Good day and thank you for standing by. Welcome to the Burning Rock Biotech 2021 Second Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. Before we begin, I’d like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by 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 market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond Burning Rock’s control. Forward-looking statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those contained in any such statements. Burning Rock does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. And now, I would like to hand the conference over to your first speaker today, Mr. Yusheng Han, CEO of Burning Rock. Thank you. Please go ahead, sir.

Thank you and welcome to Burning Rock’s Q2 conference call. I am Yusheng Han, the CEO and Founder of Burning Rock. Today, we have our COO, Shannon; CTO, Joe; and CFO, Leo 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 expansion, and then our CFO, Leo, will walk you through the financials. So first, let’s turn to Page 3. 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 – to new business of early detection, MRD and pharmaceutical collaborations. We have strong branding on our technology and product quality, which help us attract talents. And the network we have built across thousands of oncologists and hundreds of hospitals enable us to rapidly innovation and R&D studies on new products as well as faster distribution when the products go to the market. The existing high testing volumes make it possible 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. Let’s turn to Page 4 for some highlights of our recent programs. First of all, we are very proud that the technology of our early detection combining a maturation-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 on a solid foundation for our product line development. We mentioned about the preparation of commercialization of early detection earlier this…

Yes. Yes. Thank you, Yusheng. So, now let’s move to Page 6. It’s an overview and we 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 THUNDER study on our 6-cancer product last November. We have also accumulated more data on our intend-to-use population through the early access program that Yusheng just mentioned. With that, we plan to start the commercialization of our 6-cancer product in early 2022. In the meanwhile, we are launching a prospective study on intend-to-use population to provide more data and also more validation clarity on clinical utility and also false-negative and false-positive impact of our early detection tests 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 PRESCIENT, 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. PREDICT is expected to have the first readout by the end of 2022 and PRESCIENT 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 to determine our app, which is the prognosis prediction and adjuvant chemotherapy benefit prediction product for lung cancer patients that we licensed in from OncoCyte to go into the China market. For the MRD products, we are now putting together some clinical validation data on lung cancer patients and we are…

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. Now moving to Slide 19 by channel, first, in-hospital, 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 in-hospital is accelerating 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. And there is a backlog of an additional 22 hospitals that we look to complete contracting. 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 2 years, or in some cases, even longer. And we hope to accelerate this as NGS becomes…

Thank you. [Operator Instructions] Your first question comes from the line of Doug Schenkel from Cowen. Please go ahead.

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 sounds like with the trends 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 pacing?

Yes. 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 are not certain, whether it’s going to be as bad as August. We hope you won’t, but we do want to leave some buffer room there. So, absence of any significant COVID flare-ups again, we think of Q4 should proceed a bit better. And this is the typical seasonality that we do see. But with COVID, it’s becoming more difficult to predict.

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

Yes. 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 to looking partner with hospitals and insurance companies. So, we have on the funnel for the Hospital segment, sales personnel for the Insurance segment. We have marketing teams. And on the back end, we have core centers and other operational support elements. So, we have started adding the organizational headcount and infrastructure for early detection starting this year, and these will remain in place. And if the business traction is going well, then we will certainly look to add more on these elements. And in addition, on these early detection clinical programs, we are adding the prior 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. Then on the overall footprint, we have a new building rented, about double the pace 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 efforts. So the overall footprint, which will hit the G&A line, is also increasing. So, I would expect the OpEx levels to remain at this place and even trend up over time, more dependent on commercial and clinical progress.

Great. And one last one is for me. A clear bright spot in the quarter was the performance at the biopharma, the pharma services line. 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 are working on with your biopharmaceutical partners, how you expect this to trend over time? And how we should view this as a future indicator for NGS test adoption in China? I am wondering how much weight you put on these trends as you think about the outlook for adoption of NGS-based tools in your key markets?

Okay. Doug, I can try to answer that question. In terms of the product mix for our pharmaceutical collaboration business, it’s a blend between biomarker service studies and companion – all the way to companion diagnostic collaboration. And we have most recently – I think we also mentioned in our announcement that we have formed collaboration with IMPACT Therapeutics, a CDx collaboration in both the U.S. and China. And we are seeing more and more both – more and more domestic, both domestic and U.S. innovative drug development companies showing interest in our pipeline and in our registration capability to be able to serve CDx projects in both the U.S. and China. So, we are seeing a bit of a trend towards larger CDx collaboration projects on that. But we are 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 for – 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, it’s 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 PCL 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 are 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 from the – almost the very beginning. And especially going into the approval phase, they have to have a clear strategy for biomarker on companion diagnostic 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.

I want to say one more thing about the pharma business. So, it’s not about one or two projects dominant, it’s 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.

Thank you. Our next question comes from David Lee from Bank of America. Please ask your question.

Great. Thank you, management for giving me the chance to ask questions. So, my question is regarding on the stricter regulation of the overall China healthcare policy. It seems like a trend that the government is going to have a lot of the stricter regulation of the data, especially the genetic data. Do you have any feeling that our – especially for our business, which we will collect and have collected one of the genetic data from the patient, do you think we will have some of the risks in the future? Thank you.

Well, thanks for asking, and that’s a very important question. For medical data, you are 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 insights and make sure that the data generated in China stay in China. And so the first government department, we need to talk about is HGR. 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 are always doing the way that the government want to see.

Thank you.

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 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 would like to mention that out of the HGR’s approved projects, you can notice it’s actually publicly available. And then 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.

Thanks Li. That’s helpful.

Thank you. Our next question comes from the line of Sean Wu from Morgan Stanley. Please ask your question.

Thank you very much. Thank you for taking my question. I have one follow-up question about the pharma businesses. I think it’s clearly a better encouraging, but I would like to know more about the kind of competitive dynamics. Can you talk about the competition for the pharma business? And we also figure out other companies in this industry for biopharma and do you expect competition to impact [indiscernible]. So, that’s the first question. And I have two other small questions. Okay, so early detection, we think that this is an increased market focus. So, we are focusing more products in commercial in China. How do you think about the competitive dynamics going forward? And as a follow-up, the products we see in China are most of clinical cancer test product, how do you think about the competition between single versus the multiple cancer service protection? And along the way, there are other companies with a simple focus selection for gastric cancer or colorectal cancer going public and I think there are some good examples of that. So, how do you expect the single cancer had focused on multi-cancer detection? Thank you.

Hi. Thanks for asking, Sean. I can take your question. So, in terms of pharma business, so the first thing that you are right that the total market is increasing dramatically. And that is why I think not only Burning Rock mentioned about pharma business. But our competitive advantage is that we are – if not the only one, but we are quite few in the world who can register the CDx in both U.S. and China in terms of NGS platform. And as I mentioned, that we hired Sharon Liang, Dr. Sharon now to join us. And her background is fantastic about the registration in both the U.S. and China as she worked for FDA for over 9 years for IVD approval. So – and as mentioned that the quality is another factor. So we are the only one who has the endorsement of FDA cutting the world that our quality, no matter of FIP sample and the liquid biopsy. Our quality is among the best, which pharma really care about quality. They care about the – whether the drug can be approved, that’s highly regulated with the quality of the test. So yes, that’s about the pharma. We think that there will be some competition. But in terms of registration in both the U.S. and China, and the second thing is about MNCs who want to land in China selecting high-quality partner, we are the first choice out there. And the second question about the early detection. We have seen that the single cancer testing is getting more and more effective for colon cancer. And recently, there is some for liver cancer early detection. Our philosophy is that the market is just a beginning. So, everyone has the space. But for Burning labs, we care about the multi-cancer…

Alright. Thank you. We have reached the end of the question-and-answer session. So with that, we conclude our conference for today. Thank you for participating. You may all disconnect.