Burning Rock Biotech (NASDAQ:BNR) Q2 2021 Earnings Call

0:00 Good day and thank you for standing by. Welcome to the Burning Rock Biotech 2021 second quarter earnings conference call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. Please be advised that today's conference is being recorded. Before we begin, I'd like to remind you that this conference call contains follow-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.

0:46 These follow-looking statements can be identified by terminology such as blue, expects, anticipates the future, intends, plans, believes, estimates, targets, confidence, and similar statements. Statements that are not historical facts, including statements about Burning Rock's beliefs and expectations, are full-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. Foot-looking statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from those contained in any such statements.

1:39 Burning Rock does not undertake any obligation to update any foot-looking statement as the result of new information, future events, or otherwise except as required under applicable law. And now I'd like to hand the conference over to your first speaker today, Mr. Yusheng Han, CEO of Burning Rock. Thank you. Please go ahead, sir.

2:04 Thank you. And welcome to Burning Rock Q3 conference call. I'm Yusheng Han, the CEO and founder of Burning Rock. Today we have our COO, Shannon, CTO, Joe, and CFO, Liu, in the meeting. First, I will go through some exciting highlights of our recent progress. Then our COO, Shannon, will elaborate on our product line extension. And then our CFO, Leo, will walk you through the financials. So first, let's turn to page three. Burning Rock started with the therapy selection business in 2014 and has grown to the market leader in this segment. The leading position has laid a good foundation and given us advantages moving toward new businesses of early detection, MRD, and pharmaceutical collaborations.

3:02 We have strong branding on our technology and product quality, which help us attract talent. And the network we have built across thousands of oncologists and hundreds of hospitals enable us to are roughly innovation and R&D studies on new products as well as fast distribution when the product goes to the market. The existing high testing volume make it plausible for us to continue lowering the cost. And that's why we aim to tackle the therapy selection, MRD, and early detection market in parallel in the coming few years.

3:52 Let's turn to page four for some highlights about recent programs. First of all, we are very proud that the technology of our early detection combining a methylation-based assay and a machine learning-based algorithm has been published in Nature Biomedical Engineering. Even though it doesn't fully reflect the most recent version of our early detection product, it's a very nice endorsement of our innovation, which laid down a solid foundation for our product line development. We mentioned about the preparation of commercialization of early detection earlier this year. For those of you who are interested in knowing the progress on that, So far, we have tested over 2,000 samples through the Early Access Program, build up an operation team, a call center, and a CRM team. Our initial commercialization channel will be public hospital health management department and innovative insurance companies.

5:01 We have so far presented on 10 national or regional conferences with public hospital health management, KOLs, Our validation data on the six cancer tests attracted great attention from the doctors. So far, we have entered contracting stage with six hospitals, and we see the number is scoring at a very decent pace. We have also made some exciting progress on MRD. We are developing a tumor-informed MRD testing platform called DR-PROFIT. It has shown very promising performance with sensitivity on par with what has been shown in Natarian and Archer's publications.

5:52 We have started a study on lung cancer, and there are several trials for other cancer types under planning. For therapy selection, we recorded 40% volume increase in this quarter, mainly driven by the in-hospital model. It is the first time that our in-hospital model task volume exceeds 10,000 per quarter. Last but not least, I will spend some time to introduce some exciting outlook of our farmer collaboration business. We started this new business unit last year, anticipating a strong opportunity in this segment. The new BU has been growing rapidly.

6:38 New contract value reached RMB 98 million during first hot year in 2021, which is three times versus the full year of 2020. I will illustrate in detail on the next page. So let's turn to page five. Farmer business is not a new business for the NGS company in the U.S., but this market hasn't been major in China until about 1.5 years ago. Some recent trends and paradigm shift drivers include the first NTA is moving toward regulating targeted therapy drug approval in a CDX model.

7:29 With the pressure of volume-based government procurement, some domestic innovation pharma companies are seeking for global expansion opportunities. For targeted therapy drugs, the needs of pharma companies for NGS partners include, first, it must have high-quality products and available on both HIVP and liquid biopsy samples. The third driver is that MNCs need NGS companies that can do CDX in China. However, it's very challenging for foreign NGS companies to operate registered in China due to the regulation of HGR, which is human genome regulation.

8:28 Does a Chinese company with global operation is their ideal choice? So seeing this chance, we set up our U.S. lab, which is now a clear certificate and a cap accredited. and the FAQC2 result we've published in Nature Biotechnology strongly endorsed our technology. We have also invited a very key talent to join us. We invited Shen Liang, who had nine years of experience in FDA covering molecular biodegradable device submission and two years experience in grill to join us. as the VP of RA and QA. We believe that the trend will continue in the coming years. So that's about our farmer world.

9:26 Really very excited about that. And the expansion of farmer globally is the first step of our global expansion. So that's what I'm going to talk today. And the next I will shift to Shannon about the operation part. Thank you, Shannon. Yes. Yes. Thank you, Yusheng. So now let's move to page six. It's an overview. And so I would like to give you some important updates on Burning Rock's product pipeline. First of all, let's take a look at the cancer early detection for asymptomatic people. In this sector, we have reported the validation results from the study on our six cancer products last November. We have also accumulated more data on our intent-to-use population through the Early Access Program that Yusheng has mentioned.

10:22 With that, we plan to start the commercialization of our six cancer products in early 2022. In the meanwhile, we are launching a prospective study on intent-to-use populations to provide more data and also more validation clarity on clinical utility and also false negative and false positive impacts of our early detection test on people. And then on our 9 cancer and 22 cancer products, we have launched the multi-site prospective case control studies, the PREDICT and PRESSIOND earlier this year, as you might already know. Each study will recruit more than 10,000 of participants, and each study is led by a Chinese Academy member as the leading PI.

11:09 Predict is expected to have the first readout by the end of 2022, and Crescent will have data readouts about 2024. And then, in terms of early-stage cancer patients, we are quite excited that we will have two products launched in 2022. The first one is a tumor-informed MRD product developed by ourselves in-house, as Yusheng already mentioned. The other one is the DetermineRx. which is the prognosis prediction and adjuvant chemotherapy benefit prediction product for lung cancer patients that we licensed in from Oncocytes to bring to the China market. For the MRD product, we are now putting together some clinical validation data on lung cancer patients and we're also initiating validation studies on other cancer types such as colon and esophageal. For DETERMA-RX, we're getting close to completing the SA transfer and Analytical Validation Studies, and we will be able to start offering this product to Chinese patients shortly.

12:15 We believe the MRD product and DetermineRx will form synergy in providing precision medicine solutions to Chinese patients and doctors in lung cancer, and we really look forward to a promising market for early stage patients, which used not to be the group of patients who benefit most from molecular testing, but it's about to change. So moving on to our late-stage therapy section product line, since the NGS panels in this segment are mostly past the development phase and entering the registration pathway, so we'll focus more on registration progressives. So after our four-gene panel obtained the first NMP approval NGS panel in China in 2018, we now anticipate another approval on our 13-gene panel in the near future. But more importantly, we are now pushing the regulatory timeline on our 520-gene tissue panel and 168-gene liquid panel. For both panels, we are aiming to start the pivotal study in a few months. We think NMT approvals on these large panels, quote-unquote, will ultimately bring a paradigm shift on the competitive landscape and also broad adoption of MGS for in-hospital use.

13:36 So let's move on. I'm going to break it down to the three segments each by each. So let's move on to page nine for the early detection recap. So as Yusheng has mentioned, we are glad to show that our early detection technology was published by Nature Medical Engineering earlier this year. I wanted to reiterate that this is actually an older version of both the essay and the model, as you can imagine, since the publication process took nearly two years. We have made multiple rounds of our technology ever since. Nonetheless, this endorses the novelty and utility of our technology. And then let's move to page 11. So on this page, I wanted to revisit our clinical programs for the three products, the 6-cancer, 9-cancer, and 22-cancer products.

14:36 We are happy to report that the programs are all progressing nicely on track. More specifically, for our 6-cancer products, we have just mentioned that we have accumulated testing data on over 2,000 samples in the past few months through our early access program. What we have observed so far from these EAPs actually gave us a clearer estimate on the performance among the intent-to-use population, which is helping us with the design of the prospective interventional study down the road as well as our ongoing communications with regulatory. One thing that's quite promising and we can share briefly that the specificity we demonstrated in the Kids Control Thunder Study is holding very well in the real world, quote unquote. So this gave us a lot of confidence going forward. And then for the 9-cancer and 22-cancer products, both predict and question studies are progressing as planned in terms of accrual.

15:38 That's about what we can share and disclose. Again, we anticipate the first readout of PREDICT by the end of 2022. So now let's move on to page 14 to talk a little bit about MRD. Page 14 shows our development progress on MRD products, which we haven't talked about actually in detail a lot previously. One key update we wanted to emphasize here is that we have most recently completed development and analytical validation of a novel personalized assay for tumor-informed MRD testing. We named the technology BR-PROFIT, which has a target LOD limit of detection approaching 4 times 10 to the minus 6, which is 0.004%.

16:30 We expect to report clinical validation data of their profits on lung cancer in the first half of 2022, and we are also initiating studies on other cancer types, including colon esophageal. We also like to share some recent trends in the MRD adoption among Chinese oncologists in the past few months. Actually, earlier this year, MRD has been recommended in a consensus by Chinese lung cancer clinicians to help predict risk for relapse for early stage non-small cell lung cancer patients. In this same consensus, it's also made clear that methods used for MRD testing should be able to reach an LOD as low as 0.02%, which is five times higher than what we are aiming for.

17:22 It's noteworthy that most MGS panel solutions offered for liquid-based therapy section test have LOD only around 0.1% to 0.5%, including ours, which is not enough in MRD detection. So you can imagine that this will be a new line of work in terms of technology. And in terms of the market, we are seeing trends that oncologists and pharma companies are very actively exploring MRD applications, embedding it into a lot of research studies recently. So we now expect this market to advance greatly in the coming years. So let's move to page 16 to touch briefly on the third piece in action. On this page, we briefly recap on the SEQC2 study.

18:10 A lot of you might already be familiar with it. From this study, our on-call COMPASS liquid test panel showed very strong performance specifications, including sensitivity, specificity, repeatability, and robustness when compared to four other NGS liquid testing tests from the US. So this is a very nice endorsement of our liquid-based testing technology. And these results have been published in Nature Biotechnology. And we went through the results from the publication extensively last quarter, so we'll skip the details this time. But we'd love to take questions and share reference materials if you are interested in knowing more. So let's move to page 17 to see a little bit on the business side. On page 17, we demonstrate how our business has been transitioning towards the in-house model rapidly in the past few months. This is a trend that we have actually predicted from the very beginning, but it's most recently accelerated, partially driven by the pandemic. The top part here are the bar graphs showing our test volume over the past quarter.

19:28 The green bar being the central lab model and the blue bar being the in-hospital model, you can see clearly that in the past three quarters, the total test volume growth has mostly been driven by the in-hospital model. So this trend matches our expectation but has been greatly accelerated due to the impact of COVID. During the pandemic, two things have changed in the hospitals. First, rigid travel restriction rules have made it much more difficult for patients from small cities to travel to top hospitals in nearby large cities or the capital city of their province. This change impacts both the central lab and in-hospital channels. These NGS tests are mostly offered among only the top hospitals.

20:16 Second, almost all the hospitals have made tighter rules for doctor visits, so it's been harder to reach the clinicians, discuss about prescribing the tests, and introduce new products. However, this change, unlike the first one, actually only negatively impacts the central lab model, but positively impacts the in-hospital model. So in the bottom part on this page, we wanted to reiterate why we see the in-hospital channel as our strategic focus, because it's a stickier model, and also more product and quality driven when it comes to competition. We think the in-house student model will come to a dominant position when large NGS panels and liquid-based NGS panels obtain NMP approval, which will likely happen about two years down the road. We believe Burning Rock is well positioned in this paradigm shift and we do, however, we do recognize, on the other hand, that since the in-house student model have lower unit price than the central lab model. We will see lower blended AST in such transitioning process. So this is what I have on the product and business side, and I will turn to Leo to walk you through the financial numbers.

21:35 Leo.

21:37 Thank you, Shannon. And moving to financials, first we'd like to recap our therapy selection testing volume growth in the second quarter, which is shown on page 17. Testing volume is the most important metric representing progress of China and our share of the NGS market. In the second quarter, overall volume growth was strong at 40% year over year. Central lab and in-hospital volumes combined reached a total of close to 20,000 units during the second quarter. We believe that both the absolute scale and the growth rate of our volumes in the second quarter was industry-leading in China.

22:23 Then moving to slide 19, by channel, first in-hospital volume grew strong at 70% year-over-year to over 10,000 units in the second quarter, while central lab volume growth was more moderate at a 12% year-over-year growth. As Shannon mentioned, the paradigm shift from central lab to in-hospital is accelerating in China. That is what we anticipated strategically a number of years ago, and we've been a clear leader in the in-hospital segment. We are pleased to see the accelerated progress that we've been able to achieve in the second quarter. As of the end of June, we are officially contracted with 34 hospitals to supply our NGS testing kits There is a backlog of an additional 22 hospitals that we look to complete contracting.

23:16 In terms of the coverage breadth, we are working hard on our hospital contracting efforts with a target list of the nation's top 100 to 150 oncology centers, which represent the lion's share of China's NGS testing market, so that our tests can be offered at more hospitals in-house. The contracting lead time has been long historically, about two years or in some cases even longer. And we hope to accelerate this as NGS becomes more mainstream in China. We have seen wider acceptance of NGS after the top tier hospitals such as the very top ones in Beijing and Shanghai have had NGS tests installed in-house. We have also seen increasing interest this year in NGS from heads of hospitals. We like these trends.

24:05 We think these will help us accelerate our in-hospital efforts. Then moving on to slide 20 to talk about our central lab channel. Our growth has moderated in a recent period. In our observation, and some of this is publicly available data from listed peers in industry, we think this is an industry-wide phenomenon, the central lab slowdown. We think there are two factors behind the slowdown. First is on COVID, which has been on and off in China. And on page 21, we have laid out the impacts on COVID in China on a page. For example, back in January, Beijing and Shanghai had schools shut for a period of time. In May, Guangzhou and other parts of southern China were significantly impacted. And starting July, we had cases and travel restrictions that started in Nanjing, in eastern China, and this spread nationwide in China. And as Shannon mentioned before, because NGS adoption is concentrated at the leading hospitals located in major cities in China, any travel restrictions impact patient flow as patients in other parts of the province or outside the province make up a significant bulk of the overall patient mix.

25:24 This is particularly true for Tier 1 cities such as Beijing, Shanghai, Guangzhou, where we have significant business volumes. So the COVID impact on NGS we think is very different compared to traditional testing, which is more commoditized and well penetrated into community and lower tier hospitals. In addition to the travel impact, hospitals may also reduce the number of appointments offered when there are cases reported in a city. And so we just went through the COVID factor. Out of the two factors impacting central lab, the second factor is related to LDT, or laboratory-developed tests regulation in China. LDT is the model that our central lab testing relies on.

26:10 It differs from the most typical testing format in China actually, where for the typical norm, the test is performed within the hospital. The patient pays to the hospital rather than paying to third-party outside companies. Historically, LDT regulation in China has been a gray area The new medical device regulation in China that came into effect in June this year makes very clear scope for LDT. and specifically Article 53 of that regulation states that for areas where there is no approved IVD products, LDTs will be allowed for qualified medical institutions.

27:12 The NMPA is leading the work on drafting the detailed implementation rules related to Article 53 related to the medical device regulation. We have participated in discussions related to the rulemaking and we think clear regulation in LDT will erect higher entry barriers for the central lab segment and help reduce competitive intensity from low quality offerings in this channel, which is important for the long term. Under this increasing regulatory backdrop, hospitals are also putting more scrutiny and more control on LDTs conducted outside of the hospital We saw some hospitals tightening or cutting entirely outside LDTs in the second quarter. We think the industry is changing for the better with increasing regulatory focus and scrutiny, and we've been able to take market share, leveraging the strength of our in-hospital business. We are accelerating our efforts to put our tests in-house at more hospitals.

28:18 Then we'd like to talk about our financials. which is on page 22. As we move from testing volume to revenue metric, the shifting mix from central lab to in-hospital is having an impact on ASP or average sales price in the short term. We charge lower prices of IVD testing kits that we supply to hospitals in the in-hospital segment compared with the LDT testing service prices that we charge to patients in the central lab channel. We'd like the NGS testing to be a meaningful business for our partner hospitals. We in turn aim to generate more revenues by capturing more volume share from the hospital.

29:03 The ASP difference across the two channels does mean that during the transitional period of more in-hospital testing, which we expect to be a number of quarters, our blended ASP will be reduced. In other words, our revenue growth rate will be are numerically lower compared to our volume growth rate during this transitional phase. For the second quarter, our overall revenue growth was 19% year-over-year, which is lower than the 40% volume growth rate for the ASP reason that we just explained. By channel, central lab growth was single digit at 7% year-over-year. The in-hospital revenue growth was strong at 40% year-over-year. And would you notice there is a difference between our in-hospital revenue growth and volume growth numbers. Volume growth was at 70% in the second quarter.

29:56 This is primarily to do with our billing and revenue recognition for this channel, not that we changed prices in the second quarter. On billing and revenue recognition, there are two components. The first, which is a majority, is booked upon the kit being shipped and received by the customer. This component correlates with volumes in a quarter The second component, the minority is booked when payment occurs. Payment terms generally follow each hospital's own supplier terms and differ among hospitals. Generally, this is a few quarters. So in summary, volume growth in hospitals should lead revenue growth over time. Then moving to our pharma revenue segments, which is coming off a small base and growing at a fast rate. We are seeing a rapid buildup of backlog as we certainly discussed and we mentioned on page five. These are typically multi-year projects and also subject to our partners' clinical progress and we expect greater contribution from this segment to our overall revenue over time.

31:04 Before we go to our guidance for the year, we'd like to recap the Delta variant impacts on China, which we laid out on page 21. As we mentioned before, NGS adoption is concentrated at the leading hospitals located in major cities in China. During COVID flare-ups, non-pharmaceutical interventions, and by this I mean mainly travel restrictions, are the number one containment tool in China. As Delta spread more easily versus earlier variants, we saw a stronger reaction function and wider travel restrictions in August versus earlier flare-ups in the year. and this will significantly impact our third quarter volumes. We observed that July being worse than June and August being significantly worse than July.

31:57 So for the third quarter, we expect central lab volumes to be down actually on a year-over-year basis, but we expect in-hospital to keep growing because of the structural industry shift towards in-hospital and our strength in the in-hospital channel. For the remainder of the year, we expect our business to continue to grow, chiefly through in-hospital. We expect volume growth to remain strong, but the ASP drag from channel mix shifts will lead to a lower revenue growth rate. So all in all, combining the COVID impact and the accelerated channel shift effect, we are reducing our full year 2021 revenue guidance to RMB 500 million.

32:43 And after talking about our quantitative guidance for 2021, we also like to talk quantitatively about how we think about our growth drivers going forward. And this is shown on page 23. For our therapy selection business, the industry is shifting towards in-hospital as NGS increasingly becomes mainstream and more hospitals take greater control of NGS testing. In the near term, this allows us to gain additional market share through our strength in that segment. In the long term, more in-hospital testing allows our product and regulatory advantages to play a greater role and sets us apart from low-quality competition. So we believe we are a key beneficiary out of this industry trend. In addition, as Yusheng mentioned at the start of the call, Burning Rock is more than just therapy selection.

33:35 Over the years, we have developed a pipeline of products across early detection MRD. We have expanded our presence beyond China with our lab in California, operational and starting to serve pharma CDX projects that started in Q2 this year. 2022 will be the first year that we start commercializing our six cancer early detection tests. We have been preparing for that since we completed product development for this product back in November last year. And the operational readiness, the commercial traction so far are strong, as we certainly discussed at the start of this call. In addition to early detection, we also have our MRD product data release and commercialization in 2022. So we think 2022 sets up well to kick off multiple additional revenue growth drivers going forward.

34:29 And with that, we'd like to conclude the prepared remarks and open up for questions, please. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and light for your name to be announced. If you wish to cancel your request, please press the panel hash key. Please stand by while we compile the question and answer roster. Once again, ladies and gentlemen, the star 1 for questions. Your first question comes from the line of Dr. Schenkel from Cohen. Please go ahead.

35:07 Hi, good morning and good afternoon. Just maybe a couple of follow-ups quickly on those final comments on guidance. In terms of pacing, meaning Q3 versus Q4, if I'm listening correctly, it sounds like with the trends Moving in the wrong direction in the central lab, but continuing to improve in the field, that you would expect those to somewhat offset over the next two quarters? And would you expect both Q3 and Q4 revenue to be about the same? Or is that the wrong interpretation of PaySync?

35:51 Yeah, Doug, thanks for the question. On pacing, I guess it's helpful to go back to page 21. And we can see the COVID impact in August was quite significant. So that made Q3 very challenging and out of our expectation. So Q3 is going bad because of COVID for the central lab. For Q4, we don't rule out another COVID flare-up. We're not certain whether it's going to be as bad as August. We hope it won't, but we do want to leave some buffer room there. So absence of any significant COVID flare-ups, again, we think Q4 should proceed a bit better, and this is the typical seasonality that we do see.

36:46 But with COVID, it's becoming more difficult to predict.

36:54 Understood. Okay. And then one more guidance for the year. In the second quarter, operating spends came in a little higher than we expected. How should we think about operating spends over the balance of the year?

37:10 Yeah, so I guess it's helpful to go back to the business for a little bit regarding OPEX. There are a few areas that we are adding our spend. First is on early detection. And as Yusheng mentioned, we are looking to partner with hospitals and insurance companies. So we have on the funnel, for the hospital segment, and sales personnel for the insurance segment. We have marketing teams. Then on the back end, we have call centers and other operational support elements. So we've started adding the organizational headcount and infrastructure for early detection starting this year, and these will remain in place.

37:57 And if the business traction is going well, then we'll certainly look to add more on these elements. And in addition, On these early detection clinical programs, we are adding the power of programs that we are executing. So over time, and this will hit R&D line, over time, early detection clinical expense will increase as we do have quite a few large studies underway already and we are looking to draw up additional and launch additional studies down the road. So early detection will be an incremental driver. And in addition to that, as we think about MRD, as we think about additional product launches that we offer for oncology patients, we are also building up our sales and marketing team over time for the oncology patient business. So that is adding spend as well.

38:59 Then on the overall footprint, we have a new building rented about double the space of our current place in Guangzhou that is going to house our early detection operation including the lab function which will support the large clinical study and the commercialization effort. So the overall footprint which will hit the GNA line is also increasing. So I would expect the OPEX levels to remain at this place and even trend up over time, more dependence on commercial and clinical progress.

39:44 Great. And one last one from me. A clear bright spot in the quarter was the performance at the biopharma, the pharma services line. You know, recognizing that can be lumpy. The value of contracts entered into in the first half of the year was pretty impressive. Can you share anything in terms of mix of projects or applications that you're working on with your biopharmaceutical partners? How you expect this to trend over time and, you know, how we should view this as a future indicator for NGS test adoption in China. I'm wondering how much weight you put on these trends as you think about the outlook for adoption of NGS-based tools in your key market.

40:42 Okay, Doc, I can try to answer that question. For our pharmaceutical collaboration business, it's a blend between biomarker service studies and companion, all the way to companion diagnostic collaborations. And we have most recently, I think we also mentioned in our announcement that we have formed a collaboration with Impact Therapeutics, CDX. and others in both the US and China. We are seeing more and more domestic and US innovative drug development companies showing interest in our pipeline and in our registration capability to be able to serve CBX projects in both the US and China.

41:36 So we're seeing a bit of a trend towards larger CDX collaboration projects on that, but we're still having a lot of biomarker service exploratory studies collaborations with domestic companies as well. So I guess the short answer is that it's a mix. And then in terms of the NGS adoption, I think a more clear trend is towards that more and more companies or drug companies in China, they are now adopting the CDX concept. So I think the transition to NGS from traditional like IHC or PCR to NGS is still gradual and it's case by case because there are biomarkers, for example, PD-L1, where you don't need NGS. And then there are biomarkers where you could do either IHC or NGS or PCR or NGS. And then there are more and more biomarkers that you have to do NGS. So the transition there is case by case, but we do see a very sharp transition into the CDX concept, which means that a lot of the drug companies, if they're working on targeted therapy or immunotherapy drugs in China, Now, I think it's part of the requirement from regulatory that they have a biomarker strategy

43:08 from almost the very beginning, and especially going into the approval phase, they have to have a clear strategy for biomarker companion diagnosis solution, which was not true a couple of years ago. So we think we are pretty excited to see that in China, Finally, because that's been true actually for the U.S. market for a long time.

43:36 Great. Okay. Thanks very much. I want to say one more thing about the pharma business. So it's not about one or two project dominant to total contract value. Actually, it consists of many projects with different values and different partners. So I would say that it's really a trend and very healthy from my observation. Great. Thank you. Next question comes from David Lee from Bank of America. Please ask a question.

44:15 Great. Thank you, management, for giving me the chance to ask a question. So my question is regarding on the The strict regulation on the overall China health care policy. It seems like a trend that the government is going to have a lot of the strict regulation on the data, especially the genetic data. Do you have any feeling that our, especially for our business, which will collect and have collected a lot of the Do you think we will have some of the risks in the future? Thank you.

45:06 Well, thanks for asking, and that's a very important question. For medical data, you're right. The government is getting stricter and stricter about the security. and it was not, actually we started to care about the security of data a long time ago and we report to the government, have communication with them time to time to let them know how we regulate the data inside and make sure that the data generated in China keep in China. And so, you know, the first government department we need to talk about is HGR.

45:56 I think so far we have built up a good channel of communication. And we don't think that will be a high risk for burning rock, just we're always doing the way that the government wants to see.

46:17 Ray, Ray, thank you.

46:20 You're welcome. And David, just to add, as Yusheng mentioned, human genetic resources, HGR, that's the most important, we think, related to the life sciences or biotech industry, as we have seen negative impacts already about increasing HGR regulation, hitting a few levels. and other companies for violating HGR regulations in the past. So we have paid a lot of attention to HGR regulation and ensure that we are fully compliant to HGR regulation, biosecurity and other relevant laws and regulations in China. We'd like to mention that out of the HGR's approved projects, you can notice it's actually publicly available and you can notice our position out of the approved list where we have a decent track record in this space. So we are confident to maintain good standards going forward in this regard.

47:28 Thanks, Liu. That's helpful. Thank you. Our next question comes from the line of Sean Wu from Morgan Stanley. Please ask the question.

47:41 Thank you very much, Benjamin, for taking my question. I have one follow-up question about pharma businesses. I think it's clearly very encouraging, but I'd like to know more about the kind of competitive dynamics and just about the competition for these pharma businesses. And we also heard that other companies in this industry talking about the biopharma as well. Do you expect competition to impact and affect the flow? So that's the first question. And I have two other small questions. Okay, the early detection, do you think that this can increase market focus? We have also seen more products being commercialized in China.

48:33 How do you think about the competitive dynamics going forward? And as a follow-up, the products we see in China are mostly single cancer early detection tests. How do you think about the competition between single versus the multiple cancer early detection? And on the way, there are other companies with the single focus detection for gastric cancer or block, you know, colorectal cancer going public there, and I think they're are some good examples out there. So how do you compare those single cancer-type boxes and your multi-cancer detection?

49:19 Thank you. Hi. Thanks for asking, Sean. I can take your question. So in terms of a farmer-based business, so the first thing is that you are right that the total market is increasing dramatically and that is why I think not only Burning Rock mentioned about farmer business. But our competitive advantage is that we are, we are not the only one but quite few in the world who can register the CDX in both US and China in terms of NGS platform. And as I mentioned, we hired Sharon Liang, Dr. Sharon Liang to join us.

50:13 And her background is fantastic about the, you know, registration in both the U.S. and China. She worked for FDA for over nine years for IVD approval. and I mentioned that the quality is another factor. So we are the only one who has the endorsement of FDA telling the world that our quality, no matter of FIP sample and the liquid biopsy, our quality is not the best. Which farmer really care about quality? They care about whether their drug can be approved. That is highly related with the quality of the test. Yeah, that's about the farmers. We think that there will be some competition, but in terms of registration in both U.S. and China, and the second thing is about MNCs who want to land in China, selecting high-quality partners, we are the first choice of there.

51:17 And the second question about the early detections, we have seen that the single cancer testing is getting more and more excessive for for colon cancer, and recently there's some for liver cancer early detection. Our philosophy is that the market is just a beginning, so everyone has a space. But for Burning Rock, we care about the multi-cancer early detection from the very beginning, and we continuously believe that... That will be a bigger feature. The reason is that any product, you have to think about the scenario of the commercialization.

52:05 If we think about a person who wants to do a health checkup every year, and his or her need is whether she or he have some problems in certain organs. It's not about a single type of organ he or she wants to check. So that is why we think that everyone has their market in the future, but multi-cancer early detection has the biggest one. And in terms of multi-cancer early detection, if you look at the data, probably Burning Rock is the company that has the best data in China.

52:50 And if you look at the trials led by those famous PIs, the only two trials for multi-cancer early detection that has passed the HGR approval that is necessary for a clinical trial. So the only trials are all come from burning rock. So from my point of view, for multi-cancer early detection, we do have serious failures. Sorry, we don't have serious competitors in the market in China. Thank you. All right, thank you. We have reached the end of the question and answer session. So with that, we conclude our conference for today.

53:36 Thank you for participating. May all this connect.