Burning Rock Biotech Ltd Q1 FY2021 Earnings Call

Good day. And thank you for standing by. Welcome to Burning Rock's 2021 First Quarter 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. Please be advised that today's conference is being recorded. 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 terminologies 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 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 does not undertake any obligation to update any forward-looking statement as a 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 the management team of Burning Rock. Thank you, please go ahead.

Thank you. Welcome to Burning Rock's earnings call. I am Yusheng Han, the CEO and Founder of Burning Rock. Today, we also have our COO, Shannon Chuai; our CTO, Joe Zhang; and our CFO, Leo Li in this call. Burning Rock is China's molecular diagnostic leader for precision oncology. There are two parts of our business. The first is early detection and using liquid biopsy for pan-cancer. The second is for therapy selection and MRD. We are very excited to launch the multi-omics 22-cancer test, called PRESCIENT. The second cancer PREDICT trial for the 9-cancer test is going well, mostly. Our COO, Shannon Chuai, will talk about these two trials in detail. In the meantime, the preparation for our commercialization of the 6-cancer test is ongoing. We are continuously building our commercial and operating team and optimizing the SLPS. Nothing significantly important to report for the 6-cancer so far. But if you have any questions, welcome to ask at our Q&A session. For the therapy selection, we have great news that finally the results of the liquid biopsy part of SEQC2 has been published in Nature Biotechnology, proving that Burning Rock's quality is at the top tier level in the world. Our CTO, Joe, will talk about that in detail. After that, our CFO, Leo, will discuss the financial numbers. Let's turn to Shannon first to talk about the early detection part. Shannon?

All right, thanks. Thanks, Yusheng. If we go to page six, this is to recap the product development roadmap for our early detection program. We started with a proof-of-concept on lung cancer, and the study and methodology have been most recently accepted for publication, with a manuscript pending publication. Moving on to the 3-cancer test, we presented the data last year in January at the AACR Special Conference on Liquid Biopsy. We achieved 95% specificity and 81% sensitivity. Recently, a lot of you are familiar with our 6-cancer test results that we released last year in November at the ESMO Asia. The 6-cancer test includes lung cancer, colorectal cancer, liver, ovarian, pancreatic, and esophageal cancers. The data showed that we were able to maintain our 81% sensitivity while improving the specificity to about 98%. We also achieved a reasonably good accuracy for TOO analysis, with about 81% accuracy from the six-cancer test results we released last year. After the THUNDER study, which was a case-control study to validate the specificity and sensitivity of the product, we plan to move on to a prospective interventional study for an asymptomatic population. The study is currently under planning. We wanted to focus on the recent, very exciting progress we are making on the 9-cancer and looking forward to the 22-cancer tests. The PREDICT study that we started earlier is ongoing very smoothly, and the progress is as expected. The 22-cancer test will eventually cover about 88% of China's cancer incidence altogether. We kicked off a large clinical development study a few weeks ago in May 2021, called PRESCIENT. In later pages, I will tell you about the design and timeline for both the PREDICT study and the PRESCIENT study. If we go to page seven, this outlines the clinical programs we are looking at for our early detection program. Each product has roughly four phases for product development or clinical development. The first is the assay development, which includes panel design, marker selection, and finalizing the essay chemistry. Then we proceed to analytical validation to validate the performance analytically, including using reference materials or clinical samples to validate specifications. Next, we move on to case-control studies, where we will validate sensitivity, specificity, and TOO accuracy with real clinical cases and controls. Eventually, we will go on to the asymptomatic population for further validation, focusing on sensitivity, specificity, and TOO accuracy. For our 3-cancer test, after completing the assay development and analytical validation, we moved on to the 6-cancer test. We have completed the necessary validation studies, such as the THUNDER study, which was mentioned earlier, showcasing the accuracy of our test. Currently, we are planning an interventional study for the asymptomatic population tied to the 6-cancer test and hope to provide more details in the near future. We are also progressing towards covering more cancer types. For the 9-cancer test, we have finished the assay development and are currently conducting analytical validation. We are actively enrolling participants for the PREDICT study. The PREDICT study actually contains two phases, and we are working on both to expedite development. Continuing on, for the 22-cancer test, we are developing the next generation of the product during the assay development stage. We've collected a lot of information from previous versions, allowing us to finalize the design of the PRESCIENT study as a case-control study for the 22-cancer test. We're actively kicking off study enrollments to recruit clinical samples for future testing and validation in tandem with product development efforts. Moving to page eight, this outlines the study design of the PREDICT study. This study, covering 9 cancer types, involves more than 14,000 participants, with approximately 55% from cancer cases, 10% from benign diseases, and the rest from healthy controls. Importantly, more than 75% of the cancer participants will be from stages 1, 2, and 3. In terms of study design, Phase I will have an open-label design, dividing samples into training and testing sets to report performances on those validations. After that, we will validate the performance of the model using an independent data set in Phase II, allowing for an accurate assessment of the model performance for the 9-cancer test. The PREDICT study aims to also evaluate the 12-month follow-up for healthy controls with positive testing results to assess positive predictive value assessments among those cohorts. In terms of objectives and timeline for PREDICT, the primary goal is to train and validate the sensitivity, specificity, and TOO analysis of our cfDNA methylation-based model for these nine cancer types. Secondarily, we will learn about performance across different cancer types and stages. We expect to complete Phase I enrollment by 2022, with a readout for Phase I data by the end of 2022 and Phase II by the end of 2023. Moving on to page 10, we mentioned the interest that the PREDICT study has attracted among the Chinese oncology community. This is a picture of the principal investigator Dr. Zefei Jiang when he presented at the National Oncology Conference, where the PREDICT study design attracted a lot of attention from the community. Page 11 lays out the study design for the PRESCIENT study. This study extends from the 9-cancer types to the 22-cancer types, involving a similar design but with two phases. This study also focuses on other omics as biomarkers besides methylation and protein markers, allowing us to evaluate combinations of novel biomarkers from the PRESCIENT study. On page 12, we outline the objectives of the PRESCIENT study – to validate methylation and protein marker combinations among the 22-cancer types and to evaluate performance across different stages. We expect to complete enrollment for PRESCIENT by 2023 and then conduct training and validation sets to derive results in due time. Moving on to page 13, we introduce the principal investigators for PREDICT and PRESCIENT. We are proud to have attracted top-tier oncologists in China to lead our trials, reflecting the growing interest and acknowledgment from the oncology community in early cancer detection, particularly in the composite model of epigenetic biomarkers and next-generation sequencing.

Thanks, Shannon. I'm going to cover a little about our therapy selection part. For slide 15, we highlight the strengths of Burning Rock regarding our therapy selection business. I'm focusing on our superior product, particularly the NMPA approval process for the different IBD kits in the pipeline. Last month, a paper showcasing our quality control in sequencing was published in Nature Biotechnology, led by a consortium effort. Our participation in both liquid biopsy and pan-cancer studies underlines our superior product quality and evidence. As you can see on slide 16, the data summarizes our contributions to this community effort, showing our performance compared to other vendors. Slide 17 highlights the assay and study design particulars. Burning Rock is the only Chinese vendor participating, distributing our kit to different labs, generating libraries, sequencing, and analyzing data according to vendor guidance. The FDA oversees this multi-lab study, assessing overall sensitivity, specificity, reproducibility, and performance across labs. The study reveals that our OncoCompass Target panel demonstrated high coverage uniformity and performed well in terms of fragment depth. Continuing to slide 19, we compare different hybridization capture panels based on sensitivity. Burning Rock's panel maintains superior performance for low-frequency detection across comparisons. Slide 20 explores reproducibility across various labs, confirming the robust performance of Burning Rock's assays compared to other vendors. For slide 21, we almost always achieve high sensitivity and precision with low DNA inputs, affirming our leadership position in analytical accuracy.

Thank you, Joe. Our financials are shown on page 25 of our presentation, focusing on our top-line numbers. All our revenues come from our therapy selection business; early detection is still under R&D. We grew our revenues by 58% year-over-year and gross profits by 72%. Central lab revenue grew by 62%, while in-hospital revenues increased by 70%. Overall, we are seeing growth above industry rates, indicating increased market share during this period. However, the first quarter experienced a negative sequential trend due to the impact of COVID in January and the Chinese New Year. Our guidance for the full year remains unchanged at RMB 610 million, but we need to achieve a monthly run rate to reach that target. Going forward, we are focused on executing strategies to drive growth in the in-hospital channel. We aim to make tests available at more hospitals, which we believe is key for building NGS penetration in the market. For the in-hospital channel, our sales efforts are ramping up to build relationships with physicians and enhance our presence.

Hi, good day and thank you for taking my questions. Regarding the 6-cancer, 9-cancer, and 22-cancer asymptomatic screening programs, do you believe studies like THUNDER, PREDICT, and PRESCIENT will suffice for product launch from a regulatory standpoint and reimbursement? If not, how significant will the required studies be for regulatory approval? And what would be the acceptable targets from this perspective regarding sensitivity and specificity?

Hi, Doug. Thanks for your question. I'll try to answer it. For your first question, the straightforward answer is no, we don't think PREDICT or PRESCIENT will suffice for testing the asymptomatic population due to the lack of power needed for sensitive assessment among this group. These strategies are designed for case-control cohorts that will help map future asymptomatic prospective studies. We're focused on the 6-cancer test for asymptomatic people, and we estimate an ongoing conversation with MPA regarding registration pathways, but we do foresee needing to demonstrate individual benefits eventually leading to a possible reimbursement approach in a market trending toward out-of-pocket payments for such products.

Thanks for that helpful answer, Shannon. Further concerning central lab performance, volume dropped relative to earlier quarters. Can you share whether ASPs were impacted by market pressures or product mix during this quarter? How do you see volume and pricing trends meeting your guidance for the rest of the year?

For the central lab channel, we observed fluctuations in average selling prices primarily due to product mix shifts rather than pricing changes. We note that the remainder of the year should focus on elevating our in-hospital presence, where we see better performance potential. Structural challenges in the central lab channel might take time to navigate, but our team-building efforts are increasingly significant in terms of future growth.

Can you share what insights you've gained about performance trends coming out of Q1 that lend confidence in your guidance despite the quarter's headwinds?

For guidance, we've anticipated stronger performance in the second half, offsetting early difficulties. Our monthly revenue must ramp up to achieve full-year targets, and we aim to provide updates in the next earnings call.

Could we have an update regarding our 6-cancer test timeline for approval and commercialization? Additionally, is there any update on discussions with the NMPA?

We're executing our commercial and operational plans for the early detection tests, aiming to initiate commercialization by early next year. As for the registration discussions, they remain ongoing without a precise timeline.

Regarding the PREDICT and PRESCIENT trials, can you clarify the differing participant numbers and why there's a discrepancy?

The size differences stem from each study's design focus. While PREDICT requires larger sample sizes for stage-specific performance, PRESCIENT is designed for a broader approach with 22 cancers in mind, having fewer data precedents to rely upon. Thus, the sample size varies.

Thank you for taking my question. How did you determine participant numbers in your studies? And why not just combine the efforts between PREDICT and PRESCIENT?

The designs of these studies target different product generations and objectives. The 9-cancer and 22-cancer tests involve distinct analytical frameworks, asserting the necessity for separate validations. Seeking stage-specific data in PREDICT necessitated a larger sample set, while PRESCIENT is tracking multiple cancers requiring a broader strategy with the goal of validating efficiently.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. With that, we conclude our conference for today. Thank you for participating. You may all disconnect.