Genetron Holdings Ltd (GTH) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for stopping by and welcome to Q3 2020 Genetron Health Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

(Operator Instructions) Please note that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Hoki Luk. Thank you. Please go ahead.

Hello, everyone, and welcome to Genetron's Third Quarter 2020 Earnings Conference Call. The company's earnings release was issued earlier today and it's available on the company's IR website.

During this call, the company will be making some forward-looking statements regarding future events and results. These statements are made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Statements of not historical facts, including statements about Genetron's beliefs and expectations are forward-looking statements.

Forward-looking statements involve inherent risk and uncertainty. Further information regarding these and other risks is included in Genetron's filings with the SEC. All information provided today is as of the date of this call and Genetron does not undertake any obligation to update any forward-looking statements, except as required under applicable law. With respect to any non-IFRS measures discussed during today's call, the company's reconciliation information related to those measures can be found in the earnings release issued earlier today.

Allow me to introduce the management team on the call today. Sizhen Wang, Co-founder and CEO of Genetron Health, will discuss our recent business updates and outlook. Dr. Yun-Fu Hu, our Chief Medical Officer, will speak about our early screening program and plans in the US and China, Evan Xu, our Chief Financial Officer, will provide financial highlights related to the unaudited third quarter results outlined in today's release.

Following management's prepared remarks, we will open up the call to questions. During the Q&A session, our Co-founder and Chief Scientific Officer, Dr. Han Yan and our Chief Technology Officer, Dr. Yuchen Jiao, will also be available to answer questions.

With that said, I would now like to turn the call over to Mr. Sizhen Wang, CEO of Genetron Health. Sizhen, please go ahead.

Thank you, Hoki. Good morning and good evening, everyone, and thank you for joining our third quarter 2020 earnings call, earnings conference call. In the third quarter, despite the continued COVID-19 disruptions, Genetron successfully delivered strong and productive results.

Recall that Beijing, our headquarters and key market, was impacted by a second wave of COVID outbreak that began in late June and the negative impact sustained throughout the third quarter, with volumes recovering to about 60% to 70% in September. And similarly, Dalian and Xinjiang were also hit, the company's resurgence in the third quarter, which had also caused some slow downfalls. Despite these hurdles, our total revenue grew by a strong 37.6% year-over-year in third quarter, representing acceleration of 28% year-over-year growth in the first half of 2020.

Moreover, this robust revenue growth was accompanied by strong margin improvements, as well as operational efficiencies as shown in SG&A expenses. Operationally, over the past quarter, we made significant progress across all business lines in diagnostics monitoring, early screening as well as biopharma service. These developments are all in line with our long-term growth strategy and further solidified our position as a leading positioned oncology player in China.

So as a reminder, the diagnostic monitoring market has estimate total addressable market of close to $7 billion in China. And we're already one of the top players and continue to expand our capability in areas such as minimal residual disease or MRD. In the early screening market, our most advanced asset, HCCscreen in liver cancer, has a TAM of $7.2 billion in China on its own. We are not only already commercializing this asset in China as the LDT, but moreover, we have upcoming clinical data that if successful, could support an IVD registration trial next year.

Based on our proprietary differentiated and robust mutation capsule technology, we certainly have our eyes beyond liver cancer as well. And our plan to lung and digestive cancers could contribute multi-billion dollar market opportunities into our pipeline.

In biopharma service, a trend for CDx development and related regulatory initiatives are undoubtedly a very positive environment for oncology molecular diagnostic leading players like us. Overall, we have built a portfolio that not only addressed market opportunities, but also well balanced with time and cost to development, current and the future market dynamics in our thought process and planning.

For example, China is currently largely a self-paid market in which patients pay out of pocket. We expect that in a few years, the market could be gearing towards a more government reimbursement based model and we could see higher volume and lower price. We have carefully prepared for that and had deliberately design our products with that in mind, to offer a compelling cost proposition to our customers, while achieving excellent gross margins, such as leveraging our One-Step Seq technology in designing our lung cancer 8-gene assay.

So this relatively new product has become a growth driver and we have received very positive feedback from our hospital customers. We view that our R&D ability in designing superior products, while offering attractive profitability, continues to provide a compelling proposition to our customers in their purchasing decisions.

Another example is our mutation capture technology for our early screening products. This technology supports multiple tests from a single ctDNA sample without sacrificing sensitivity, again, allowing us to conduct retrospective studies in a time and cost effective manner.

The cancer molecular profiling space is in its nascent stage of growth. But beyond organic market growth, we believe that Genetron's proprietary technologies, along with our infrastructure and capital strengths really differentiate us from other market players in China and would allow us to solidify our leading position now and into the future.

So now let's get into the details of some of our operational accomplishments in the third quarter. I'll pass it to Yun-Fu, who will discuss a most interesting announcement related to our blood-based NGS test, HCCscreen in the early detection of HCC. Yun-Fu will cover our updates and plans in the US, followed by our commercialization initiatives in China, as well as our expectations for additional clinical data and IVD trial update timeline. Yun-Fu, please go ahead.

Thank you, Sizhen. In the late September, we announced that Genetron received the US FDA breakthrough device designation for the HCCscreen program. This designation represents a significant milestone for our plan to expand HCCscreen's geographic reach. The breakthrough device designating is a granting for products that have the potential to offer more effective diagnosis of life-threatening disease with an unmet medical need.

In our case, it was granted to Genetron based on HCCscreen's superior clinical performance over the current standard of care, i.e. ultrasound plus AFP in a prospective clinical study. HCCscreen is also intended to be used in individuals who are designated to be at high risk for HCC due to chronic HBV infection and/or liver cirrhosis.

The breakthrough device program is designed to accelerate development, assessment and review processes in order to provide patients with quicker access to this product. For the breakthrough device recipients, benefits include prompt FDA feedback, priority review upon PMA submission, as well as medicare coverage upon approval.

Our next step is work out a detailed data driven plan with FDA followed by further test validation and a potential filing of an investigational device exemption for the pivotal trial. In conjunction with this, we are currently building our lab in Gaithersburg, Maryland, which we intend to pursue CLIA certification. This lab will be used to facilitate US trial for HHCscreen as well as to serve global pharmaceutical companies on R&D and commercialization. We expect the lab should be ready in the next few months.

In China, we are well-positioned to continue to expand our presence in the early screening market. HCCscreen has already recently been commercialized as a LDT. We have five laboratories in China of which Beijing lab is one of the few domestic labs that are both CAP and CLIA certified. To ramp out our commercialization effort, earlier this year, we have formed a strategic alliance with iKang Healthcare Group a leading medical examination network in China. The COVID-19 pandemic has undoubtedly caused some delays in our collaboration and rollout efforts. We expect the partnership could become more productive over the next few quarters.

We are concurrently rolling out our HCCscreen through government procurement contracts. We view that procurement contracts have important strategic values, as they not only bring revenues, but these contracts could also serve as a pilot model down the road to local government adoption and reimbursement.

In addition, we are also exploring other potential biopharma or hospital partnerships to further maximize our commercialization efforts. Recall that HCCscreen is empowered by Genetron as innovative and proprietary mutation capture technology, which enables detection of multiple methylation alterations, in parallel with mutations in cell free DNA from peripheral blood specimens.

Currently, HCCscreen is being tested in ongoing prospective study with 4,500 HBV positive individuals, of which 2,000 patients have already completed the study. We expect to announce the data set from these 2,000 patients in the first half of 2021 and potentially present the full data at a major medical conference at a later date. As previously reported, preliminary data from 297 patients at one center has a demonstrated over 92% sensitivity and 93% specificity compared to 67% and 99% respectively in ultrasound plus AFP arm.

HCCscreen also has achieved a 35% positive predictive value and 99.6% negative predictive value. Furthermore, stratified by tumor sizes of the 12 patients identified with HCC in a preliminary data set, 10 patients had tumor size of less than 5 centimeters, indicating HCCscreen's detection ability in early stage HCCs.

Following the release of the 2,000 patient study data, we plan to initiate a registration IVD trial in China of the remaining 2,500 patients in the first half of 2021. Beyond the initiatives around the HCCscreen, we are working towards developing screen tests for lung and digestive cancer. During the third quarter, Genetron has commenced participating in a major national research project for early screening of lung and digestive system cancers led by China's Ministry of Science and Technology. The project will use Genetron's mutation capture and is designed to include a multicenter prospective cohort study in lung cancer, over 120,000 high risk individuals in 20 provinces as well as a cohort study in digestive system cancers of more than 100,000 patients in urban areas in China.

Currently, Genetron is the only company in China participating in national key research and development projects for liver, lung, and digestive cancer early screening. Separately, Genetron has been progressing in a case control study internally in colorectal cancer and data expected in 2021. Overall, our strategic planning in early screening is to find the biomarker or a combination of biomarkers that give us the best performance for each individual cancer type first, before proceeding to combine all the data sets to develop a multi-cancer test product. This approach is made possible based on our unique discovery platform, the mutation capture.

I will now pass it back to Sizhen to elaborate on our operational updates. Sizhen?

Thank you, Yun-Fu. So moving on to discuss other recent updates. In October, we signed an exclusive licensing agreement with ImmuQuad, along with the minority equity investment into the company. With this transaction, we accelerated our R&D capabilities in MRD testing. ImmuQuad has a diagnostic assay Seq-MRD that is being developed in select hematological cancers, including multiple myeloma, ALL, CLL and non-Hodgkin's lymphoma.

In China, the total addressable market is promising for Seq-MRD with an estimated 135,000 newly diagnosed patients with T or B-cell lymphoid malignancies, and prevalence numbers are two to four times of that, in which Seq-MRD could become the standard MRD test in both new and existing patients.

We plan to advance the validation of Seq-MRD in larger cohort studies to accelerate the clinical adoption. In addition, this product also complements our biopharma service business line, since Seq-MRD could be used in clinical trials for blood cancer drugs. In fact, this new capability has already driven additional discussions in our biopharma partnership pipeline.

In other areas, Genetron is also working on other MRD projects in solid tumors with the initial focus on liver and the colorectal cancer. Outside of MRD, ImmuQuad's immune profiling platform also bears significant market potential in early detection and drug discovery. And with Genetron's equity investment, active R&D plans in these areas are currently underway.

So turning to our biopharma service business line, the booming biotech sector in China, especially in innovative anti-cancer drugs such as target therapy, immunotherapy, and the cell therapy is expected to fuel a strong demand for comprehensive genomic profiling related biopharma services. Genetron's service scope ranges from biomarker discovery, genomic profiling for clinical trials, companion diagnostics and real world studies.

Recently, NMPA is discussing to formulate regulations in China that are similar to those in the US in which co-development, bridge and forward methods would be required. Companion diagnostic tests have already become an integral part of precision therapy oncology in the US. Assuming this moves forward in China, we expect these regulations to stimulate additional demand in CDx development.

In this regard, Genetron and our strategic partner, CStone Pharmaceuticals recently launched a multicenter clinical trial in China for the joint development of a CDx test for avapritinib. The test has been validated by the testing center of the NMPA and is now being used in this trial in China. We believe that the environment for CDx in China is poised for significant growth and our leading comprehensive genomic profiling capabilities would make us an ideal partner.

Also in the third quarter, Genetron and dMed, a next generation full service CRO, have entered into a partnership agreement that pioneers a one-stop new drug R&D service offering and registration service in both China and the US for biopharma companies. dMed strengths in early R&D design, clinical capabilities and data analysis will complement our ability to provide more comprehensive and flexible R&D solutions for domestic and global companies in oncology drug development.

We believe that this partnership, along with our CLIA Lab plan in the US could expedite our biopharma service revenue.

I will now turn the call over to our CFO Mr. Evan Xu to provide more details on our third quarter financials. Evan?

Thank you, Sizhen. I will provide an update on our financial performance during the reporting quarter. Please note that all numbers provided are in RMB terms and that all comparisons are made on a year-over-year basis.

Total revenue increased by 38% to 112 million, up from 81 million a year ago. Diagnosis and monitoring revenue grew 45% to 102 million, up from 70 million a year ago. The increase was driven by growth in both the provision of the LDT services and the sale of IVD product.

The LDT revenue rose by 18% to 71 million versus 61 million in 3Q 2019. LDT diagnostic tests sold in the quarter totaled approximately 5,900 units, representing an increase of 5% from a year ago. The average selling price also increased year-over-year attributable to a shift to higher value products, such as Onco PanScan. In the third quarter, LDT revenue included some HCCscreen sales, which contributed to a small portion of total LDT revenue.

IVD revenue grew 217% to 30 million, up from about 10 million in 3Q 2019. The increase was mainly driven by sequencing platforms, as well as (inaudible), notably, the Genetron S5 instrument, and the lung-8 assay, Genetron has signed additional contracts during the quarter and now has 38 direct in-hospital contracts, of which 20 are in-hospital assay purchase agreements compared to last quarter with 35 and 18, respectively.

Development services revenue decreased slightly by 8% to 10 million from 11 million a year ago, mainly resulting from less sequencing services. Sequencing services has a lower margin. So it was our deliberate effort to reduce such offerings in the quarter. On the other hand, within development services revenue, revenue from biopharma services increased multiple fold compared to a year ago, indicating our continued focus on growing this business going forward.

Despite higher revenue, cost of revenue decreased 7% to 42 million in the third quarter from 45 million a year ago. Gross profit increased by 94% to 70 million in the third quarter, up from 36 million a year ago. Overall gross margin increased to 62% for the quarter, compared to 44% in the prior year.

Year-over-year gross margin improvements were seen across all major business lines, mainly attributable to improved scale, operational optimization and a better product mix. In particular, gross profit margin for LDT segment was 69% compared to 57% a year ago, reflecting our focus on margin improvement through both product mix optimization and prudent price management.

For IVD segment, gross margin was much higher at 61% versus 29% in 3Q 2019 attributable to a higher percentage of assay sales. In development services, gross margin was significantly improved versus last year as well, due to our shift of focus away from sequencing services. Operating expenses increased slightly by 7% to 129 million for the quarter, up from 120 million a year ago. Among which, selling expenses decreased by 8% to RMB 61 million from 66 million a year ago. Selling expenses as percentage of revenue markedly decreased to 54% versus 81% in the same period of 2019. These decreases were primarily due to increased sales productivity.

Administrative expenses were down slightly by 3% to 32 million compared to a year ago at 33 million. Administrative expenses as a percentage of revenue were also down significantly to 29% from 41% a year ago, reflecting the benefits of improved operational scale.

Research and development expenses increased by 86% to 39 million from 21 million a year ago. The increase was driven by continued innovation efforts, including new products and technologies, particularly in screening and MRD as well as IVD clinical trial activities.

R&D expenses as a percentage of revenue were up to 34% compared to 26% a year ago.

As a result operating loss decreased by 30% to 59 million for third quarter this year versus 84 million a year ago.

Net loss for the period markedly improved to 48 million for the third quarter compared to 274 million a year ago. We are also providing non IFRS in the loss figures as the management agrees that these numbers would be helpful to show the trends of our underlying business. Non-IFRS net loss excludes share based compensation expenses, fair value change and other loss of financial instruments with preferred rights, And our IFRS net loss also improved significantly, down by 42% to 44 million for the third quarter compared to 75 million last year.

Basic loss per share was RMB 0.11 compared to RMB 2.15 a year ago. Non-IFRS basic loss per share was RMB 0.1 compared with RMB 0.59 last year. Diluted net loss per share is equivalent to basic loss per share.

We have a very strong cash position. Cash, cash equivalents and the financial assets at fair value were close to RMB 1.9 billion or [$275.2 million] (corrected by company after the call) as of end of September, 2020. This concludes the discussion of our third quarter financial results.

I will now turn the call back to Sizhen Wang.

Okay. Thank you, Evan. Overall management is very pleased with our third quarter operating and financial results. So looking ahead, although the pandemic has largely been stable, stable in China in the recent weeks, we remain vigilant regarding the situation.

Any large scale outbreak in one or more regional markets in China is expected to potentially have an adverse impact on our business. But with that said we are confident that Genetron is stronger than ever and that we are very well positioned to adapt quickly to the changes in the market conditions.

In particular we are encouraged by our IVD and early screen sales momentum and expect those to be the growth driver heading to next year. We are also making good progress with our HCCscreen assets.

In China we are on track to report our 2,000 patient data in the first half of 2021. Meanwhile we are ramping up our commercialization efforts in China and preparing for an IVD registration trial post data read-out.

In the U.S. we are also preparing next steps to commence clinical trials. Our strategic focus going forward will be to accelerate the development of a liquid biopsy-based solutions across the full cycle cancer management particularly in early screening and MRD. We are confident that we would become a prominent player in the liquid biopsy space and we are committed to bringing this major product to patients fast.

This concludes the prepared remarks portion of today's call. Operator, so we are now ready for questions.

Certainly. (Operator Instructions) We have our first question from the line of Yang Huang from Credit Suisse. Please go ahead.

Thanks, management, for giving me the opportunity to ask questions. And I also want to congratulate the management for nice 3Q data. So I have two questions.

The first one is more about operation. So can management give us more breakdown for [LDT] revenue and [IVD] revenue, but breaking it down for LDT can you tell us how much revenue from NGS, how much from PCR and maybe some further breakdown in NGS, we get any revenue from any liquid biopsy, and for IVD breakdown can we get revenue from hardware sales, and then revenue from reagent sales. So that's my first question.

Sure. I will take this question. For this quarter, for LDT services revenue I would say over 95%, it's probably even higher, comes from NGS sales. Within the LDT sales I would need to come back later but I would expect approximately 30% to 40%, probably 30% comes from liquid biopsy-based tests.

And for IVD, for this quarter we have a little over 50% of IVD revenue comes from instrument sales.

Okay. I see. And so, with a lot of PCR in our - so PCR revenue in this third quarter is very little or...?

PCR is minimal. Yes. So LDT-wise, in both LDT and IVD, and PCR it's just a very small portion of our revenue right now.

Okay. I see. And my second question is more related to our early screening program. So if I understand it correctly, the company wants to start a registrational trial after we report the 2,000 participants data in first half next year which also going to have a size of about 2,000 participants?

Yes. So the current design, there will be 2,500 patient clinical trial.

Okay.

And we do expect the trial to be started in the first half of next year, most likely it will be after our 2,000 patients data read-out.

Right, right. But when are we going to have the kind of full data set out for the 4,500 of participants which you already finished the enrollment for your current prospective study?

Yes. So let me actually clarify, right. The current prospective study that we are doing is on the 2,000 patients out of the 4,500 patient cohort that we have. And we have done the testing on the 2,000 patients and that we are following up on these patients.

As you could see that we disclosed data in a first batch that has been completed with the follow-up. There is only one center which is about 297 people, right. But the rest of them we are still following up to collect the patient data. And we do expect that we'll complete the follow-up sometime either as early as the end of this year or most likely sometime at the beginning of next year. So at that time we'll be able to compile data and then give a full data read-out.

And then the rest of the 2,500 patients out of these 4,500 patient cohorts will be reserved for our clinical trial, so that's the current plan.

All right. I see. I see. Thanks for the clarification. If I may follow up, so what that's going to be the, I mean, primary endpoint for the [registrational] trial, is it going through some threshold that we've got to hit for sensitivity and specificity? Maybe you can help us understand better about the incoming registrational trial design. Thanks.

Right. So Yun-Fu, do you want to take that question?

Sure. So let me just clarify a little bit about what Sizhen just mentioned, right. So for the targeted endpoint which is the detection of HCC, so you hit that right, for this is for specificity.

For the trial itself and we will have a follow-up period up to one year to make sure that negative will remain negative, so that's why we have a full one year. And the target, so that you have a specificity we hope it's what we have achieved already, somewhere around 92% sensitivity and 93% specificity, and that would be much better than what they shoot for with the current standard of care, for example, for the ultrasound and [AFP], somewhere around 67% at best. So that's what we are shooting for. And we hope that performance will maintain at that level, and if so will definitely will give us a green light for the registration.

Okay, thank you for the clarification.

Thank you. We have our next question from the line of Sung Ji Nam from BTIG. So please go ahead.

Hi. Thanks for taking the questions and congratulations on the quarter. Maybe for Sizhen, could you remind us how the collaboration with China's Ministry of Science and Technology came about without a competitive process? And could you also talk about what was differentiating about Genetron to be selected as to be the partner even with just early cancer screening development program?

Yes. So basically we were selected for primarily two reasons. One is that we had a very successful collaboration starting early of next year, sorry, early last year, so we had a partnership in developing the liver cancer screening. We screened and we did a prospective study together which is still ongoing, by the way, right. Essentially the one we just talked to about this 2,000 patient study.

And the other is the excellent performance that the, our mutation capsule technology have exhibited in the first collaboration. So we have obviously very, very strong performance in the HCCscreen, the study. So that's why we were actually selected by a panel of experts and we were approved by the MOST for this, the major R&D projects partnering with, again, the National Cancer Center, as well as a number of the leading hospitals organized by this customer.

Great. And then in terms of your development plans for additional MRD tests for solid tumors going forward, do you plan to also partner with others in terms of the development process, just, or do you anticipate developing a lot of these on your own as well?

Yes, so, MRD-wise we talked about our second MRD product and the, we're actually forming a position to do more of the validation on the second MRD product. And the MRD for solid tumor is a program that we are going to put a lot of resources into. And what I can tell you now is that we are - through our, the research project that we were having in the past year or so, we all got some good preliminary data for the liver cancer MRD. And we will be expanding that stage to a bigger cohort by coordinating with several institutions in China and potentially the U.S. as well, I mean, these are the discussions underway.

And we also mentioned that we are going to put some efforts in developing our colorectal cancer MRD, right, and this research plan will be kind of jointly developed with our CRCs early screening efforts as well.

Great. Thank you. And then lastly from me, could you talk about, obviously you performed well in the quarter despite the pandemic related headwinds and some outbreaks in different regions around China. We're hearing kind of mixed feedback in terms of recovery rates for companies with exposure to the hospital end markets.

So as we look out to the fourth quarter and even early next year, how should we think about the pandemic impact for your business? And just kind of curious what should we watch out for in terms of trying to kind of forecast how sustainable the current recovery is, et cetera.

Right. So you could see that in the third quarter we recorded the 37.6% year over year gross, right. That's actually acceleration from the first half which we showed about 28% a year over growth.

So as you could see that COVID still remains a wild card, right, and even though that things has been stabilized quite a bit in these recent weeks, and it's not completely normal compared with the pre-COVID, pre pandemic phase. For example, that most recently we had an outbreak in Qingdao. Fortunately I think it's under control now given that government again launched a massive testing in Qingdao, right. I think close to about 10 million people were tested over seven to ten days. So it was a massive effort and helped to keep the outbreak in check.

So overall we feel that in the absence of any new major COVID outbreaks we are optimistic and our acceleration in our growth could continue into this quarter. And we do believe that when things are stabilizing further, we are very well positioned to achieve on actually a higher growth rate in the next year.

Great. Thank you so much.

Yes. And then maybe just to give a bit more color on this. In the third quarter I think we touched upon it a bit before in our Q2 post earning call, that within July and August Beijing was very heavily impacted by the second outbreak. And Beijing as the capital city always, we went through a very strong restriction when any sign of outbreak or any outbreak is on the way.

So as we are probably the players with the highest market share in Beijing market we were actually quite heavily impacted. But you could see that towards the end of September Beijing are recovering and we are hoping that this key market will continue to recover to a more normal status. And also Dalian and Xinjiang was impacted by COVID outbreak and it's important too. Again, all these outbreaks are pretty much in check now, so when we look at the underlying trends we do believe that without any further outbreaks we will actually head into a stronger growth compared with before. That's the difference.

Great. That's very helpful. Thank you so much.

Thank you.

Thanks.

Once again, ladies and gentlemen, to ask a question please press the star one on the telephone keypad. Once again to ask a question it's star one on your telephone.

We have our next question from the line of Max Masucci from Canaccord Genuity. Please go ahead.

Hi. Thanks for taking the questions and congratulations on a great quarter.

So just starting in IVD thank you for breaking out the IVD, that's really helpful. Are we are seeing the early effects of your IVD focused testing strategy and increased willingness to perform on-site testing in Chinese hospitals. How should we expect this trend to play out as we enter 2021 and that any comment on the early traction that you are seeing with the 8-gene lung cancer IVD assay would be great? Thanks.

Yes. And so, as you could see that discussing in the earning call earlier we do see that our 8-gene lung cancer based on the one step seq method is getting a pretty good traction in the past two quarters of impact, right. It obviously will become a revenue driver for this quarter and then going into next year as well.

Just I want to remind that on the call is that we have our medium through-put sequencer or S5 approved last November, and that we got our 8-gene lung cancer panel based on our proprietary technology, that one that was approved early this year in February. And with these two combined together obviously we have the best in class molecular profiling solutions that we can push into the year, the top hospitals in China now.

As we are ramping up our, essentially the solution provider team or what we call the solution providing our [KA] team, that we will see actually the adoption by the big public hospital on our one-stop solution it will accelerate into the coming quarters.

Great. And then the sales of your HCC screen liver cancer test contribution to revenues in Q3 after some disruption in the first half of the year. Can you just give us a sense for how this program is ramping up and if the reopening of several iKang medical centers is making a difference?

Yes. So as you could see that the growth rate, I mean if we compare it to the hospitals we are quite a bit in terms of revenue for the HCCscreen, but in absolute terms it's still relatively small portion of our overall revenue. And however, with things stabilizing and as we will see a more, it's actually a better execution of our roll-outs of the iKang testing center, as well as some of the government procurement contracts we have been working on as we mentioned earlier in the conference call.

And we do believe these commercialization efforts will become a bigger and bigger revenue drivers for Genetron, especially heading to next year.

Great. And then one final question, this on gross margin, can we just speak to the strength that we saw in the corner and just how your product mix affected the gross margin in Q3 and are we seeing some of the early positive impact of one-step seq on the COGS line?

Yes. So, Max, right now the impact or the benefit of one step seq is primarily reflected in the asset itself so the IVD sales revenue. The super majority of our [LDT] revenue currently is not the 8-gene test, right, it's more of the big panel and various types of LDT services tailored for different cancer types.

But, actually you are right, as we continue to drive IVD sales volumes forward, for example, in this quarter we added two new contracts, two new IVD contracts with hospitals and we do expect the momentum will continue into the first quarter. And the cost benefit, the one-step seq will continue to come into play especially for after-sales within the IVD revenue.

Great. Thanks for taking the questions.

Thank you. I would now like to hand the conference over to our speak Ms. Hoki Luk for any closing remarks. Thank you.

Thank you, everyone, for joining our Third Quarter Earnings and Business Update call. We appreciate your ongoing support. And if you have any questions please do not hesitate to reach out to our Investor Relations team. Thank you.

Thank you. That concludes our conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.