Ladies and gentlemen, thank you for standing by and welcome to the Burning Rock's 2020 Fourth Quarter and Full Year Earnings Conference Call. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and as defined in the US Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates, target, confident and similar statements. Statements that are not historical facts, including statements about Burning Rock's beliefs and expectations are forward-looking statements. Such statements are based upon management's current expectations and current markets and operating conditions and relate to events that involve known or unknown risks 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 statements as a result of new information, future events or otherwise, except as required under applicable law. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Now, I'd like to turn the call over to the management team of Burning Rock. Thank you, please go ahead.

Welcome to Burning Rock's earnings conference call. This is Yusheng Han, the CEO and Founder. Today you have our team consisting of COO, Shannon Chuai; CTO, Joe Zhang; and our CFO, Leo Li. Please turn to Page 3, let's start. The Burning Rock is China's molecular diagnostic leader for precision 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 4. 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 blood-based multi-cancer early detection. Let's turn to Page 5. Let's look at 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. And the second thing I want to illustrate is that 2020 is really a tough year for the whole industry because of the COVID-19. The first half year is significantly impact by the COVID-19. But we see that in the second half year, we have a strong turn back. So we record 33 year-over-year growth in the second half of 2020. And in terms of early detection, we all know that we started the early detection R&D efforts from 26. We have already accumulated around 10,000 samples in the past five years. And which is one of the biggest one 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 6-cancer product development and moved to the clinical trials for 9-cancer and the other trials as well. Next…

Yes. Thanks Yusheng. So let's go to the next page, Page 9. 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 release the 6-cancer test results. There have been some additions and also update on our plan going forward leading to commercialization. So just to recap, we started our clinical - or 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, the feasibility for early detection on both the assay and the bioinformatics methodology or algorithm. And then we extended the validation from single-cancer to 3-cancer as an additional proof of concept for methylation being able to deliver tissue of origin accuracy as well. And most recently as Yusheng mentioned, last November, we released our results at ESMO Asia on the 6-cancer test. The assay and the algorithm has been significantly improved compared to the previous versions, and we delivered a 98.3% specificity and 80.6% sensitivity across different cancer types mostly early-stage cancer patients. And originally our plan was to just use the 6-cancer test as a prototype and then to move on to the 9-cancer test, which would ultimately become our commercialization product and also billing for registration. 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, the rollout plan, and because of that, we have added two additional programs on the 6-cancer test. So we didn't stop - we wouldn't stop at the validation that we have presented at ESMO Asia. On the…

Yeah. Thanks, Shannon. So on Page 14, basically, this is copy and paste from the presentation presented by FDA in last month in the meeting of a Fifth Annual Liquid Biopsy for Precision Oncology Summit. So basically - this is basically 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 as SEQC2 actually is the first effort of - conclusion effort trying to understand that the best practice of kind of sequencing and whole genome sequencing. So basically, Burning Rock participated the panel sequencing - oncology panel sequencing workgroup and on both tissue-based as well as liquid biopsy-based assay. So FDA issued a multiple standard reference material to different kit maker 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 you use Burning Rock's kit to process those sample and get the sequencing data and send it back to the FDA, do a thorough side by side comparison against the other player and other members, other kits. So, basically, on the bottom left, this is talking about a liquid biopsy core study. So, the study actually focused on a set of a reference material with a different variant allele frequency from down to 0.1% up to 2.5%, which is very similar mimic and real situation for the ctDNA concentration in cancer patient, also, studying the input effect as well as the extraction effect. So bottom right panel of this slide is talking about that five different companies participated in…

So let's turn to Page 18. So 2021 is the year that we're really looking forward. For therapy selection, we're going to continuously increase our penetration of NGS-based cancer, therapy selection, and some key drivers. The first one is to extend our product menu. As we all know that we have the product support ELSA-Seq and ctDNA for companion diagnostics. And last year, we successfully completed the licensing of myChoice HRD test from Myriad and also DetermaRx from Oncocyte. And this year we'll complete the detect transfer and start commercialization. And the thing I want to mention more is about the DetermaRx. This targets for the early detection of adenoma non-small cell lung cancer. It is a big population in China, 20% are cancer patients - lung cancer patients and 85% of the lung cancer patient are non-small cell lung cancers among them around 40% are early stage. So it means a huge market with a unique panel - with a unique product with strong clinical validation. And the second driver, there are other products as well in the line and we'll talk about that in the - when is available in the market. And the second driver is the NMPA registration program execution. We have several panels on await of registration, including ctDNA, also big panel for ELSA-Seq. 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. We'll continuously grow in 2021. And the second thing is early detection, as we have said that we're going to bring the 6-cancer test 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 out the multi-channel commercial team. Another good point - good issue for us is that we started the conversation with the NMPA. It seems as the registration for pan-cancer early detection might have its way to be clear in the future. So before recently, there was no clear way for the resolution path. But now, we are very positive about that. And also in this year, we will roll out - that we have rolled out of additional large, large clinical programs for product development and validation at the same time we're adding other dimension and also more cancer types included in the additional R&D for the new version products. We cannot disclose much at this time. So yeah, in 2021, we're really looking forward to that no matter your therapy selection and also for early detection. I'll turn to our 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 close schools for a period of time. Shijiazhuang, 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. With that context in mind, we achieved strong growth in the fourth quarter of 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 of 2020 in terms of having the reagent supply contract completed, which brings the total nearly contracted hospitals to 10 for the full year of 2020. This is further progress compared to seven newly contracted hospitals that we had during 2019. And just to remind everybody from…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Doug Schenkel from Cowen. 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? 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?

Thanks, Doug, 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 hit, which worsened compared to December and a quite 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. So that's one data point. Then February, March was quite last year because of Chinese New Year and COVID restriction. 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 BR making further progress having placed high teens number of Magnus BR 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. 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 capabilities. In addition, there is a commercial organization for early detection, which would lead to increased sales and marketing expenses. So that's on early detection. And also, as you mentioned, for additional clinical programs, which we have a few under the plans, which we will announce the specifics throughout this year. As we roll out those programs, we will expect additional spend on additional R&D programs. These will be large programs, over 10,000 subjects, although we do know, for China, the overall program expense is still likely to be lower than US 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 qualitatively it is going to increase as you mentioned versus the same period last year.

And Leo thank you for all that one. 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?

Yes, overall, we would expect in-hospital to grow stronger and faster compared to central-lab as that is a more - that is a channel that we believe competes 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. First is 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. 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're 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. It's really encouraging to hear that you are launching the 6-cancer product in the near term. On the other hand, it may be a bit surprising that this is being launched so quickly with - in the grand scheme of things relatively small data set and no perspective data. So I just want to make sure that I'm understanding how you think what we should think about this. So my first question related to that is, if you didn't need perspective data to launch the 6-cancers, why was that not the case with the 9-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? So that's the first question. The second is again, it's great that you can launch, but given you are going to be generating more data and there is a lack of perspective data of substance at this point. How are you thinking that's going to impact adoption over the first few quarters of lunch? 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 perspective. Is a possible conclusion that the barrier to entry associated with data generation for assays like this is actually lower than previously thought? And on one hand, that would be good, because you can get to market quicker. But on the other hand, the structure doesn't just apply to Burning Rock. 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'd be great to get your thoughts on those three topics. Thank you.

Yes, Doug, this is Shannon. I tried to tap on your questions to address it. Those are really excellent questions. I mean, exactly. Those are what we debated over and over within the team over this past few weeks about our commercialization decision or strategy. So first of all, we don't believe that the multi-cancer detection products bearish enter, will be any lower than previously expected. And we do believe that prospective validation study is still a must have led along 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 6-cancer test to run in parallel. However, we with that received very encouraging response from potential channel collaborators for the 6-cancer test product. And which encouraged us to sort of think about while we generate more prospective validation data, maybe to have some real world experience will also help us assessing for one, whether the prospective validation population really matches our future customers, because this - 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, well, hugely influence your post expected sensitivity. And then also other operational metrics when we start to think about, these are questions that probably won't be answered in the post facto 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. And also, in terms of the commercialization channel, we also wanted to assess, like, for individual - on an individual level, we know exactly like, what…

There's some comment for that. I think that for early detection it's not only just the sensitivity and specificity, we think that in the operation part and also in the consumer education, also, how to even by how to do - have a perfect report to make the consumers easily to accept the result and how to explain that in the service perspective. I think that all these issues are new topics we need to face. That's why we started 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 really appreciate all the additional color, 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 Merrill Lynch. Please ask your question.

Great. Thank you, management team, to give me the chance to ask questions. So basically, I would like to ask you about your in licensed product. So previously, you mentioned that in this year, your top line is going to be RMB610 million. 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 tech transfer. So besides a tech transfer is there any barrier on regulation for these two products launch their commercialization plan in China. I mean, these are also sort of or kind of early detection products. So is there any regulation typically on this? And financial - in terms of your fourth quarter result your administration expense is over RMB100 million, can you give us more color on this administration expense. That's my questions. Thank you.

Thanks, David, for the questions. So 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. 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 products which is looking at early stage adenocarcinomas and this product has had Chinese cohorts over 1000 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 tech transfer, at least for the first half of the year to be followed by validations as well to make sure that the products perform as they have in the original and the transferred labs as well. So, these will take a period of time. So if any revenue contribution these are going - likely to be late for this year. 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 validations. And to note that there will be more products that we're going to rollout, subjects who are on the 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 school products, myChoice that has been approved by the FDA for a couple of indications. So that has…

Great, thank you. That's helpful. Have no more questions.

Thank you. [Operator Instructions] Our next question comes from Tian Chen from HSBC. Please go ahead.

Hello, good evening. Thank you, very much particular questions. I think in your opening remarks you're talking about in discussion with Chinese regulators or FDA talking about the approval process, then you make some progress alternative routes for getting the liquid biopsy approval. Can you spend some time and give us a bit of more detail?

Hi Tian, thank you for the question. I'll take -

This is about - go ahead, sorry.

Do you want to - okay, I'll try to address this question? So I think there might be misunderstanding. I think what Yusheng meant on the opening remark is that for the early detection which used to be very - it's a completely new in the class product. We had no dialogue on previously with the NMPA, but most recently we started the dialogue and we see very positive feedbacks. And so we are very hopeful that in the near or midterm future the early detection, the liquid based multi-cancer early detection kind of products well, half the regulatory paths, clear or LSD - the path to registration being much more clear than the current situation. 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 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, of course, also be the first in class. So there will be some unpredicted 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 diagnostics, collaboration. So we're having very positive progress on that as well. Hopefully, we will see the first liquid-based liquid - liquid biopsy based NGS panel being approved in China in the next couple of years.

Hi, yeah. Okay, that's clear now. So I guess your discussion - what under discussion is the main those are multi-cancer early detections approval process.

Correct.

Okay. So my understanding was why there's no clear approval passed 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 recruitments that will be the main barrier, given you're targeting the multi-cancer type. So any progress has been made in the - how to testing out the individual indicator? Would they go for on the kind of multi-indicator level or they still insist on each individual indicator's efficacies? That's the first one. Second one is the populations, given the multiple type, will the regulator still insist the population has to be sufficiently or vast sufficiently enough to control for each type of cancers?

Well, for the first question, yes. I think the major one - one major progress we are seeing is that now the regulatory at least embraces the idea of having a multi-cancer early detection product being applied on a 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. So that's one major progress. However, it's not just - it's far more than that. Actually, for early detection products, how do you justify your benefit? How do you control your - measure your harm? And how do you justify that the benefit is greater than the harm? That's the sort of the key to the regulatory path. And I think, with the most reason progresses from our own data, and also from our global peers, like grow 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 are - we could start the dialogue right now with the NMPA.

Sounds good, 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 NMPA now recognizes and agreed to go in this direction.

No, we're not saying an agreement being reached, we're just saying that we started the conversation and we see positive trend towards having an active dialogue.

Can I just say ask a last question on your early access program, because you 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 earlier access program property will be loss making or you can do it on the cash breakeven 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 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. For example, how regimen will be a certain cohort like the annually checkup - population doing annual checkups without annual checkup, the sensitivity and the specificity might be different. And also, there will be operational issues, for example, how to educate the customer about NPV - and sorry, PBV and MBV, how to advocate the sensitivity and specificity? These terms are quite familiar with professional people, but to common consumer they're totally new. So we all for example, we know that a PBV with like, finally, any tasks or pan-cancer can read to 40 to 50 PBV that will be great products in terms of PBV. But a consumer might think that give me a positive result and I only have half of the odd to be to be real positive that might be a problem. So we need to we need to early access program to find out all these things and also need to catch issues such as pricing and how do they think about - negative or positive results? I think the issues we need to find out in the operation is no less than those in a clinical trial.

Got you, so I guess in your PML structure, if you do any earlier access program, this will be through your central-lab secondary expenses in it?

Exactly, this will be this will be expenses. As this is not - we're not charging for the early access. So it's going to hit our expenses line.

Got you, okay, that's all for me. Thank you very much.

Thank you. [Operator Instructions]

Right. There are no further questions. So with that we conclude our conference for today. Thank you for participating. You may now disconnect.