Burning Rock Biotech Ltd (BNR) 2023 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Burning Rock's 2023 Second Quarter Earnings Conference Call. (Operator Instructions) Please note that today's conference is being recorded.

早安，女士們，先生們。謝謝你的支持。歡迎參加燃石醫學 2023 年第二季財報電話會議。 （操作員指示）請注意，今天的會議正在錄製中。

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, target, confident and similar statements.

在開始之前，我想提醒您，本次電話會議包含經修訂的 1934 年證券交易法第 21E 條含義以及 1995 年美國私人證券訴訟改革法案中定義的前瞻性陳述。前瞻性陳述可以通過意願、期望、預期、未來、打算、計劃、相信、估計、目標、自信和類似陳述等術語來識別。

Statements 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.

聲明不是歷史事實，包括有關燃石信念和期望的聲明都是前瞻性聲明。此類聲明是基於管理層當前的預期以及當前的市場和營運狀況，並涉及涉及已知或未知風險、不確定性和其他因素的事件，所有這些因素都難以預測，其中許多因素超出了燃石科技的控制範圍。前瞻性陳述涉及風險、不確定性和其他因素，可能導致實際結果與任何此類陳述中包含的結果有重大差異。除適用法律要求外，燃石不承擔因新資訊、未來事件或其他原因而更新任何前瞻性聲明的義務。

I will now hand the conference over to the company's CEO, Mr. Yusheng Han. Sir, you may begin.

現在我將會議交給公司執行長韓玉生先生。先生，您可以開始了。

Thanks. Welcome to the Burning Rock's 2023 Q2 conference call. I'm Yusheng Han, CEO and Founder of Burning Rock. And today, we also have our CTO, Joe Zhang; and CFO, Leo Li online.

謝謝。歡迎參加 Burning Rock 2023 年第二季電話會議。我是燃石科技執行長兼創辦人韓雨生。今天，我們還有我們的 CTO 張喬；財務長Leo Li線上。

So let's turn to Page 3. In case there are some investors who are not familiar with Burning Rock, I here illustrate what we do. So our business started from tissue-based therapy selection and then expanded to multi-directions of liquid biopsy, including liquid biopsy, therapy selection, MRD and multi-cancer early detection. So we have 3 business units, providing products and serving to doctors, pharmas and consumers.

那麼讓我們翻到第三頁。如果有一些投資者不熟悉燃石，我在這裡說明一下我們所做的事情。所以我們的業務從基於組織的治療選擇開始，然後擴展到液體活檢的多個方向，包括液體活檢、治療選擇、MRD和多癌早期檢測。因此，我們有 3 個業務部門，分別為醫生、製藥商和消費者提供產品和服務。

And let's turn to Page 4. So this is what we set up our goal of 2023 early this year and reported to investors twice in the last 2 conference call. So the #1 goal is profitability. The goal we set is to breakeven, excluding R&D, during a quarter in 2023. And the second goal is continued revenue growth, a healthy increase with profitability is what we want to achieve. And our initial outlook for 2023, our revenue is mild increase over last year. And the third goal is to further our leading position in MCED as #1 player in China and a top player globally. The main R&D spend will focus on MCED.

讓我們翻到第四頁。這就是我們今年年初制定的 2023 年目標，並在過去的兩次電話會議中向投資者報告了兩次。因此，第一個目標是獲利能力。我們設定的目標是在 2023 年一個季度實現盈虧平衡（不包括研發）。第二個目標是營收持續成長，獲利能力健康成長是我們希望實現的目標。我們對 2023 年的初步展望是，我們的營收比去年略有成長。第三個目標是進一步鞏固我們在 MCED 領域的領先地位，成為中國第一、全球頂尖的企業。主要研發支出將集中在 MCED 上。

And let's break down the growth in 4 parts. So for therapy selection, we'll continue to improve the sales and productivity by strengthening the in-hospital model. And for MRD, we launched an installed personalized MRD in top hospitals, and that start from the end of May this year. And usually, it will take like half year to 1 year to have 1 product installed in 1 hospital. So the earliest time we can see the impact is in Q4 this year.

讓我們將成長分為 4 個部分。因此，在治療選擇方面，我們將透過加強住院模式來繼續提高銷售額和生產力。對於MRD，我們從今年5月底開始在頂級醫院推出了安裝的個人化MRD。通常，1個醫院安裝1個產品需要半年到1年的時間。所以我們最早能看到影響是在今年第四季。

For biopharma, the goal is continuous profitable growth. And with the new platform of MRD and more international orders, we are optimistic to the growth of biopharma business. And for MCED, we have several big studies, including PREVENT, PREDICT and PRESCIENT. So these are very important clinical trials that will set a very solid base for our MCED data. And we are very proud of this data give us several years ahead of our peers in China, and even globally, we are leading player.

對於生物製藥來說，目標是持續獲利成長。隨著MRD的新平台和更多的國際訂單，我們對生物製藥業務的成長持樂觀態度。對於 MCED，我們有幾項大型研究，包括預防、預測和預測。因此，這些是非常重要的臨床試驗，將為我們的 MCED 數據奠定非常堅實的基礎。我們非常自豪這些數據讓我們領先中國同行幾年，甚至在全球範圍內，我們都是領先者。

And then let's see what's the result of our effort in Q2 2023, and turn to Page 5. As we illustrated, the #1 goal this year is profit. The main indicator of commercial efficiency is non-GAAP gross profit minus SG&A. So in Q2 2023, we made it. So the number of non-GAAP gross profit minus SG&A was RMB 7.6 million, and this is the first quarter of breakeven in our operating history, and we are super proud of it, especially in this difficult economic environment. And the team will continuously work hard to improve this number in the coming year -- in the coming time of this year.

然後讓我們看看 2023 年第二季我們的努力取得了什麼成果，然後翻到第 5 頁。正如我們所示，今年的第一個目標是利潤。商業效率的主要指標是非公認會計準則毛利減去SG&A。所以在 2023 年第二季度，我們做到了。因此，非 GAAP 毛利減去 SG&A 為人民幣 760 萬元，這是我們經營歷史上第一個實現盈虧平衡的季度，我們對此感到非常自豪，尤其是在當前困難的經濟環境下。該團隊將繼續努力在未來一年——今年即將到來的時間裡提高這個數字。

Let's turn to Page 6 to see other important fact. So for therapy selection, as we said, the in-hospital model continue to growth of 44% year-on-year. And for MRD, there are several important clinical trials going on, and there will be additional data released at AACR. And for biopharma, the contract value and growing backlog still continues. So the contract value of new projects is 43% year-on-year growth in the first half year of 2023. And the revenue of biopharma is 46% increase.

讓我們翻到第 6 頁看看其他重要事實。所以對於治療選擇，正如我們所說，住院模式繼續年增44%。對於 MRD，有幾項重要的臨床試驗正在進行中，AACR 上還將發布更多數據。對於生物製藥而言，合約價值和積壓訂單仍在持續成長。因此，2023年上半年新項目合約金額年增43%。生物製藥收入成長46%。

And for early detection, all the clinical trials are on track. We're still continuously on our dialogue with FDA and also NMPA. Nothing very important or special to say about the discussion, but we can see that the backlog is quite smooth, and we achieved some consensus with them. That's good news to this segment.

為了及早發現，所有臨床試驗都已步入正​​軌。我們仍在不斷與 FDA 和 NMPA 進行對話。討論中沒有什麼非常重要或特別的內容，但我們可以看到積壓的工作相當順利，我們與他們達成了一些共識。這對這個細分市場來說是個好消息。

And from Page 7, I will turn to our CFO, Leo, to discuss about the numbers in detail. Leo?

從第 7 頁開始，我將請我們的財務長 Leo 詳細討論這些數字。利奧？

Thank you, Yusheng. I will supplement Yusheng's remarks with our latest numbers and financials. So first on Page 7 is our operating metrics in terms of our test volumes. And you can see over the years, we have migrated from the central lab model to in-hospital model; an in-hospital model, increasingly make a dominant share in our channel composition starting 2023.

謝謝你，玉生。我將用我們最新的數據和財務數據來補充餘生的言論。第 7 頁首先是我們的測試量方面的營運指標。你可以看到，這些年來，我們已經從中心實驗室模式轉變為醫院模式；從 2023 年開始，院內模式將在我們的通路組成中佔據主導地位。

We have achieved very good volume growth in the second half of 2023. On a year-over-year basis, our in-hospital grew 72% in volume terms year-over-year. And overall, our volume grew about 33%. As you can see here, we have managed down our volumes in central lab as that is a less profitable channel and more competitively intensive or irregular compared to the more institutionalized in-hospital model. So we're happy about the results and progress of our transition.

我們在 2023 年下半年實現了非常好的銷售成長。與去年同期相比，我們的住院量年增了 72%。總體而言，我們的銷量成長了約 33%。正如您在這裡所看到的，我們已經減少了中心實驗室的數量，因為與更制度化的醫院模式相比，這是一個利潤較低的管道，競爭更加密集或不規則。因此，我們對過渡的結果和進展感到高興。

As you can see in our Q2 numbers, 33% overall growth. I think that's a very strong number, reflecting, I think, 2 things, not only a good transition towards in-hospital, but also share gain from other incumbents in the market. You might say that Q2 last year was a low base because of the COVID lockdown in Shanghai. Look at the graph here on a sequential basis, we have also grown very strong. In-hospital grew 24% on a sequential basis and overall volumes grew 19% on a sequential basis. So we are very happy about our progress and results during second quarter.

正如您在我們的第二季數據中看到的，整體成長了 33%。我認為這是一個非常強勁的數字，我認為反映了兩件事，不僅是向住院治療的良好過渡，而且還體現了市場上其他現有企業的份額增長。您可能會說，去年第二季的基數較低，因為上海因新冠疫情而被封鎖。依序看這裡的圖表，我們也變得非常強大。住院人數較上季成長 24%，總銷量較上季成長 19%。因此，我們對第二季的進展和結果感到非常高興。

There is news reports of industry-wide disturbance in China's health care industry since the end of July. Then we can see that based on our latest numbers, the in-hospital testing volumes are still stable heading into Q3. So we are very happy about the resilience of that channel. Central lab channel is more vulnerable. So that channel has seen increased shift towards in-hospital in the Q3. So we're happy that we have positioned towards the better in-hospital channel way ahead of time, and we're benefiting from the current industry turbulence. So that's the overall volume trend on Page 7.

自7月底以來，有消息指出中國醫療保健產業出現全行業風波。然後我們可以看到，根據我們的最新數據，進入第三季的院內檢測量仍然穩定。因此，我們對該通路的彈性感到非常高興。中央實驗室渠道更容易受到攻擊。因此，第三季該管道更多地轉向醫院內。因此，我們很高興我們提前定位了更好的醫院管道，並且我們正在從當前的行業動盪中受益。這就是第 7 頁的整體成交量趨勢。

Then going to Page 8, our financial numbers. As Yusheng mentioned, the biggest news item out of this quarter is breakeven, excluding R&D expenses, and on a non-GAAP basis, i.e., excluding share-based compensation, and depreciation and amortization. So that is the first quarter we have achieved breakeven of our commercial business, and we're happy and proud of that progress.

然後轉到第 8 頁，我們的財務數據。正如宇勝所提到的，本季最大的新聞是損益平衡，不包括研發費用，並以非公認會計準則為基礎，即不包括基於股權的薪酬以及折舊和攤提。因此，這是我們商業業務實現盈虧平衡的第一季度，我們對這一進展感到高興和自豪。

And if you look at the breakdown here, our sales and marketing expenses continue to be very efficient. We were at about 44% as a percent of revenue in Q2, and we've gone into the low 40s range at the start of 2023, and that is the result of our sales force reorganization that we have carried out in the second half of last year. So we're bearing the fruits of that effort.

如果你看一下這裡的細分，我們的銷售和行銷費用仍然非常有效。第二季度我們的收入佔收入的比例約為 44%，到 2023 年初我們已經進入 40 左右的範圍，這是我們在 2023 年下半年進行的銷售團隊重組的結果。去年。因此，我們正在收穫這項努力的成果。

Then we'll continue to keep a very tight lid on sales and marketing expenses going forward. In addition to that, you can also see that our G&A expenses have also trended down. So we have been managing our overhead more efficiently. And importantly, we have increased or we have got better results in terms of receivable collections from our hospital customers. So there is a drop in the provision of credit loss, which is carried in the G&A line in the second quarter this year. So that has helped us lower G&A expenses as well. So overall, you can see the operating expenses have continued to trend down and we're still managing our expenses very well. So that's the overall result.

然後我們將繼續嚴格控制未來的銷售和行銷費用。除此之外，您還可以看到我們的一般管理費用也呈現下降趨勢。因此，我們一直在更有效地管理日常開支。重要的是，我們在醫院客戶的應收帳款催收方面有所增加或取得了更好的結果。因此，今年第二季計入 G&A 專案的信用損失撥備有所下降。這也幫助我們降低了一般管理費用。總的來說，您可以看到營運費用持續下降，而且我們仍然很好地管理我們的費用。這就是整體結果。

One more thing to highlight is our pharma segment. So in this quarter, we have achieved a good growth of that segment. We grew our revenue by 46%. And if you look at the leading indicator, if you look at the contract value signed during the first half of this year, we've grown that metric by about 46%. So we continue to sign more contracts, build our backlog. And as we execute on these pharma projects, they get converted into revenue. So that has contributed our overall revenue growth very well over the past.

另一件值得強調的是我們的製藥部門。所以在這個季度，我們這個細分市場取得了很好的成長。我們的收入成長了 46%。如果你看看領先指標，如果你看看今年上半年簽署的合約價值，我們已經將該指標增加了約 46%。因此，我們繼續簽署更多合同，建立我們的積壓訂單。當我們執行這些製藥項目時，它們就會轉化為收入。因此，這在過去為我們的整體收入成長做出了巨大貢獻。

Then gross margin, we've also achieved good results around 75% on a non-GAAP basis, i.e., excluding depreciation. And we have grown our gross profit by about 20% in this year on a year-over-year basis. So overall, continued growth and lower expenses and breakeven for the first time in our operating history. That's the financial numbers on Page 8.

然後是毛利率，按照非公認會計準則（即不包括折舊）計算，我們也取得了 75% 左右的良好業績。今年我們的毛利年增了約20%。總體而言，我們的營運歷史上首次實現了持續成長、費用降低和損益平衡。這是第 8 頁的財務數據。

Now moving on to Page 9, which is our cash balance. We've laid this out at the start of this year, and we've been executing on track. So we still -- as Yusheng mentioned, we still have a few large clinical programs on our multi-cancer early detection product development, and these are executed well and on time according to schedule. So we -- our cash outflow is, again, according to our plan. So we plan for about RMB 400 million outflow of this year, and we've had about RMB 199 million in the first half of this year. So that's progressing on track.

現在轉到第 9 頁，這是我們的現金餘額。我們在今年年初就制定了這項計劃，並且一直在按計劃執行。所以，正如餘生所提到的，我們在多癌症早期檢測產品開發方面仍然有一些大型臨床項目，並且這些項目都按照計劃按時、良好地執行。因此，我們的現金流出再次按照我們的計劃進行。所以我們今年計畫流出4億元左右，今年上半年流出約1.99億元。所以這一切正步入正軌。

We will finish most of our clinical programs by the end of this year on MCED development. So our R&D clinical program expenses will run down naturally as we complete those programs. Then we expect lower expense. And this is the same number as we laid out at the start of this year. So RMB 200 million operating outflow next year, and that excludes any upside that we may achieve from the commercial business. So reduced share burn and well capitalized for the next 3 years in terms of our cash balance.

我們將在今年年底前完成 MCED 開發的大部分臨床項目。因此，當我們完成這些項目時，我們的研發臨床項目費用就會自然減少。然後我們預計費用會降低。這與我們今年年初制定的數字相同。因此，明年的營運支出將達到 2 億元人民幣，這還不包括我們可能從商業業務中實現的任何成長。因此，就我們的現金餘額而言，未來三年的股票消耗減少，資本充足。

So this concludes our prepared remarks, and we'll see if we have questions.

我們準備好的演講到此結束，我們將看看是否有問題。

(Operator Instructions) And I see we have no phone questions at this time. Ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation for today. You may now disconnect.

（操作員說明）我發現目前我們沒有電話問題。女士們先生們，我們今天的電話會議到此結束。感謝您今天的參與。您現在可以斷開連線。