO poster. The other update here is the PREVENT study. So unlike all the other studies we have done, before, PREVENT study is a prospective study conducted on symptom-free population. It's the first study of this kind in China for cancer early detection with sample size greater than 10,000 participants. It's also designed so that our sick cancer and my cancer can be both tested for the performance later on in this cohort of individuals. We started patient enrollment in Q2 and are seeing pretty good accrual progress. So that's all for me. Now I'll turn to our CFO, Leo, to walk you through our financials.