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spk00: Good morning, and thank you for standing by. Welcome to the first quarter 2022 GeneTron Health Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Evan Hsu. CFO at GeneTron Health. Please go ahead.
spk01: Hello, everyone, and welcome to GeneTron's 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 Jinchuan Health's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in Jinchuan Health's filings with the SEC. All information provided today is as of the date of this call, and Jin Chong House does not undertake any obligation to update any forward-looking statements except as required under applicable law. With respect to any non-effortless measures discussed during today's call, the company's 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. Zijuan Wen, co-founder, chairman, and the CEO of Yunchuan Health, will discuss recent business updates and upcoming catalysts. And I will provide financial highlights related to the unaudited first quarter results outlined in today's release, as well as our outlook for 2022. Following management's prepared remarks, we will open up the call to questions. During the Q&A session, Our co-founder and chief scientific officer, Dr. Hai Yan, chief technology officer, Dr. Yu Chengjiao, and chief medical officer, Dr. Yunfu Hu, will also be available to answer questions. With that said, I would now like to turn the call over to Mr. Sijuan Wen. Sijuan, please go ahead. Thank you, Yanen.
spk02: Hello, everyone. Thank you for joining our first quarter 2022 Earnings Conference Forum. I would 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 services in China, our comprehensive portfolio covers the entire spectrum of cancer management from early screening and therapy selection to MRD monitoring and the development of CDX with biopharma companies. In each of the segments, we are increasing adoption and penetration of our products. Attending to slide four, the first quarter was rather productive for GENTRA. We continue to demonstrate the strengths and increase awareness for our precision college platform. The recent highlights include a new CDX collaboration agreement with Hatchpad for their alpha-thesis drug for non-small cell lung cancer. using our marketed aging lung cancer assay, receiving the C mark of the SecMRD kit for the detection of hematologic cancers, as well as FusionScan Plus, which uses integrated DNA and RNA as templates for genetic alteration detection. A peer-reviewed publication of mutation capsules potential in MRD assay development in clinical and translational medicine as well as 17 clinical data presentations at the American Association for Cancer Research channel meeting. So in the first quarter of 2022, we grow diagnosis and monitoring revenue by 14% to RMB 99.5 million, of which IVD in hospital cells rose 18%, driven by greater adoption of our sequencing platforms and assets, including the JingChong S5 instrument and aging lung cancer assay. As we have mentioned, we plan to prioritize and further penetrate this reimbursed in-hospital market with our solution. We have gained solid traction here and increased the number of contracted in-hospital partners to 31 at the end of the quarter, and are excited to build on this momentum. On the LDT side of the business, we grow revenue by 14%, of which diagnostic Test volume grow about 9% year over year in the first quarter. We continue to operate in a challenging environment where COVID outbreaks and the zero COVID policies are affecting commercial opportunities across health care facilities. Relatively speaking, within our portfolio, the LDT business was more heavily impacted by virus containment policy, which caused declines of patient traffic to many of our LDT customers. services revenue more than doubled in the quarter. In addition to higher sequencing revenues, the growth was also a result of 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 will be key drivers for our future growth. So on slide five, let me start off with our early screening segment. In November 2021, we initiated a NAMPA registration trial for our HCCC early detection assay. By beginning the enrollment for the trial, our methylation multi-marker PCR-based assay HCCC scan. Recall that this was a 5,000 patient trial in nine clinical sites, and we intend to select a few of these sites for our multi-omics NGS-based HCCC screen trial. As a result of COVID disruptions, the HCC screen trial has been delayed and we now project to begin running subjects in third quarter. We continue to believe that this structure of both PCR and MDS tests is the best strategy to help the most patients and expand the addressable market for the assets. There is a more established PCR infrastructure with readily available workflows in many hospitals and clinics in China. Based on the logistics assets, testing needs and associate government-led infrastructure built since COVID PCR capabilities continue to increase across healthcare system in China. Additionally, a few months ago, the DNA methylation and other genetic testing were added to some Beijing and other provincial insurance programs. This reimbursement established a benchmark price of around RMB 800 for methylation-based tests and around RMB 1,500 for NIPT-NJs-based testing. Based on these dynamics, we believe that adding a high-performing PCR-based assay would be commercially viable, while also providing self-pay patients in lower-tier markets with a cost-optimal solution. Overall, we are confident that we can deploy both in-hospital and central lab models to increase accessibility and efficiently penetrate the liver cancer early screening market. As for our HCC screening plans in the U.S., we have started a complementary study with two medical institutions in the U.S. and may present the data at an upcoming conference. So beyond liver cancer, we have plans to develop a multi-cancer product in the future. We have already shared some early retrospective CRC data during our last learning course. showing over 91% of sensitivity and 95% of specificity. We continue to expect to have CRC data published sometime in 2022. To turn into slide six, on the MRD side, recall that we have announced an exciting multi-year co-development agreement with AstraZeneca R&D China for a NGS-based personalized MRD test for solid tumors in China. MRD testing has the potential to help in the clinical management for patients well before metastatic lesions grow to the size detectable by conventional methods such as MRI and CT scan. With this partnership, AZ plans to use this co-developed MRD test for China-specific solid tumor clinical trials that are designed to incorporate the use of NGS-based personalized MRD tests. The assay optimization is currently ongoing and expected to finish by year-end. Concurrently, we're also planning a pilot LDT launch in the second quarter and expect to expand to official launch before year-end. So now moving to slide eight. The assay would be developed based on GeneTrans' patent mutation capsule platform, a method for detecting mutation and methylation of tumor-specific genes in ctDNA, The mutation capture platforms enables multiple test analysis based on a single CFDNA sample, providing head-to-head comparisons between multiple MRD strategies, such as personalized and non-personalized assays, as shown in slide 9 and 10, with some of the early data we generate from gastric, rectal, and liver cancer patients. The liver data was recently published in Clinical and Translational Medicine demonstrating the technology's potential in MRD assay developments. The mutation capsule also allows more sensitive detection in low-yield CFDNA samples with higher conversion efficiency of CFDNA molecules. Beyond tumor-informed MRD assay, we're also exploring tumor-naive MRD 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 the capability to develop a high-performing MRD athlete. We continue to be optimistic about MRD solid tumor market in China, and in particular, Jingcheng's competitive position after the AstraZeneca collaboration. On slide 11, for second MRD in hematological malignancies, Our exclusive partnership with Futsun Pharma in China is progressing well. We have expanded our clinical launch in the second quarter. This assay is also generating many dialogues with biopharma partners. And we anticipate a few more partners to sign on in the next few months. Overall, we're pleased with continued support by the health care authorities of MRD testing in hematological amygdala in China. And we believe that our NGS-based SecMRD represents an innovative and differentiated solution. So now turning to slide 12, moving on to discuss our biopharma service business. In the first quarter, we have signed on an additional four 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 SecMRD, OncopanScan, FusionScan, and others. So recently, we have announced our CDX partnership with HatchMed for salamonidinib in non-small cell lung cancer using our already marketed aging lung cancer IVD assay. As mentioned, Our aging lung cancer assay is already gaining very good traction in the IVD in-hospital use market. We're excited about this partnership as it is our second major CDX after our first one with System 4 of a pretenib, which has entered the NAMPAD priority review and approval process. In China, the trend of CDX demand is growing stronger, resulting from NAMPAD's increasing focus on genomic testing for innovative targeted immunotherapies. Together with our CLIA lab in Maryland, we have excellent opportunities to work on cross-border trials and CDX developments. We anticipate continued strong growth in this business segment. So now I will turn the call over to our CFO, Mr. Evan Chu, to provide more details on our first quarter financials. Evan.
spk01: Thank you, Sujin. So please note that all numbers provided in RMB terms and that all comparisons are made on the 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 in the same period of 2021. Diagnosis and monitoring revenue increased by 14% to $100 million from $87 million in the same period of 2021. LDT revenue increased by 13.5% to 22 million during the first quarter. LGT diagnostic tests sold in the first quarter increased by 9% to approximately 5,560 units. We're pleased with our early screening cells uptake as well, with continued support from all of our key collaborators. Moving to slide 16. IVD revenue increased by 18% to 18 million in the first quarter, 2022, from 15 million in the first quarter last year. The increase was mainly driven by sales of both GeneTron S5 instrument as well as the aging lung cancer assay. Revenue generated from developing services increased by 117% to 10.8 million in the first quarter this year, from 5 million in the same period of 2021. This was primarily driven by both the increase of sequencing and biopharma services revenues. Moving to slide 17, cost of revenue increased by 30% to $49 million for the three months ended March 31, 2022, compared to $38 million same period of last year. As a result, gross profit increased to $62 million in the first quarter this year, from $55 million in 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 LDT segment was 64% compared to 68% a year ago, primarily due to promotional activities related to HTC Scan. We expect this impact to be temporary. and these promotional activities will end in near term. For our IVD segment, gross margin was around 50% versus 34% in the prior year, thanks to higher consumable sales. Operating expenses increased by 48% to RMB 241 million for this quarter, from 164 million in the prior year. Operating expenses are broken out on slide 18 as follows. Selling expenses increased by 52% to $91 million in this quarter from $60 million in the same period of 2021. Selling expenses as a percentage of revenue increased to 82% in the first quarter this year from around 65% in 2021. The increase was primarily driven by increased headcount in the sales and marketing team to expand Gintron's core business, including our early screening efforts. And partially because of the COVID impact, the revenue growth for this quarter has been affected. We expect the sales kick-on to remain stable and the 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. Admin expenses as a percentage of revenue decreased to 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 2022 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% last year. The increase was driven by both higher R&D headcount as well as continued investments in core product developments and clinical trial activities such as HTC SCAM. As a result, operating loss was 180 million for this first quarter compared to 109 million last year on slide 19. Net loss for the period was 175 million compared to 115 million for the first quarter of 2021. For non-offers net loss, this excludes share-based compensation expenses, fair value change, and other losses of financial instruments with preferred rights. Non-offers net loss was RMB 164 million for this quarter, compared to 106 million in the parallel year. Basic loss per ordinary share was RMB 38 cents for this first quarter, compared to $0.25 for the same period of 2021. For non-IFRS net loss per ordinary share, this quarter is $0.35 and for the prior year was $0.23. Diluted loss per ordinary share is equivalent to basic loss per ordinary share. We have a cash and cash equivalents in the current financial assets at fair value through profit and loss. at RMB 559 million as of March 31st, 2022. Now moving to discuss our outlook for 2022. Let's go to slide 20. In January, our LTT revenue actually grew rather strongly with a year-over-year growth of nearly 30%. However, the trend took a turn in the following months In March, LDT revenue experienced a single-digit year-over-year decline, as COVID cases were rising in Shanghai, Shenzhen, and several parts of the country. In April, we saw an even deeper negative double-digit year-over-year decrease for our LDT revenue. Many of you may have heard about the severe COVID-related measures in Shanghai in particular, that began at the end of March until actually very recently, only until June 1st, basically one day ago, Shanghai starts to gradually open up. As a result, it has been extremely difficult for us to conduct any activities in this particular city, which has had a negative impact on our businesses, in particular LDT revenues. Ongoing spread has been happening in Beijing and other cities, and mass testing continues. In fact, our lab in Beijing, where our headquarters is based, is also participating in government-led COVID testing programs. While the situation is challenging for our operations and has negatively impacted our core business volumes, We are very glad that Jinchuan could step up and take action against fighting COVID together with relevant government 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 precautions, which weigh on our ability to drive growth. In regards to our financial guidance, in March, when we provided our 2022 revenue projection, we had anticipated that a challenging business environment would persist and had baked in a relatively conservative assumption. Further, in May, we are seeing some positive signs of recovery. We hope we can catch up some of the losses in the second half of the year. Thus, at this point, We are maintaining our revenue guidance to be around RMB 585 million to 638 million, or around 10 to 20% of growth compared to year 2021. We will closely monitor the COVID-19 trend and evaluate its impact to our business and provide updates in due course. This concludes the discussion of our first quarter financial results. I will now turn the call back to Sujun.
spk02: Thank you, Evan. In closing, we're pleased with the success we've achieved both financially and operationally in the face of adversity related to COVID. I would like to emphasize the strong underlying long-term fundamentals of our business that position us very well to drive substantial growth through continued commercial, clinical, and pipeline development execution. Shown on slides 22 and 23, we remain focused on the development of liquid biopsy-based solutions across the full cycle cancer management, particularly in early screening, MRD, and the CDX, while continuing to ramp up our commercialization efforts and grow our core business. For our IVD in hospital model, in addition to the expanding hospital partner base, we have also made good progress on the inclusion of the approved IVD kits into procurement systems and or priceless in more than 20 provinces. For example, with our aging lung cancer assay, which represents as one of the most clinically important tests for non-small cell lung cancer, we continue to believe that the government reimbursement inclusion could be established for certain regions in the next 12 to 24 months. This would represent a meaningful driver for increased penetration of market share. In addition, as you can see on slide 24, we have a capitalist-rich pipeline over the next couple of years to create substantial opportunities for our organization. Over the past few years, our investments and expanding capabilities have positioned us as a leading player in this market and created significant 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 and losses going forward. So this concludes the prepared remarks portion of today's call, operator. So we're now ready for questions.
spk00: Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Again, if you would like to ask a question, press star 1. on your telephone. Please stand by while we compile the Q&A roster. We have a question from Yang Huang with Credit Suisse. Your line is open.
spk03: Thanks, management, for giving me the opportunity to ask questions. So I have two questions. First, 2Q performance, so I think you mentioned in March and also in April, we are seeing some revenue impact. I would like to understand what is going to be impacted to our margin for the second quarter given lockdown and other situation. That's my first question.
spk01: You mean the magnitude of the impact?
spk03: Yes, margin, yes. Okay.
spk01: First of all, in the second quarter, as I mentioned, April was probably the worst month so far, given that some of our key markets were deeply in a lockdown mode, in particular Shanghai and some northeast provinces. Actually, we saw a double-digit increase. around 30% of a decrease year over year for April. The good sign is that in May, we see some recovery, especially in Northeast markets. So although Shanghai was still in the lockdown mode for the entire May, so all in all, for May, the situation was better compared to April, but it's still negative. So now, starting from 1st of June, Shanghai is gradually recovering, and we'll try our best to capture business opportunities and some pent-up demands in the city. So hopefully by the end of the second quarter, which means June, we should have a catch-up compared to last year in terms of LDT revenue. I think all in all, second quarter will be pretty hit by the COVID in terms of volume and revenue. In terms of margin for LDT, I think that will have accordingly will be impacted as well, given a significant portion of the fixed cost remains unchanged. So it's hard to say with a precise number, but we'll a close eye on this.
spk03: Yeah, so... Okay, understood.
spk02: Yeah, to add upon that, one thing is that, you know, we have, over this COVID outbreaks in Beijing, we have, we've mentioned in an earlier call that we have started participating in some of the government-led COVID testing programs. So therefore, some of our essentially unused that capacity due to the impact that the COVID has been leveraged to provide the COVID testing, which means that that part will contribute to some of the revenues in Q2, as well as share essentially some of the costs, the fixed costs that Evan just mentioned. So that will serve as the stabilizing factors in terms of overall financial metrics for Q2.
spk03: Yeah, thanks. My second question is about our collaboration with AEZ, the MRD program. So can you give us some kind of more details of, let's say, what kind of cancer type we want to target first? And on the cost side, are we going to kind of share development costs with AEZ? And in terms of revenue or profit in the future, are we going to also share with AED? Thanks.
spk02: Yeah, so this is obviously a very important collaboration that we have developed with our partners, especially with AED. As we discussed before in previous conversations, this is, in fact, a co-development partnership here, which means that both sides will invest into the development and the validation of these assays. And upon the completion of the validation of the personalized MRD technology platform under the test, the AZ is committed to use these assays exclusively for their China-specific trials. And these assays are intended to be used on the multi-cancer, essentially the pan-cancer personalized MRD assay.
spk03: I see. But are we going to own the IP by ourselves or the IP also going to be joined on by us and AZ?
spk02: So essentially the IP of the technology platform itself is owned by us. So in terms of the product, it's kind of like a joint ownership in certain cases. So the commercialization upon So as I mentioned, upon the completion of the validation and development of this assay will be kind of the two-folds. First of all, AZ is committed to use these assays and pay for the service, essentially for the assay and the testing service, again, exclusively on all their related China-specific trials. So that's the first layer of the commercialization you know, arrangement we have made. So the other layer of the arrangement is likely we will form a commercial partnership to promote this assay in a clinical setting. I mean, when I say clinical setting, I mean, you know, to serve the patients. So that, you know, commercial, you know, the collaboration details is actually to be further discussed and to be finalized. But, you know, both sides are excited that we will be able to co-develop this assay with essentially the technology from GeneTron and samples and data from AZ plus the investment from both sides. And we see quite a, you know, bright future to incorporate this, essentially, you know, incorporate or commercialize this assay in both the clinical trials as well as to serve the patients in the clinical setting. And it's likely we'll be expanding this potential collaboration to a more broader market as well in the future.
spk03: Got it. Thanks.
spk00: Thank you. And as a reminder, to ask a question, press star, then the one key on your touchtone telephone. Please stand by while we compile the Q&A roster. And I'm showing no other questions in the queue. I'd like to turn the call back to management for any closing remarks.
spk01: 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. Thank you.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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