Burning Rock Dx(BNR) - 2022 Q3 - Quarterly Report

Recent Business Updates Burning Rock's Q2 2022 business updates show mixed performance, with therapy selection and MRD growth in some regions despite COVID-19, new products boosting central lab revenues, progressing early detection studies, and significant Pharma Services revenue growth and contract backlog build-up Therapy Selection and Minimal Residual Disease (MRD) In-hospital and MRD channels are driving growth, though patient volumes were negatively impacted by COVID-19 restrictions, with new products contributing to central lab revenues - In-hospital and MRD are driving growth uplift, but patient volumes were negatively impacted by Covid-related restrictions[2] - For the in-hospital channel, other regions combined grew over 60% year-over-year in Q2 2022 in testing volume, despite severe Covid-related impact in Shanghai and Beijing[3] - New product sales contributed 7% of central laboratory segmental revenues in Q2 2022[3] Early Detection The PROMISE study for a 9-cancer test has completed, with results due at ESMO 2022, and China's first multi-cancer prospective interventional study (PREVENT) has launched - The PROMISE study (2,035 participants) for a 9-cancer test is completed, with results to be presented at ESMO Congress 2022 in September[3] - The PREVENT study, China's first multi-cancer prospective interventional study involving 12,500 participants, launched in Q2 2022[3] Pharma Services Pharma Services continued strong revenue growth, achieving 166.6% year-on-year increase in Q2 2022, with a rapidly building contract backlog of RMB158 million in new contracts - Pharma Services achieved 166.6% revenue growth year-on-year in Q2 2022[3] - The pharma service contract backlog is rapidly building, with new contracts totaling RMB158 million from January to July 2022, a 49% increase from the prior year period[3] Second Quarter 2022 Financial Results Overview Burning Rock reported a 2.8% increase in total revenues to RMB130.8 million for Q2 2022, driven by pharma services, offsetting declines in central laboratory and in-hospital businesses due to COVID-19, resulting in an increased net loss of RMB262.1 million Revenues Breakdown Total revenues increased by 2.8% year-over-year to RMB130.8 million in Q2 2022, with pharma R&D revenue growing significantly by 166.6%, while central laboratory and in-hospital revenues saw declines Table: Revenues by Segment (RMB million) | Segment | Q2 2022 Revenue (RMB million) | Q2 2021 Revenue (RMB million) | YoY Change | | :------ | :---------------------------- | :---------------------------- | :--------- | | Total | 130.8 | 127.3 | +2.8% | | Central Laboratory | 78.6 | 80.0 | -1.8% | | In-hospital | 34.2 | 40.5 | -15.6% | | Pharma R&D | 18.1 | 6.8 | +166.6% | - Central laboratory revenues increased by 5.9% sequentially compared to Q1 2022, driven by new product launches[4] - The in-hospital revenue decline was primarily due to severe declines in testing volume in Shanghai from Covid-19 lockdown, and to a lesser extent, declines in Beijing[4] Cost of Revenues and Gross Profit Gross profit decreased by 8.5% to RMB82.6 million in Q2 2022, with gross margin falling to 63.1%, primarily due to increased depreciation and inventory write-downs, while non-GAAP gross profit remained stable Table: Gross Profit Metrics (RMB million) | Metric | Q2 2022 (RMB million) | Q2 2021 (RMB million) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Cost of Revenues | 48.2 | 37.0 | +30.2% | | Gross Profit | 82.6 | 90.2 | -8.5% | | Gross Margin | 63.1% | 70.9% | -7.8 ppts | - The increase in cost of revenues and decrease in gross margin were primarily due to increased depreciation related to the new laboratory and inventory write-downs[5] Table: Non-GAAP Gross Profit Metrics (RMB million) | Metric | Q2 2022 (RMB million) | Q2 2021 (RMB million) | YoY Change | | :----- | :-------------------- | :-------------------- | :--------- | | Non-GAAP Gross Profit | 90.9 | 90.7 | +0.3% | | Non-GAAP Gross Margin | 69.5% | 71.2% | -1.7 ppts | Operating Expenses Total operating expenses increased by 19.1% to RMB348.1 million in Q2 2022, driven by a significant rise in selling and marketing expenses, while R&D expenses decreased Table: Operating Expenses Breakdown (RMB million) | Expense Category | Q2 2022 (RMB million) | Q2 2021 (RMB million) | YoY Change | | :--------------- | :-------------------- | :-------------------- | :--------- | | Total Operating Expenses | 348.1 | 292.3 | +19.1% | | R&D Expenses | 92.1 | 108.1 | -14.8% | | Selling & Marketing Expenses | 105.6 | 68.1 | +55.2% | | G&A Expenses | 150.3 | 116.1 | +29.4% | - Research and development expenses decreased primarily due to lower project costs and reduced share-based compensation[7] - Selling and marketing expenses increased primarily due to higher staff costs, marketing expenditures, and amortized expense on Employee Share Incentive Plan modification[7] Net Loss and Cash Position Burning Rock reported a net loss of RMB262.1 million in Q2 2022, with net cash used in operating activities at RMB109.3 million, and a cash, cash equivalents, restricted cash, and short-term investments balance of RMB1,153.1 million Table: Net Loss and Cash Position (RMB million) | Metric | Q2 2022 (RMB million) | Q2 2021 (RMB million) | | :----- | :-------------------- | :-------------------- | | Net Loss | 262.1 | 203.7 | | Net Cash Used in Operating Activities | 109.3 | 119.0 | | Cash, Cash Equivalents, Restricted Cash & Short-term Investments (as of June 30, 2022) | 1,153.1 | N/A | 2022 Financial Guidance Despite significant Q2 business volume impacts from COVID-19 restrictions, Burning Rock maintains its full-year 2022 revenue guidance of approximately RMB620 million (US$92.6 million), while acknowledging risks of further unpredictable COVID-19 impacts - Burning Rock retains its full-year 2022 revenue guidance of approximately RMB620 million (US$92.6 million)[9] - The Company highlights the risks of further Covid-related impact in H2 2022, which is beyond its control and inherently difficult to forecast[9] Share Repurchases Burning Rock has completed its US$10 million share repurchase program, repurchasing 3,023,138 Class A ordinary shares in the form of ADSs, which will be held as treasury shares - The US$10 million share repurchase program has been completed in full[10] - The Company repurchased a total of 3,023,138 Class A ordinary shares in the form of ADSs under the program[10] - The repurchased shares will be retained as treasury shares and have not been excluded from the calculation of loss per share for Q2 2022 financial results[10] Conference Call Information Burning Rock hosted a conference call on August 31, 2022, to discuss Q2 2022 financial results, with registration and webcast details provided for participants and replay access - Burning Rock hosted a conference call to discuss Q2 2022 financial results at 8:30 a.m. U.S. Eastern Time (8:30 p.m. Hong Kong time) on August 31, 2022[11] - A live and archived webcast of the conference call is available on the company's investor relations website[12] About Burning Rock Burning Rock Biotech Limited is a precision oncology company utilizing next-generation sequencing (NGS) technology for therapy selection in late-stage cancer patients and advancing cancer early detection from R&D to clinical validation - Burning Rock Biotech Limited focuses on applying next-generation sequencing (NGS) technology in precision oncology[13] - Its business includes NGS-based therapy selection testing for late-stage cancer patients and cancer early detection, which is now in clinical validation[13] Safe Harbor Statement This section provides a standard disclaimer regarding forward-looking statements, noting they are based on current expectations and involve risks and uncertainties, and the company does not undertake to update them unless legally required - This press release contains forward-looking statements, identifiable by specific terminology such as 'will,' 'expects,' 'anticipates,' and similar expressions[14] - Such statements are based on management's current expectations and market conditions, relating to events with known or unknown risks and uncertainties, many beyond Burning Rock's control[14] - Burning Rock does not undertake any obligation to update forward-looking statements due to new information or future events, except as required by applicable law[14] Non-GAAP Measures Burning Rock uses non-GAAP measures like non-GAAP gross profit and gross margin, excluding depreciation and amortization, to provide supplemental insights into operating performance and facilitate period-to-period comparisons, not as substitutes for U.S. GAAP financial information - The company uses non-GAAP measures, including non-GAAP gross profit and gross margin, as supplemental tools to assess operating performance[15] - Non-GAAP gross profit is defined as gross profit excluding depreciation and amortization, and non-GAAP gross margin is gross margin excluding depreciation and amortization[15] - Management uses these non-GAAP measures to evaluate operating performance and formulate business plans, believing they enable more meaningful period-to-period comparisons of ongoing operations[16] Selected Operating Data This section presents key operational metrics for Burning Rock's central laboratory and in-hospital channels across several quarters, showing patient volumes, ordering physicians, and partner hospital counts Table: Central Laboratory Channel Operating Data | Central Laboratory Channel | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :------------------------- | :------------- | :------------ | :----------------- | :---------------- | :------------- | :------------ | | Number of patients tested | 7,716 | 8,155 | 7,808 | 8,235 | 7,743 | 8,060 | | Number of ordering physicians | 1,082 | 1,013 | 920 | 917 | 994 | 767 | | Number of ordering hospitals | 303 | 300 | 287 | 306 | 318 | 264 | Table: In-hospital Channel Operating Data | In-hospital Channel | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :------------------ | :------------- | :------------ | :----------------- | :---------------- | :------------- | :------------ | | Pipeline partner hospitals | 22 | 22 | 24 | 23 | 24 | 25 | | Contracted partner hospitals | 32 | 34 | 34 | 41 | 41 | 41 | | Total number of partner hospitals | 54 | 56 | 58 | 64 | 65 | 68 | Selected Financial Data This section provides a quarterly breakdown of revenues, gross profit, and share-based compensation expenses across Burning Rock's central laboratory, in-hospital, and pharma research and development channels Table: Revenues by Channel (RMB thousands) | Revenues (RMB thousands) | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :----------------------- | :------------- | :------------ | :----------------- | :---------------- | :------------- | :------------ | | Central laboratory channel | 74,561 | 79,999 | 78,817 | 85,976 | 74,211 | 78,597 | | In-hospital channel | 28,994 | 40,502 | 43,714 | 51,906 | 48,957 | 34,177 | | Pharma research and development channel | 3,068 | 6,778 | 4,084 | 9,463 | 12,356 | 18,072 | | Total revenues | 106,623 | 127,279 | 126,615 | 147,345 | 135,524 | 130,846 | Table: Gross Profit by Channel (RMB thousands) | Gross Profit (RMB thousands) | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :--------------------------- | :------------- | :------------ | :----------------- | :---------------- | :------------- | :------------ | | Central laboratory channel | 55,212 | 58,681 | 58,387 | 65,985 | 50,574 | 57,575 | | In-hospital channel | 20,070 | 29,426 | 31,111 | 34,194 | 33,396 | 20,012 | | Pharma research and development channel | 1,658 | 2,124 | 2,098 | 5,200 | 3,610 | 5,015 | | Total gross profit | 76,940 | 90,231 | 91,596 | 105,379 | 87,580 | 82,602 | Table: Share-based Compensation Expenses (RMB thousands) | Share-based Compensation Expenses (RMB thousands) | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :------------------------------------------------ | :------------- | :------------ | :----------------- | :---------------- | :------------- | :------------ | | Cost of revenues | 339 | 406 | 267 | 492 | 365 | 441 | | Research and development expenses | 22,404 | 20,825 | (9,559) | (4,033) | 12,299 | 11,923 | | Selling and marketing expenses | 2,633 | 2,809 | 2,044 | 2,126 | 1,774 | 2,158 | | General and administrative expenses | 59,382 | 59,369 | 60,803 | 62,126 | 65,715 | 62,615 | | Total share-based compensation expenses | 84,758 | 83,409 | 53,555 | 60,711 | 80,153 | 77,137 | Unaudited Condensed Statements of Comprehensive Loss This section presents Burning Rock's unaudited condensed statements of comprehensive loss, detailing revenues, cost of revenues, gross profit, operating expenses, and net loss for both the three and six months ended June 30, 2022, compared to previous periods Three Months Ended June 30, 2022 This section details the unaudited condensed statements of comprehensive loss for the three months ended June 30, 2022, showing revenues, cost of revenues, gross profit, operating expenses, and net loss Table: Condensed Statements of Comprehensive Loss (Q2 2022, RMB) | Metric | Q2 2022 (RMB) | Q2 2021 (RMB) | | :----- | :------------ | :------------ | | Revenues | 130,846 | 127,279 | | Cost of Revenues | (48,244) | (37,048) | | Gross Profit | 82,602 | 90,231 | | Total Operating Expenses | (348,062) | (292,259) | | Loss from Operations | (265,460) | (202,028) | | Net Loss | (262,137) | (203,665) | | Basic and Diluted Loss per Class A Ordinary Share | (2.50) | (1.96) | Six Months Ended June 30, 2022 This section details the unaudited condensed statements of comprehensive loss for the six months ended June 30, 2022, showing revenues, cost of revenues, gross profit, operating expenses, and net loss Table: Condensed Statements of Comprehensive Loss (Six Months Ended June 30, 2022, RMB) | Metric | Six Months Ended June 30, 2022 (RMB) | Six Months Ended June 30, 2021 (RMB) | | :----- | :----------------------------------- | :----------------------------------- | | Revenues | 266,370 | 233,902 | | Cost of Revenues | (96,188) | (66,731) | | Gross Profit | 170,182 | 167,171 | | Total Operating Expenses | (698,502) | (541,062) | | Loss from Operations | (528,320) | (373,891) | | Net Loss | (523,525) | (375,076) | | Basic and Diluted Loss per Class A Ordinary Share | (5.00) | (3.60) | Unaudited Condensed Consolidated Balance Sheets This section provides a snapshot of Burning Rock's financial position, detailing assets, liabilities, and shareholders' equity as of December 31, 2021, and June 30, 2022, showing a decrease in total assets and cash, alongside an increase in accumulated deficits Table: Consolidated Balance Sheet - Assets (RMB thousands) | Asset Category | Dec 31, 2021 (RMB thousands) | June 30, 2022 (RMB thousands) | | :------------- | :--------------------------- | :---------------------------- | | Cash and cash equivalents | 1,431,317 | 1,148,597 | | Total current assets | 1,820,946 | 1,463,085 | | Total non-current assets | 457,641 | 398,189 | | TOTAL ASSETS | 2,278,587 | 1,861,274 | Table: Consolidated Balance Sheet - Liabilities & Equity (RMB thousands) | Liability & Equity Category | Dec 31, 2021 (RMB thousands) | June 30, 2022 (RMB thousands) | | :------------------------ | :--------------------------- | :---------------------------- | | Total current liabilities | 372,184 | 359,450 | | Total non-current liabilities | 61,092 | 69,591 | | TOTAL LIABILITIES | 433,276 | 429,041 | | Total shareholders' equity | 1,845,311 | 1,432,233 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 2,278,587 | 1,861,274 | - Accumulated deficits increased from RMB (2,228,713) thousands as of Dec 31, 2021, to RMB (2,752,238) thousands as of June 30, 2022[28] Unaudited Condensed Statements of Cash Flows This section details Burning Rock's cash flow activities for the three and six months ended June 30, 2022, showing net cash used in operating, investing, and financing activities, leading to an overall decrease in cash, cash equivalents, and restricted cash Three Months Ended June 30, 2022 This section details the unaudited condensed statements of cash flows for the three months ended June 30, 2022, showing net cash used in operating, investing, and financing activities Table: Condensed Statements of Cash Flows (Q2 2022, RMB thousands) | Cash Flow Activity | Q2 2022 (RMB thousands) | Q2 2021 (RMB thousands) | | :----------------- | :---------------------- | :---------------------- | | Net cash used in operating activities | (109,274) | (118,998) | | Net cash (used in) generated from investing activities | 30,729 | (67,577) | | Net cash used in financing activities | (69,559) | (8,961) | | Net decrease in cash, cash equivalents and restricted cash | (121,825) | (229,621) | | Cash, cash equivalents and restricted cash at end of period | 1,153,050 | 1,883,265 | Six Months Ended June 30, 2022 This section details the unaudited condensed statements of cash flows for the six months ended June 30, 2022, showing net cash used in operating, investing, and financing activities Table: Condensed Statements of Cash Flows (Six Months Ended June 30, 2022, RMB thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 (RMB thousands) | Six Months Ended June 30, 2021 (RMB thousands) | | :----------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | (253,634) | (232,143) | | Net cash generated from investing activities | 17,718 | 220,752 | | Net cash used in financing activities | (73,493) | (13,123) | | Net decrease in cash, cash equivalents and restricted cash | (286,062) | (41,941) | | Cash, cash equivalents and restricted cash at end of period | 1,153,050 | 1,883,265 | Reconciliations of GAAP and Non-GAAP Results This section reconciles GAAP gross profit to non-GAAP gross profit and non-GAAP gross margin, broken down by central laboratory, in-hospital, and pharma R&D channels across several quarters, primarily adjusting for depreciation and amortization in cost of revenues Table: Reconciliation of Gross Profit to Non-GAAP Gross Profit (RMB thousands) | Gross Profit (RMB thousands) | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :--------------------------- | :------------- | :------------ | :----------------- | :---------------- | :------------- | :------------ | | Total gross profit | 76,940 | 90,231 | 91,596 | 105,379 | 87,580 | 82,602 | | Add: depreciation and amortization included in cost of revenues | 206 | 437 | 1,382 | 1,981 | 5,139 | 8,300 | | Total non-GAAP gross profit | 77,146 | 90,668 | 92,978 | 107,360 | 92,719 | 90,902 | Table: Non-GAAP Gross Margin by Channel | Non-GAAP Gross Margin | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :-------------------- | :------------- | :------------ | :----------------- | :---------------- | :------------- | :------------ | | Central laboratory channel | 74.2% | 73.7% | 75.7% | 77.9% | 71.6% | 76.5% | | In-hospital channel | 69.5% | 72.9% | 71.4% | 66.1% | 68.4% | 62.7% | | Pharma research and development channel | 54.4% | 31.9% | 51.8% | 64.0% | 49.4% | 51.7% | | Total non-GAAP gross margin | 72.4% | 71.2% | 73.4% | 72.9% | 68.4% | 69.5% |