Burning Rock Biotech Limited (BNR) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Burning Rock Biotech 2021 Second Quarter Earnings Conference Call. 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 U.S. 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 would like to hand the conference over to your first speaker today, Mr. Yusheng Han, CEO of Burning Rock. Thank you. Please go ahead, sir.
Yusheng Han: Thank you and welcome to Burning Rock’s Q2 conference call. I am Yusheng Han, the CEO and Founder of Burning Rock. Today, we have our COO, Shannon; CTO, Joe; and CFO, Leo 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 expansion, and then our CFO, Leo, will walk you through the financials. So first, let’s turn to Page 3. 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 – to new business of early detection, MRD and pharmaceutical collaborations. We have strong branding on our technology and product quality, which help us attract talents. And the network we have built across thousands of oncologists and hundreds of hospitals enable us to rapidly innovation and R&D studies on new products as well as faster distribution when the products go to the market. The existing high testing volumes make it possible 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 4 for some highlights of our recent programs. First of all, we are very proud that the technology of our early detection combining a maturation-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 on 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 out an operations team, a call center and a CRM team. Our initial commercialization channel will be with hospital health management department and innovative insurance companies. We have so far presented on 10 national or regional conferences with hospital health management KOLs. Our validation data on the 6-cancer test attracted great attention from the doctors. So far, we have entered contracting stage with 6 hospitals and we see the number scoring a very decent pace. We have also made some exciting progress on MRD. We are developing a tumor-informed MRD testing platform called BR Prophet. It has shown very promising performance with sensitivity on par with what has been shown in Nature and in 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 test volumes exceed 10,000 per quarter. Last but not least, I will spend some time to introduce some exciting outlook of our pharma collaboration business. We started a new business unit last year anticipating a strong opportunity in this segment. The new BU has been growing rapidly, new contract value reached RMB98 million during first half year in 2021, which is 3x versus the full year of 2020. I will illustrate in detail on the next page. So, let’s turn to Page 5. Pharma business is not a new business for the NGS company in U.S., but this market hasn’t been major in China until about half – sorry, 1.5 years ago. Some recent trends in the paradigm shift drivers includes the first NTA is moving toward regulating targeted therapy drug approval in the CDx model. Second, with the pressure of volume-based government procurement, some domestic innovation pharma companies are seeking for global expansion opportunities. For targeted therapy drugs, the need of former companies for NGS partner includes: first, it must have a high-quality product and available on both therapy and liquid biopsy samples; second, registration capability in both U.S. and China and sometimes also in Japan, Europe and other developed countries. The third criteria is that – 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 registration trial in China due to the regulation of HGR with this human genome regulation. So as a Chinese company, NGS company with global operations is the ideal choice. So seeing this chance, we setup our U.S. lab, which is now a clear certificate and cap credit. And the SEQC2 result, we have published in Nature Biotechnology strongly endorse our technology. We have also invited very key talent to join us. We invited Sharon Liang, who had 9 years of experience in FDA covering molecular diagnostic device submission and 2 years experience in GRAIL to join us as the VP of RA and QA. We believe that the trend will continue in the coming years. So, that is our pharma, we are really very excited about that. And the expansion of pharma globally is the first step of our global expansion. So, that’s all what I am going to talk today. And next, I will shift to Shannon about the operation part. Thank you. Shannon?
Shannon Chuai: Yes. Yes. Thank you, Yusheng. So, now let’s move to Page 6. It’s an overview and we 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 THUNDER study on our 6-cancer product last November. We have also accumulated more data on our intend-to-use population through the early access program that Yusheng just mentioned. With that, we plan to start the commercialization of our 6-cancer product in early 2022. In the meanwhile, we are launching a prospective study on intend-to-use population to provide more data and also more validation clarity on clinical utility and also false-negative and false-positive impact of our early detection tests 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 PRESCIENT, 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 PRESCIENT 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 to determine our app, which is the prognosis prediction and adjuvant chemotherapy benefit prediction product for lung cancer patients that we licensed in from OncoCyte to go into the China market. For the MRD products, we are now putting together some clinical validation data on lung cancer patients and we are also initiating validation studies on other cancer types such as colon and esophageal. For DetermaRx, we are getting close to completing the assay 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 DetermaRx 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, the NGS panels in this segment are mostly past the development phase and entering the registration pathway. We will focus more on registration prospectus. So after our 4-gene panel obtained the first NMPA approval in Japan and 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 those panels, we are aiming to start the pivotal study in a few months. We think NMPA approvals on these large panels will ultimately go in a paradigm shift on the competitive landscape and also brought adoption of NGS for in-hospital use. So, let’s move on. I am going to break it down to the three segments each by each. So, let’s move on to Page 9 for the early detection with tap. So, as Yusheng has mentioned, we are glad to show that our early detection technology was published by Nature Biomedical Engineering earlier this year. I wanted to reiterate that this is actually an older version of both assay and the model as you can imagine since the publication process took nearly 2 years. We have made multiple working of our technology ever since. Nonetheless, this endorses the novelty and the utility of our technology. And then, let’s move to Page 11. So, on this page, I wanted to revisit our clinical program 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 product, we have just mentioned that we have a cumulative testing data on over 2,000 samples in the past few months through our early access program. What we have observed so far from this piece actually gave us a clear estimate on the performance among the intend-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 with you is that the specificity we demonstrated in the case-control seminar study is holding very well in the real world. So, this gave us lot of confidence going forward. And then for this 9-cancer and 22-cancer products, both PREDICT and PRESCIENT studies are progressing as planned in terms of accrual. That’s about what we can share in the quote. 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 assays for tumor-informed MRD testing. We named the technology BR Prophet, which has a target LOD, limit of detection, approaching 4x minus 6, which is 0.004%. We expect to report clinical validation data on BR Prophet 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 relapsed 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 5x higher than what we are aiming for. It’s noteworthy that most NGS 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 on 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 – on Page 15 to talk briefly on the Therapy Selection. On this page, we briefly recap on the SEQC2 study. A lot of you might already be familiar with it. From this study, our OncoCompass liquid test panel showed very strong performance specifications, including sensitivities with the post ability and robustness when compared to four other NGS liquid testing kits from the U.S. 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 extensive the last quarter, so we will keep the details at this time. But we would love to take questions and share reference materials if you are interested in on 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 to working the in-hospital model rapidly in the past 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 graph 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 problems. This change impacts both the central app and in-hospital channels with tests NGS are mostly offered among only the top hospitals. Second, almost all hospitals have made tighter rules for doctor visits. So it’s been harder to reach the clinicians just about prescribing the test and introducing new products. However, this change unlike the first one actually only negatively impacts the central lab model but positively impact the in-hospital model. So in the bottom part of 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-hospital model will come to a dominant position when large NGS panel liquid-based NGS panels obtain and NMPA approval, which will likely happen about 2 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-hospital model has lower unit price than the central-lab model, we will see lower blended ASP 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?
Leo Li: Thank you, Shannon. And moving to financials, first, we’d like to recap our Therapy Selection testing volume growth in the second quarter, which is shown on Page 17. Testing volume is the most important metric, representing progress of China and our share of the NGS market. In the second quarter, overall volume growth was strong at 40% year-over-year. Central-lab and in-hospital volumes combined reached a total of close to 20,000 units during the second quarter. We believe that both the absolute scale and the growth rate of our volumes in the second quarter was industry leading in China. Now moving to Slide 19 by channel, first, in-hospital, in-hospital volume grew strong at 70% year-over-year to over 10,000 units in the second quarter while central-lab volume growth was more moderate at a 12% year-over-year growth. As Shannon mentioned, the paradigm shift from central-lab to in-hospital is accelerating in China. That is what in-hospital is accelerating we anticipated strategically a number of years ago, and we’ve been a clear leader in the in-hospital segment. We are pleased to see the accelerated progress that we’ve been able to achieve in the second quarter. As of the end of June, we are officially contracted with 34 hospitals to supply our NGS testing kits. And there is a backlog of an additional 22 hospitals that we look to complete contracting. In terms of the coverage breadth, we are working hard on our hospital contracting efforts with a target list of the nation’s top 100 to 150 oncology centers, which represent the lion’s share of China’s NGS testing market so that our tests can be offered at more hospitals in-house. The contracting lead time has been long historically, about 2 years, or in some cases, even longer. And we hope to accelerate this as NGS becomes more mainstream in China. We have seen wider acceptance of NGS after the top-tier hospitals such as the very top ones in Beijing and Shanghai have had NGS tests installed in-house. We have also seen increasing interest this year in NGS from heads of hospitals, and we like these trends and we think this will help us accelerate our in-hospital efforts. Then moving on to Slide 20 to talk about our central-lab channel, our growth has moderated in the recent period in our observation, and some of this is publicly available data from listed peers in the industry. We think this is an industry-wide phenomenon, the central-lab slowdown. We think there are two factors behind the slowdown. First is on COVID, which has been on and off in China. And on Page 21, we have laid out the impact on COVID in China on the page. For example, back in January, Beijing, Shanghai has schools shut for a period of time. In May, Guangzhou and other parts of Southern China were significantly impacted. And starting in July, we had cases and travel restrictions that started in Nanjing, in Eastern China, and this spread nationwide in China. And as Shannon mentioned before, because NGS adoption is concentrated at the leading hospitals located in major cities in China, any travel restrictions impact patient flow as patients in other parts of the province or outside the province make up a significant bulk of the overall patient mix. This is particularly true for Tier 1 cities, such as Beijing, Shanghai, Guangzhou, where we have significant business volumes. So the COVID impact on NGS, we think, is very different compared to transitional testing, which is more commoditized and well penetrated into community and lower-tier hospitals. In addition to the travel impact, hospitals may also reduce the number of appointments offered when there are cases reported in a city. And so we just went through the COVID factor. Out of the two factors impacting central lab, the second factor is related to LDT, or laboratory developed test, regulation in China. LDT is the model that our central-lab testing relies on. It differs from the most typical testing format in China actually where for the typical norm the test is performed within the hospital. The patients pays to the hospital rather than paying to third-party outside companies. Historically, LDT regulation in China has been a gray area where rules and regulations regarding tests administered outside of hospitals were not spelled out in full. And this resulted, we think, in low entry barrier and cuts through competition in this channel. It is becoming clear this year that LDT will be regulated in China, and this should be a positive for Burning Rock. The new medical device regulation in China that came into effect in June this year makes very clear scope for LDT. And specifically, Article 53 of the regulation states that four areas where there is no approved IVD products, LDTs will be allowed for qualified medical institutions. The NMPA is leading the work on drafting the detailed implementation rules related to Article 53 related to the medical device regulation. We have participated in discussions related to the rule-making. And we think clear regulation in LDT will erect higher entry barriers for the central-lab segment and help reduce competitive intensity from low-quality offerings in this channel, which is important for the long-term. Under this increasing regulatory backdrop, hospitals are also putting more scrutiny and more control on LDTs conducted outside of the hospital. We saw some hospitals tightening or cutting entirely outside LDTs in the second quarter. We think the industry is changing for the better with increasing regulatory focus and scrutiny. And we’ve been able to take market share, leveraging the strength of our in-hospital business. We are accelerating our efforts to put our tests in-house at more hospitals. Then we’d like to talk about our financials, which is on Page 22. As we move from testing volume to revenue metric, the shifting mix from central-lab to in-hospital is having an impact on ASP or average sales price in the short-term. We charge lower prices of IVD testing kits that we supply to hospitals in the in-house segment compared with the LDT testing service prices that we charge to patients in the central-lab channel. We would like the NGS testing to be a meaningful business for our partner hospitals. We, in turn, aim to generate more revenues by capturing more volume share from the hospital. The ASP difference across the two channels does mean that during the transitional period of more in-hospital testing, which we expect to be a number of quarters, our blended ASP will be reduced. In other words, our revenue growth rate will be numerically lower compared to our volume growth rate during this transitional phase. For the second quarter, our overall revenue growth was 19% year-over-year, which is lower than the 40% volume growth rates for the ASP reason that we just explained. By channel, central-lab growth was single digits at 7% year-over-year. The in-hospital revenue growth was strong at 40% year-over-year. And we do notice there is a difference between our in-hospital revenue growth and volume growth numbers. Volume growth was at 70% in the second quarter. This is primarily to do with our billing and revenue recognition for this channel, not that we changed prices in the second quarter. On billing and revenue recognition, there are two components. The first, which is a majority, is booked upon the test, the kits being shipped and received by the customer. This component correlates with volumes in the quarter. The second component, the minority is booked when payment occurs. Payment terms generally follow each hospital’s own supplier terms and differ among hospitals. Generally, this is a few quarters. So in summary, volume growth in in-hospital should lead revenue growth over time. Then moving to our pharma revenue segment, which is coming off a small base and growing at a fast rate a small base and growing at a fast rate. We are seeing a rapid buildup of backlog as we saw discussed and we mentioned on Page 5. These are typically multiyear projects and also subject to our partners’ clinical progress and we expect greater contribution from this segment to our overall revenue over time. Before we go to our guidance for the year, we’d like to recap the delta variant’s impacts on China, which we laid out on Page 21. As we mentioned before, NGS adoption is concentrated at the leading hospitals located in major cities in China. During COVID flare-ups, non-pharmaceutical interventions, and by this, I mean, mainly travel restrictions, are the number one containment tool in China. As delta spread more easily versus earlier variants, we saw a stronger reaction function and wider travel restrictions in August versus earlier flare-ups in the year, and this will significantly impact our third quarter volumes. We observed that July being worse than June and August being significantly worse than July. So for the third quarter, we expect central-lab volumes to be down actually on a year-over-year basis. But we expect in-hospital to keep growing because of the structural industry shift towards in-hospital and our strength in the in-hospital channel. For the remainder of the year, we expect our business to continue to grow chiefly through in-hospital. We expect volume growth to remain strong, but the ASP drag from channel mix shift will lead to a lower revenue growth rate. So all in all, combining the COVID impact and the accelerated channel shift effect, we are reducing our full year 2021 revenue guidance to RMB500 million. And after talking about our quantitative guidance for 2021, we also like to talk qualitatively about how we think about our growth drivers going forward, and this is shown on Page 23. For our Therapy Selection business, the industry is shifting towards in-hospital as NGS increasingly becomes mainstream and more hospitals take greater control of NGS testing. In the near-term, this allows us to gain additional market share through our strength in that segment. In the long-term, more in-hospital testing allows our product and regulatory advantages to play a greater role and sets us apart from low-quality competition. So we believe we are a key beneficiary out of this industry trend. In addition, as usual mentioned at the start of the call, Burning Rock is more than just Therapy Selection. Over the years, we have developed a pipeline of products across Early Detection, MRD. We have expanded our presence beyond China with our lab in California, operational and starting to serve pharma CDx projects that started in Q2 this year. 2022 will be the first year that we start commercializing our 6-cancer detection test. We have been preparing for that since we completed product development for this product back in November last year as the operational readiness, the commercial traction so far are strong as recently discussed at the start of this call. In addition to early detection, we also have our MRD product data release and commercialization in 2022. So we think 2022 sets up at well to kick off multiple additional revenue growth drivers going forward. And with that, we’d like to conclude the prepared remarks and open it up for questions, please.
Operator: Thank you. Your first question comes from the line of Doug Schenkel from Cowen. Please go ahead.
Doug Schenkel: Hi. Good morning and good afternoon. Just maybe a couple of follow-ups quickly on those final comments on guidance, in terms of pacing, meaning Q3 versus Q4, if I’m listening correctly, it sounds like with the trends sounds like with the trends direction in the central lab, but continuing to improve in the field that you would expect those to somewhat offset over the next two quarters? And would you expect both Q3 and Q4 revenue to be about the same or is that the wrong interpretation of pacing?
Leo Li: Yes. Doug thanks for the question. On pacing, I guess, it’s helpful to go back to Page 21, and we can see the COVID impact in August was quite significant. So, that made Q3 very challenging and out of our expectation. So, Q3 is going bad because of COVID for the central lab. For Q4, we don’t rule out another COVID flare-up. We are not certain, whether it’s going to be as bad as August. We hope you won’t, but we do want to leave some buffer room there. So, absence of any significant COVID flare-ups again, we think of Q4 should proceed a bit better. And this is the typical seasonality that we do see. But with COVID, it’s becoming more difficult to predict.
Doug Schenkel: Understood. Okay. And then one more on guidance for the year, in the second quarter operating spend came in a little higher than we expected. How should we think about operating spend over the balance of the year?
Leo Li: Yes. So, I guess it’s helpful to go back to the business for a little bit regarding OpEx. There are a few areas that we are adding our spend. First is on early detection. And as Yusheng mentioned, we are to looking partner with hospitals and insurance companies. So, we have on the funnel for the Hospital segment, sales personnel for the Insurance segment. We have marketing teams. And on the back end, we have core centers and other operational support elements. So, we have started adding the organizational headcount and infrastructure for early detection starting this year, and these will remain in place. And if the business traction is going well, then we will certainly look to add more on these elements. And in addition, on these early detection clinical programs, we are adding the prior programs that we are executing. So over time, and this will hit R&D line. Over time, early detection clinical expense will increase as we do have quite a few large studies underway already. And we are looking to draw up additional and launch additional studies down the road. So, early detection will be an incremental driver. And in addition to that, as we think about MRD, as we think about additional product launches that we offer for oncology patients, we are also building up our sales and marketing team over time for the oncology patient business, so that is adding spend as well. Then on the overall footprint, we have a new building rented, about double the pace of our current place in Guangzhou. That is going to house our early detection operation, including the lab function, which will support the large clinical study and the commercialization efforts. So the overall footprint, which will hit the G&A line, is also increasing. So, I would expect the OpEx levels to remain at this place and even trend up over time, more dependent on commercial and clinical progress.
Doug Schenkel: Great. And one last one is for me. A clear bright spot in the quarter was the performance at the biopharma, the pharma services line. Recognizing that can be lumpy, the value of contracts entered into in the first half of the year was pretty impressive. Can you share anything in terms of mix of projects or applications that you are working on with your biopharmaceutical partners, how you expect this to trend over time? And how we should view this as a future indicator for NGS test adoption in China? I am wondering how much weight you put on these trends as you think about the outlook for adoption of NGS-based tools in your key markets?
Shannon Chuai: Okay. Doug, I can try to answer that question. In terms of the product mix for our pharmaceutical collaboration business, it’s a blend between biomarker service studies and companion – all the way to companion diagnostic collaboration. And we have most recently – I think we also mentioned in our announcement that we have formed collaboration with IMPACT Therapeutics, a CDx collaboration in both the U.S. and China. And we are seeing more and more both – more and more domestic, both domestic and U.S. innovative drug development companies showing interest in our pipeline and in our registration capability to be able to serve CDx projects in both the U.S. and China. So, we are seeing a bit of a trend towards larger CDx collaboration projects on that. But we are still having a lot of biomarker service exploratory studies, collaborations with domestic companies as well. So, I guess the short answer is that it’s a mix. And then for – in terms of the NGS adoption, I think a more clear trend is towards that more and more companies or drug companies in China, they are now adopting the CDx concept. So, I think the transition to NGS from traditional like IHC or PCR to NGS, it’s still gradual, and it’s case-by-case, because there are biomarkers, for example, PD-L1, where you don’t need NGS, and then there are biomarkers where you could do either IHC or NGS or PCL NGS. And then there are more and more biomarkers that you have to do NGS. So, the transition there is case-by-case. But we do see a very sharp transition into the CDx concept, which means that a lot of the drug companies, if they are working on targeted therapy or immunotherapy drugs in China, now I think it’s part of the requirement from regulatory that they have a biomarker strategy from the – almost the very beginning. And especially going into the approval phase, they have to have a clear strategy for biomarker on companion diagnostic solution, which was not true a couple of years ago. So, we think we are pretty excited to see that in China finally, because that’s been true actually for the U.S. market for a long time.
Yusheng Han: I want to say one more thing about the pharma business. So, it’s not about one or two projects dominant, it’s total contract value. Actually, it consists of many projects with different values and different partners. So, I would say that it’s really a trend and very healthy from my observation.
Operator: Thank you. Our next question comes from David Lee from Bank of America. Please ask your question.
David Lee: Great. Thank you, management for giving me the chance to ask questions. So, my question is regarding on the stricter regulation of the overall China healthcare policy. It seems like a trend that the government is going to have a lot of the stricter regulation of the data, especially the genetic data. Do you have any feeling that our – especially for our business, which we will collect and have collected one of the genetic data from the patient, do you think we will have some of the risks in the future? Thank you.
Yusheng Han: Well, thanks for asking, and that’s a very important question. For medical data, you are right, the government is getting stricter and stricter about the security. And it was not – actually, we started to care about the security of data a long time ago. And we report to the government, have communication with them time-to-time to let them know how we regulate the data insights and make sure that the data generated in China stay in China. And so the first government department, we need to talk about is HGR. I think so far, we have built up a good channel of communication and we don’t think that will be a high risk for Burning Rock. Just we are always doing the way that the government want to see.
David Lee: Thank you.
Yusheng Han: You’re welcome.
Leo Li: And David, just to add, as Yusheng mentioned, human genetic resources, HGR, that’s the most important, we think, related to the life sciences or biotech industry as we have seen negative impacts already about increasing HGR regulation hitting a few companies for violating HGR regulations in the past. So, we have paid a lot of attention to HGR regulation and ensure that we are fully compliant to HGR regulation, biosecurity and other relevant laws and regulations in China. We would like to mention that out of the HGR’s approved projects, you can notice it’s actually publicly available. And then you can notice our position out of the approved list where we have a decent track record in this space. So, we are confident to maintain good standards going forward in this regard.
David Lee: Thanks Li. That’s helpful.
Operator: Thank you. Our next question comes from the line of Sean Wu from Morgan Stanley. Please ask your question.
Sean Wu: Thank you very much. Thank you for taking my question. I have one follow-up question about the pharma businesses. I think it’s clearly a better encouraging, but I would like to know more about the kind of competitive dynamics. Can you talk about the competition for the pharma business? And we also figure out other companies in this industry for biopharma and do you expect competition to impact . So, that’s the first question. And I have two other small questions. Okay, so early detection, we think that this is an increased market focus. So, we are focusing more products in commercial in China. How do you think about the competitive dynamics going forward? And as a follow-up, the products we see in China are most of clinical cancer test product, how do you think about the competition between single versus the multiple cancer service protection? And along the way, there are other companies with a simple focus selection for gastric cancer or colorectal cancer going public and I think there are some good examples of that. So, how do you expect the single cancer had focused on multi-cancer detection? Thank you.
Yusheng Han: Hi. Thanks for asking, Sean. I can take your question. So, in terms of pharma business, so the first thing that you are right that the total market is increasing dramatically. And that is why I think not only Burning Rock mentioned about pharma business. But our competitive advantage is that we are – if not the only one, but we are quite few in the world who can register the CDx in both U.S. and China in terms of NGS platform. And as I mentioned, that we hired Sharon Liang, Dr. Sharon now to join us. And her background is fantastic about the registration in both the U.S. and China as she worked for FDA for over 9 years for IVD approval. So – and as mentioned that the quality is another factor. So we are the only one who has the endorsement of FDA cutting the world that our quality, no matter of FIP sample and the liquid biopsy. Our quality is among the best, which pharma really care about quality. They care about the – whether the drug can be approved, that’s highly regulated with the quality of the test. So yes, that’s about the pharma. We think that there will be some competition. But in terms of registration in both the U.S. and China, and the second thing is about MNCs who want to land in China selecting high-quality partner, we are the first choice out there. And the second question about the early detection. We have seen that the single cancer testing is getting more and more effective for colon cancer. And recently, there is some for liver cancer early detection. Our philosophy is that the market is just a beginning. So, everyone has the space. But for Burning labs, we care about the multi-cancer early detection from the very beginning, and we continuously believe that, that will be a bigger future. The reason is that any product you have to think about the scenario of the commercialization. We think – if we think that, that is – we tell about – we think about a person who want to do a health check-up every year and he or her needs is whether she or he has some problem in certain organs not about a single type of organ he or she want to check. So, that is why we think that I think everyone has the market in the future, but multi-cancer early detection has the biggest one. And in terms of multi-cancer early detection, if you look at the data, probably Burning Rock, the company has the best data in China. And if you look at the trial leading led by those famous PIs, the only two trials for multi-cancer early detection that has passed the HGR approval that is necessary for a clinical trial. So, the only trials all come from Burning Rock. So, from my point of view, we – for multi-cancer early detection, we do have serious players – sorry, we don’t have serious competitors in the market in China. Thank you.
Operator: Alright. Thank you. We have reached the end of the question-and-answer session. So with that, we conclude our conference for today. Thank you for participating. You may all disconnect.
