Burning Rock Biotech (NASDAQ:BNR) Q4 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to the Building Rocks 2024 Quarter and Full Year Earnings Conference Call. Before we begin, I'd like to remind you that this conference call contains a forward-looking statement 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 real, expects, anticipates, future, intents, plans, beliefs, estimates, target, confident, and similar statements. Statements that are not historical facts, including statements about Burning Rock's beliefs and expectations, are forelooking statements.

0:53 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. Fault looking statements involve risks, uncertainties, and other factors that could cause our results to differ materially from those contained in any such statements. Benning Rock does not undertake any obligation to update any fault looking statement as a result of new information, future events, or otherwise except as required under applicable law.

1:40 Well, 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 today, you need to press star 1 on your telephone. Please be advised that today's conference is being recorded. And I'd like to hand the conference over to the management team of Burning Rock. Thank you. Please go ahead. Welcome to Burning Rock's earning conference call. This is Yusheng Han, the CEO and founder. Today you have our team consisting of CEO, Shannon Chai, CTO, Zhihong Zhang, and our CFO, Leo Li.

2:28 Please turn to page three. Let's start. So Burning Rock is China's molecular diagnostic leader for persistent oncology. There are two main parts of our business. The first one is therapy selection and the second one is early detection. Let's turn to page four. So today we'll go through our 2020 recap and also we'll go through other issues such as 2021 priorities and financials. But what is more exciting is about our commercialization plan for our flood-based multi-cancer early detection. Let's turn to page five. Let's look at the 2020 recap first. In terms of therapy selection, we have accumulated 273K samples in the past seven years, which means that Burning Rock has one of the biggest genomic data for cancer patients in the world.

3:32 And the second thing I want to illustrate is that 2020 really are the top year for the whole industry because of the COVID-19. The first half year is significantly impacted by the COVID-19. But we have seen that in the second half year, we have a strong turn back. So we record a 33 year of year growth in the second half of 2020. In terms of early detection, we all know that we started the early detection R&D effort from 2076.

4:21 We have already accumulated around 10,000 samples in the past five years, which is one of the biggest ones in the world as well, and the biggest one in China for pan-cancer early detection. Through our strong product development execution, we have completed a six cancer product development and moved to the clinical trials for my cancer and the other trials as well. Next page. So, yeah, let's turn to page seven. So this is the highlight of today. As I said that through the five-year R&D efforts we have finally published our sixth cancer validation data in East Asia last November with a very high sensitivity and specificity.

5:19 When we shared this data with our potential partners, people were very excited about the data. And that makes us think that we might start a commercialization for the sixth panel six cancer panel before originally planned for the nine cancer. And that means that we need to start an early access program first to find out the feasibility and operation key point and also the feedback from the potential collaborators. And at the same time, we have already designed presented a prospective validation for the six cancer products.

6:10 We expect the revenue for early detection start to generate in the early of 2020, which means that one year before originally planned. Obviously, we have strong advantage for the 10 cancer early detection in China. We have the biggest data accumulated and also we have the strongest clinical institution. And the third thing is that we're the first mover and the fastest mover. Next page. In the beginning, we think there are two paths for commercialization.

6:56 The first one is for the commercial insurers and the second one is the public hospitals. So for commercial insurers, we have a strong synergy with them and can help them to save a lot of costs by discovering and treating cancer patients early. Nowadays, 80% of their payment was paid to late-stage cancers. and also we can help them to obtain and maintain their customers with a unique multi-cancer early detection product, helping them to set up a strong, competitive advantage among their peers.

7:50 And for hospitals, the advantage, the benefits for the hospital, first one is the health checkup revenue generation. and then also we can help them by helping them to find more patients. We can help them to generate the downstream revenue for cancer patient detection and treatment as well. At the same time, those big hospitals have high demand for innovative products to build and strengthen their brand in the market. and then I will pass to our COO, Shannon, to talk about the product development roadmap for the pan-cancer early detection.

8:38 Shannon. Yes, thanks, Yusheng. So let's go to the next page, page nine. This lays out our product development roadmap. I believe some of you might have seen this a few times before. We have shared our clinical development plan before. However, as Yusheng has mentioned, with the recent response we have received after we released the sick cancer test results. There have been some additions and also updates on our plan going forward leading to commercialization. So just to recap, we started our product development from the year 2016, and then we started with the proof of concept on single cancer, which was lung cancer, as a proof of concept on the feasibility for early detection on both the assay and the bioinformatics methodology or algorithm. And then we expanded the validation from the simple cancer to three cancer as an additional proof of concept for methylation being able to deliver tissue of origin accuracy as well.

9:55 And most recently, as we have mentioned last November, We released our results on Eastmolecia on the sixth cancer test. The assay and the algorithm have been significantly improved compared to the previous versions. And we delivered a 98.3% specificity and 80.6% sensitivity across different cancer types on mostly early stage cancer patients. and originally our plan was to just use the cyst cancer test as a prototype and then to move on to the non-cancer test which would ultimately become our commercialization product and also going for registration.

10:46 However, as Yusheng mentioned, with the recent response we have received from potential partners or collaborators, we have decided to speed up the commercialization plan on the rollout plan. And because of that, we have added two additional programs on the six cancer tests. So we didn't stop. We wouldn't stop at the validation that we have presented at East Malaysia. On the six cancer tests, we will first initiate, we actually have initiated an early access program to gather real world feasibility and feedback and in these early access programs we will also closely monitor the positive rate which reflects largely on the specificity and to make sure that it holds largely compared to the validation or case control studies that we have established the specificity established in those case control studies and also we will try to try best to follow up on the positive and other positive participants and to assess the downstream shoe positive rate which reflects the sensitivity as well.

12:08 But in the meanwhile, we will also launch a prospective validation study on the sixth cancer test. We have finalized the design of the protocol of that prospective validation and are in progress of communicating with the participating sites and investigators. So hopefully we'll have more details to disclose in the near future. And then on the Nye cancer test, I wanted to emphasize that all the studies that we planned for the Nye cancer test, there were a few being carried out in parallel as originally planned. They're making good progress.

12:53 So what we have added on the six cancer tests are moving in parallel with our original plan on my cancer test, so it won't cause any delay or any negative impact on the other planned studies. And then, last but not least, we are also launching some development effort on future products going beyond the MyCancer test, which involves validating the product in more cancer types, as well as adding in more dimensions of biomarkers as orthogonal contribution to the essay and the model.

13:42 So on page 10, we wanted to illustrate or recap a little bit again on why we targeted on multi-cancer early detection. As you might know, in China there are some emerging early detection players in the field, but most of them are focusing on single cancer types. Here we just wanted to have a real simple and straightforward illustration to show that by focusing on the multi-cancer early detection products, we are We are facing a much larger TAM market. The sixth cancer test of burning rock covers 49% of China's urban incidence of older cancers. And then our nine cancer tests would cover about 63% of older cancers in China. So compared to the most popular single cancer type are early detection products, which focuses mostly on liver or colorectal.

14:54 The multi-cancer early detection will sort of focus on a different market and a larger market. So in light of time, we're going to skip page number 11 and now switch gear a little bit to talk about our position on the therapy selection market. We also have some exciting on there as well. So on page 13, again, to recap the factors for long-term success for the therapy selection market, the first one is the products and the quality or performance on our product, especially the liquid biopsy products. We do have some very exciting news or data to share in a minute to demonstrate, again, and the performance of our liquid biopsy technology and products. And then another key factor to win in China is the NNPA approval, of course. So we also have some exciting progress on that, on our liquid biopsy panel, which establishes our leading position in registration pipeline compared to our peers in China. So I'll turn to, I'll hand to our CTO, Joe, to talk about the data and the progress on registration

16:25 for our liquid biopsy products. Joe. Yeah, thanks, Shannon. So on page 14, basically this is a copy and paste from a presentation presented by FDA last month in the meeting of a fifth annual liquid biopsy for precision oncology summit. So basically, this is basically a very introductory slide talking about the FDA-led SEQC study, especially on the ctDNA study. So on the top left panel, This slide is talking about the SEQC study overview. So basically SEQC is one of the consortium efforts participated by a lot of academic and industry members, including Burning Rock. So SEQC2 actually is the fourth effort of a consortium effort trying to understand the best practice of panel sequencing and whole genome sequencing.

17:29 So basically, Burning Rock participated in the panel sequencing, oncology panel sequencing workgroup, and on both tissue-based as well as liquid biopsy-based assay. So FDA issued multiple standard reference material to different kit makers, including Burning Rock. And Burning Rock distributed those kind of reference material to the Burning Rock, our collaboration lab, as well as our user. and to use the Burning Rocks kit to process those samples and get the sequencing data and submit back to the FDA. FDA do a thorough side-by-side comparison against other players and other members, other kits. So basically, on the bottom left, this is talking about a liquid biopsy study. So the study actually focused on a set of reference material with a different kind of allele frequency from down 2.1% up to 2.5%, which is very similar mimic the real situation for the ctDNA concentration in cancer patient. Also, they also studied the DNA input effect as well as the extraction effect.

18:46 So bottom right panel, of this slide talking about five different companies participated in this study, including Burning Rock. Burning Rock used the non-plasma V4, which is the OncoCompass target panel, the previous version of the OncoCompass target panel I can talk about next slide. And with other companies, including IDT, Illumina, Roche, also Thermo Fisher, and we participated in this study and present our data. And if you look at the next slide, basically in that meeting, FDA, the leading author, presented the sensitivity spec and as well as reproducibility study across five different companies. You can see here the four different colors represent the four companies utilizing the capture-based assay and look at the sensitivity as well as the reproducibility.

19:43 So each different color represents one company. And in the presentation, the author didn't identify who is who. The reason is it's still confidential until the paper gets published. I think it's going to be very soon since the manuscript has already been being accepted by Nature Biotech Knowledge. As you can see here, along with different burn ideal frequency, the lower the sensitivity becomes lower. But there are still two companies actually showing higher, relatively higher sensitivity compared to other. Burning Rock is one of them, but I cannot speak too much on this at this moment. Then they also studied reproducibility, which I'm going to skip here, basically at the same conclusion, that lower vario frequency for the ctDNA and lower reproducibility.

20:39 So this will just give us a lot of confidence showing that Burning Rock has a very solid kit and a solution, including the biochemistry as well as the bioinformatics pipeline. Leverage on this technology and the next slide basically very briefly talking about the progress of NMPA, which is Chinese FDA version, Chinese version FDA approval of our liquid biopsy panel. We call it OncoCompass Target Kit. which actually is based on the Long Plasma Panel I just presented earlier in the SEQCQ study. So, as you know, in order to get an MPA-approved kit, in China, usually they're the fourth stage, and it's listed at the Timeline graph showing here, including the analytical validation, which is usually done by the company. Also, a typing test, which is a third party evaluating analytical validation by the third party, which is called typing test.

21:46 Then the clinical validation that's including a lot of PI-led clinical study and trying to prove the efficacy, the clinical utility, and the clinical validity of this kit before it's submitted to the AMPA for final review and approval. So the Burning Rocks Uncle Compact Target Kit in the software both passed The typing test back to 2020. And this is one of the milestones we achieved trying to get a leading position of this type of a kit, get approval in China. So that's why we think we have some advantage, the first mover advantage. So the kit itself, we're going to report 101 gene mutation status, including SMV, indel, and the gene fusion.

22:37 And very specifically, we also are going to report the blood-based MSI status in this kit. and there's a multiple companion diagnostic in the pharmaceutical collaboration happening and hopefully until once this kit got approval it will get some companion diagnostic label on that. And so we plan to do the concordance study which is a part of a clinical validation in second half of this year. So this is basically the status of the CT DNA liquid biopsy kit approval progress we can update at this moment. So the next slide I'm going to turn back to our CEO, Yusheng, talking about 2021's priorities.

23:30 Yusheng. Thanks, Joe. So let's turn to page 18. 2021 is a year that we're really looking forward. For therapy selection, we're going to continuously increase the penetration of NGS-based cancer therapy selection. And there's some key drivers. The first one is to expand our product menu. As we all know that we have the product support for FIP and ctDNA for companion diagnostics. And last year, we successfully completed the licensing in of MyChoice HRD test from Merit and also DetermineRx from Oncocyte.

24:27 And this year, we'll complete the tag transfer and start the commercialization. And the thing I want to... mentioned more about the DETERMA-RX. It targets for the early detection of adenoma non-small cell lung cancer. It is a big population in China. 20% of lung cancer patients and 85% of the lung cancer patients are non-small cell lung cancers. Among them around 40% early stage. So it means a huge market with a unique panel, with a unique product, with strong clinical validation.

25:20 And a second driver, there are other products as well in the line. And we will talk about that when it's available in the market. And the second driver is the NIMPA registration program execution. We have several panels on the way of registration, including BRCA, CDDNA, and also a big panel for FFPE. So that will bring our strong, competitive foundation. and the third one is further in-hospital penetration. You might have already noticed that we have a strong in-hospital model revenue increase in the second half of 2020.

26:09 We'll continue to grow in 2021. And the second thing is early detection. As we have said that we're going to bring the six cancer tests into the real world from lab to commercialization. and we are really very excited about that. And at the same time, we have started to build up the multi-channel commercial team. Another good point, a good issue for us is that we started a conversation with the NMPA. It seems that the registration for pan-cancer early detection might have a way to be clear in the future.

26:57 So before recently, there was no clear way for the requisition path. But now we are very positive about that. And also in this year, we will roll out additional large clinical programs for product development and validation. At the same time, we are adding Other dimensions and also more cancer types included in the additional R&D for new version products. We cannot disclose much at this time. So, yeah, in 2021, we're really looking forward to that, no matter in therapy selection and also for early detection.

27:45 Now, it turns out with CFO about the financials. Thanks, Yusheng. Let's turn to our financials. And first, we'd like to recap the recent COVID wave in China. In October and November 2020, the number of COVID cases in China was relatively low. However, cases started to surge in December, which led to renewed restrictions by hospitals across a number of cities in China. This had a negative impact on our business volumes in December. hammering down the good double-digit revenue growth trends that we saw in October and November. The COVID resurgence worsened in January 2021, and here are a few examples. Beijing and Shanghai closed schools for a period of time. Suzhou, a city with approximately 11 million population about 200 miles away from Beijing, shut its outbound travel so that no personnel could leave the city. A large oncology hospital in Shanghai had cases and was temporarily closed. So the COVID headwind was significant in January 2021.

28:57 With that context in mind, we achieved strong growth in the fourth quarter 2020, growing our revenues by 49% on a year-over-year basis. By channel, the in-hospital channel growth was notably strong, triple digits year-over-year in the fourth quarter. We do know that our hospital revenues historically have been lumpy. And if we look at the third and fourth quarter 2020 combined to smooth out the lumpy base across the third and fourth quarter in 2019, our in-hospital revenue grew 63% year over year in the second half of 2020. We had four new hospitals coming on board in the fourth quarter 2020. in terms of having the reagent supply contract completed, which brings the total newly contracted hospitals to 10 for the full year of 2020.

29:52 This is further progress compared to seven newly contracted hospitals that we had during 2019. And just to remind everybody from an accounting standpoint, we only start booking revenues after completing of contract with a hospital. Then turn to our central lab channel year-over-year. Turning to the central lab channel, year-over-year growth was 23% for the fourth quarter. Equationally, the fourth quarter was down slightly versus the third quarter, primarily because of the dip that we had in December.

30:40 And going into our gross profit trend, we improved gross profit margin further in the fourth quarter with the overall GP margin trending into the mid-70s by Channel, into the mid-70s. And by Channel Central Lab, GP margin was 76.8%. In the fourth quarter 2020, it's a new high, given by our scale and reagent cost reductions. In the in-hospital GP margins was in the low 70s range in the fourth quarter. Next, turning into our guidance, let me first recap the COVID left deceleration in January. And February was also quiet because of Chinese New Year. January, February combined was down significantly on a sequential basis, though it was still up double digits year over year.

31:33 Looking forward, when we think about our guidance numbers, there are two factors that we're watching very closely. The first is risk of COVID resurgence and the related restrictions at hospitals, which negatively impacts overall testing volume. The second factor is competition, which has been intense and in some cases, undisciplined. We remain confident that our strategy of bringing the highest quality product to the market is the right path to win in the Chinese MGS diagnostics industry for the long term, though we do encounter intense competition in the near term. We believe competition should normalize after major MGS products, for example, liquid-based ctDNA panel and large tissue panels have gone through the NMP approval process. So with these factors in mind, our initial guidance for 2021 full year is 610 million RMB, This implies a year-over-year growth rate of 42%.

32:35 So with that, we conclude the management remarks, and operator, we are ready for questions, please. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question now, please press star 1 on your telephone and write for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, that's star one for questions. Your first question comes from . Please ask your question. Good afternoon and good morning, everybody, and thank you for taking my questions. I want to start on guidance. How should we model quarterly revenue? You know, essentially, I just would like to get your thoughts on pacing. and then how much do you plan on investing in R&D this year? It would seem like that should increase pretty notably given all the exciting efforts pursuant to new product development and additional study initiation. So just from a modeling standpoint, how should we think about that?

33:47 Thanks, Doc, for the questions. Let me speak qualitatively on these points. In terms of quantitative guidance, The guidance we have is for the full year top line. We don't have quarterly revenue guidance. So first on the quarterly trends, Q1 is going to be soft because of the January hits, which worsened compared to December, and a quiet February because of the Chinese New Year. And it's still relatively early in March. Year over year, it is still going to be up, likely double digits. If we watch the first three weeks of January and compare that to the first three weeks of 2020, which we didn't have COVID restrictions back in China, we grew about teens.

34:37 So that's one data point. Then February, March was quiet last year because of Chinese New Year and COVID restrictions. So that's the first quarter. Beyond the first quarter, I would still watch out for the two factors that we mentioned. then overall we are working hard on the in-hospital channel with the Magnus VR making further progress having placed high teams number of Magnus VR platforms into our hospital partners and we will we would like to execute our strategy of further in-hospital penetration throughout the year although we don't have any quantitative guidance for each quarter.

35:24 So that's for the top line. Then for R&D, if you look at 2020, we have seen notable personnel-based increases in terms of headcounts, salary, and share-based compensation as we expanded our team, which we do benefit from enlarged team in terms of expanding the R&D and the clinical Thank you very much. Thank you. We will expect additional spend on additional currency programs. These will be large programs, over 10,000 subjects. Although we do note for China, the overall program expense is still likely to be lower than U.S. programs. So we will roll these out and announce those as we go throughout the year. We don't have any quantitative guidance on R&D line. But quantitatively, it is going to increase, as you mentioned,

36:55 versus the same period last year. And Leo, thank you for all that. One very quick follow-up. As I'm sure you appreciate, you had a very strong, I mean, the fourth quarter was strong in general, but what really jumped out to me was the in-hospital revenue. That's where most of the upside was relative to our forecast I'm guessing some of that is seasonality, but I guess as we just think about momentum heading into 2021, should we be thinking that Q4 is emblematic of continued progress in the in-hospital channel and then by extension contemplate a continued change in revenue mix that essentially shifts a little more revenue toward in-hospital versus the central lab?

37:49 Yes, overall we would expect in-hospital to grow stronger and faster compared to central lab as that is a channel that we believe we compete better in terms of our product performance and the Magnus BR differentiated product solution. If you look at the fourth quarter 2020, there are two things that's driving the in hospital revenue growth versus a sort of same-store sales growth-like metric. And that metric is tracking similarly compared to the central lab channel. Not a surprise there. So that was a much smaller factor in terms of contributing to growth versus the second factor, which is newly contracted hospitals.

38:41 And we made good progress adding four hospitals in the fourth quarter. And it's hard to pin down for each exact quarter how many hospitals we are going to contract because it is more driven by hospitals' own process and contracting and internal approval processes. So it's hard to speak to each quarter going forward. And it's probably more reasonable to look at a few quarters, for example, rolling two or rolling four quarters. And if you look at rolling four quarters, we added 10 for 2020. and we certainly like to keep it up for 2021. Okay, and I know I'm probably overstaying my welcome, but I want to just make sure I get a couple questions on the multi-cancer test program.

39:33 It's really encouraging to hear that you are launching the sixth cancer product in the near term. On the other hand, it's maybe a bit surprising that this is being launched so quickly in the grand scheme of things, a relatively small data set and no prospective data. So I just want to make sure that I'm understanding how you think we should think about this. So my first question related to that is, if you didn't need prospective data to launch the six cancers, Why was that not the case with the nine cancers? Is it simply because the data was stronger on the first six and you were asked to do more work to support with confidence the other three cancers?

40:23 So that's the first question. The second is, again, it's great that you can launch, but given you are gonna be generating more data and there is a lack of prospective data of substance at this point, How are you thinking that's going to impact adoption over the first few quarters of launch? And then my third question on this is, if you are now essentially establishing that companies can launch multi-cancer screening tests with this type of data, which is good, but again, it's a relatively small data set and it's not prospective, is a possible conclusion that the barrier to entry associated with data generation for assays like this is actually lower than previously thought.

41:12 And on one hand, that would be good because you can get to market quicker. But on the other hand, this structure doesn't just apply to burning rocks. So I guess my concern would be in this new world, in this new paradigm, that your ability to differentiate from a regulatory standpoint on your established scientific rigor might actually be a bit diminished. So it would be great to get your thoughts on those three topics. Thank you. Yes, Scott. This is Shannon. I'll try to tap on your questions to address it. Those are really excellent questions. I mean, exactly those are, you know, what we debated over and over within the team over these past few weeks about our commercialization decision.

42:04 or strategy. So first of all, we don't believe that the multi-cancer detection product beverage enter will be any lower than previously expected. And we do believe that prospective validation study is still a must-have. let alone the registration, of course, will need prospective validation data. And that is exactly why when we start thinking about this rollout plan, we also added on a prospective validation study for the sick cancer test to run in parallel. However, We did receive very encouraging response from potential channel collaborators for the sick cancer test product, which encouraged us to sort of think about, you know, while we generate more prospective validation data, maybe to have some real world experience will also help us are assessing, for one, whether the prospective validation population

43:39 really matches our future customers. Because when you start thinking about commercialization, this actually gets very tricky. Whether your targeted population are those that go on annual checkup already or not actually will hugely influence your expected sensitivity. and then also other operational metrics when we start to think about them. These are questions that probably won't be answered in the prospective validation clinical trial because they're in a trial setup. So we want to accumulate those knowledge and data as well during our early access program to sort of to know what we didn't know to gather such knowledge.

44:31 and also in terms of the commercialization channel, we also wanted to assess for an individual level, we know exactly what are the harms and what are the potential benefits, but we wanted to assess for potential institutional collaborators like hospitals or insurance companies, what exact kind of value can we bring for them. Those are the things we wanted to answer sort of from these exploratory commercialization effort. And then again, as I mentioned before, in the Early Access Program, actually we've done some of them, we tried some of them already.

45:23 And during these programs, we are closely monitoring the positive rates, which actually reflect the specificity. So when you think about a prospective validation cohort, the specificity part is actually much easier to assess because the top of your false positive rate, it is your positive percentage. So it's easy to assess immediately whether your specificity holds out in this real-world population. So we are closely monitoring that. We are making sure that it doesn't drop any significantly compared to what we would expect from the Sunder study.

46:15 And then it's the sensitivity part that actually takes the follow-up time to have an accurate accurate estimates from the prospective validation cohort, which may be very different from what you have observed from the case control studies because those are symptomatic patients. So for that part, we are also putting a lot of effort to follow up these real-world positive findings and to assess for when the possible effects estimate on the sensitivity and then for two, the path to diagnosis for these positive participants.

47:03 I'm not sure whether I answered your questions, but those are the thoughts that we went through when we discussed about this commercialization plan. And this is Yusheng, I have questions. I think that for early detection, it's not only just sensitivity and specificity. We think that in the operation part and also in the consumer education, also how to have a perfect report to make the consumers to easily to accept the results. and how to explain that in the service perspective.

47:54 I think that there are all these issues, all new topics we need to face. That's why we started the Early Access Program. I think this product is not just a science product. It's a product that we need to consider psychology of each consumer as well. Super helpful team. I really appreciate all the additional color. Really, really helpful as always. Thank you for all the time. Thank you. Thank you. Thank you. Our next question comes from the line of David Lee from Bank of America, Maryland. Please ask a question. Great. Thank you management team to give me the chance to ask a question.

48:43 So basically, I would like to ask about your in-licensed product. So previously, you mentioned that in this year, your top line is going to be 610 million RMB. Does it include the potential revenue contribution from the in-licensed product? This is number one. And number two, we know that you are now maybe dealing with tax transfer. So besides the tech transfer, is there any barrier on regulation before these two products launch their commercialization plan in China? I mean, these are also sort of a kind of early detection product.

49:30 So is there any regulation typically on this? And financial, in terms of your fourth A quarter result. Your administration expense is over 100 million RMB. Can you give us more color on this administration expense? That's my question. Thank you. Thanks David for the questions. First, on the two licensed in-products, which are two Myriad HRD, and Shannon talked about this during our third quarter results, what are the indications?

50:21 And the initial approved indication is not a big market, and this is to serve pharmaceutical partners as well. So this is a smaller element compared to the second licensed in-product which is looking at early stage adenocarcinomas. And this product has had a Chinese cohort over a thousand subjects that have gone through and published validation data on the Lancet. So this is known by some Chinese physicians already as well. So these are two different products. And we will be doing Thank you very much. Thank you.

51:33 So in terms of the guidance, we don't break out old versus new products, but this has had a little bit of the new products, although we'll have more visibility after we complete the tech transfer and validation. And to note that there will be more products that we're going to roll out subject to our R&D process, so these are not the only two new products. So that's for the first question. On the second question, we will be offering these two products in the LDT formats, similar to many of the other NGS-based products that we currently offer as well. The Myriad HRD score products, my choice, that has been approved by the FDA for a couple of indications.

52:27 That has its own backing in terms of marketing and acceptance and awareness among physicians. And we spoke a little bit about the DETERMA-RX validation data previously already. So these are going to be offered LDT, and after launch, they will be driven by our existing sales teams, particularly for lung cancer, which is our largest indication. So that's for the second question. The third for G&A, the main two elements for that line are one, increased personnel and staff as we expand our headcount. Our overall headcount have gone past 1,000 personnel, which is a significant increase as we build out across a number of functions from both front-end to mid- and Back Office. We have been expanding our team pretty significantly over time. And the second element is increased physical space. We recently had a new building next to our current lab.

53:45 The new building will be housing the early detection labs and we have been building capacity for that so we can run large clinical studies and at the same time offering early access programs. So we were capacity restraints for a period of time and we are glad that we have solved that issue. So these are the main drivers for the overall GNA line. Great. Thank you. That's helpful. I have no more questions. Thank you. Once again, ladies and gentlemen, if you wish to ask a question now, please press star 1 on your telephone keypad. Our next question comes from Tian Chun from HSBC. Please go ahead.

54:44 Hello. Good evening. Thank you very much for taking my questions. I think in your opening remarks, you're talking about In discussion with Chinese regulators or CFDA talking about the approval process, do you think you'll make some progress or alternative routes for getting the liquid biotech approval? Can you spend some time giving us a bit more detail? Hi, Jason. Thanks for the question, Ajay. Okay, I'll try to address this question. So I think there might be a misunderstanding.

55:32 I think what Yusheng meant on the opening remark is that for the early detection, which used to be very, you know, it's a completely new in the class product. We had no We had a dialogue previously with the NMPA, but most recently we started the dialogue and we see very positive feedback. And so we are very hopeful that in the near or mid-term future, the early detection, the liquid-based multi-cancer early detection kind of products will have the regulatory path clear or at least the path to registration being much more clear than the current situation.

56:22 For the liquid-based product, the regulatory has always been the structure to registration is always there. It's similar to the other NGS tissue-based products other than Other than the concordance study, except for the concordance study, which we will have to do a tissue versus liquid concordance, which is different than the tissue-based panel. But overall, largely the structure is very similar between the two. However, the liquid-based products will, of course, also be the first in class. So there will be some unpredictable for their activity down the road. But as Joe has mentioned on page 16, with the typing test passed, we are now entering the clinical validation, starting the concordance study, and also establishing companion diagnostic collaborations on it. So we're having very positive progress on that as well. Hopefully we will see the first liquid-based, liquid biopsy-based NGS panel being approved in China in the next couple of years.

57:47 Hi, yeah, okay, that's clear now. So I guess your discussion, what under discussion is mainly those multi-cancer early detections. Correct. Approval process, okay. So my understanding was why there's no clear approval path because the regulator has been insisting at looking at each individual indicator, right? That's a problem in terms of design and also how the population recruitment. That will be the main barrier given you are targeting the multi-cancer type. So any progress has been made in the how to testing of the individual indicator.

58:36 Would they go for on the kind of multi-indicator level or they still insist on each individual indicator's efficacy? That's the first one. The second one is talking about the populations. Given you'll be multiple type, will the regulator still insist the population has to be How can we control each type of cancer sufficiently or vast sufficiently enough to control for each type of cancer? Well, for the first question, yes. I think one major progress we are seeing is that now the regulatory at least embraces the idea of having a multi-cancer are all early detection products being applied on multi-cancers simultaneously instead of testing it on sort of the intended-to-use population for each single cancer type, the high-risk population individually. So it's going to be on a general population application.

59:43 So that's one major progress. However, it's far more than that. actually for early detection products, how do you justify your benefit? How do you measure your harm? And how do you justify that the benefit is greater than the harm? That's sort of the key to the regulatory path. And I think with the most recent progresses from our own data and also from are global peers like Guerrero and Thrive. Such justification rules or philosophies are becoming much and much clearer over the time. And that's one of the reasons why we could start the dialogue right now with the NMPA.

1:00:40 So you think the cost of the benefit for the multi-cancer early screening can be conducted on the pool level rather on the individual cancer type levels. Of course, because your intent to use population would be the general population, you wouldn't be able to differentiate those just for one cancer type. That would be a huge waste designing the study. So you would measure the performance on multi-cancer simultaneously, yeah. So MPA now recognizes and agrees to go in these directions. No, we're not saying any agreement being reached. We're just saying that we started the conversation and we see a positive trend towards having an active dialogue.

1:01:33 Got you. Can I just have the last question on your early assess program? Because in your answer to the earlier questions, I can see why you go for that. But just from the PMA point of view, can I say this kind of early assess program probably will be loss-making, or you can do it on the cash break-even levels if the main point is for you to get validated in the real world and to collect more data points? I don't think that's about the cash. If you look at the financial report, we still have a lot of cash on account. So the main purpose for early access program is find out any potential issues in the real world and collect feedback.

1:02:26 For example, how enrichment will be a certain cohort, like the The population doing an annual checkup. Without an annual checkup, the sensitivity and the specificity might be different. And also, there will be operation issues. For example, how to educate the customer about PPV and MPV, how to educate the sensitivity and specificity, You know, these terms are quite familiar with the professional people, but to a common consumer, they're totally, you know, they're totally new. So, for example, we know that a PPV with, like, if finally any test for pancancer can reach 40 to 50 PPV, that would be a great product. in terms of PPV. But a consumer might think that if you give me a positive result and I only have half of the odds to be real positive, that might be a problem.

1:03:48 So we need an early access program to find out all these things. And also need to test issues such as pricing and... How do they think about the negative or positive results? I think that the issues we need to find out in the operation is no less than those in a clinical trial. Got you, got you. But I guess in your PML structure, if you do any early assessment program, this will be through your central lab segment, isn't it? Exactly. This will be expenses as we're not charging for the early access. So it's going to hit our expenses line.

1:04:42 Got you, got you. Okay, that's all from me. Thank you very much. Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star 1. Right there, no further questions. So with that, we conclude our conference for today. Thank you for participating. Let me now disconnect.