Genetron Holdings Limited
Q1 2021 Earnings Call Transcript

Published: 24 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Q1 2021 Genetron Health Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Hoki Luk. Please go ahead. Thank you.

[Hoki Luk:]

Hello, everyone and welcome to Genetron Health first quarter 2021 Earnings Conference Call. The company's earnings release was issued earlier today and it's available on the company's IR website.

[Sizhen Wang:]

Thank you, Hoki. Good morning and good evening everyone and thank you for joining our first quarter 2021 earnings call. I would like to direct you to the supplemental earnings presentation on our IR website and begin on slide two. So, thus far in 2021, we have continued to solidify our position as a leading physician oncology company in China with a comprehensive portfolio that covers the entire spectrum of cancer management, addressing needs and challenges from early screening, diagnosis, and treatment recommendations, as well as disease monitoring. If -- turning to slide four in the first quarter, Genetron delivered a strong financial operational results with close to 20% topline year-over-year growth reaching RMB92.1 million. However, note that last year in the same period, we recorded significant revenue from our COVID-19 IVD test. So, if we exclude that our underlying core oncology business revenue grow 52.9% year-over-year. Our revenue growth was also accompanied by notable margin improvements about 59.3% compared to 55% in the first quarter of last year.

[Evan Xu:]

Thank you, Mr. Sizhen. I will provide an update on our financial performance during the reporting quarter. Please note that all numbers provided are in RMB terms and that all comparisons are made on year-over-year basis. Starting on slide 14, in the first quarter, total revenue increased by 19.8% to RMB92.1 million from RMB76.8 million in the same period of 2020. As Sizhen mentioned, excluding revenue from Genetron’s COVID-19 IVD test revenue in the first quarter of 2020, total revenue grew 52.9% year-over-year. Diagnosis and monitoring revenue increased by 30.4% to RMB87.1 million in the first quarter of 2021 from RMB66.8 million in the same period of 2020. The increase was driven by growth in revenues generated from the provision of the LDT services in both diagnosis and early screenings. Note revenue in the first quarter was impacted by COVID-19 resurgence in some of our key sales territories, which Sizhen discussed earlier, as well as the Chinese New Year holiday. LDT revenue increased by 51% to RMB71.8 million during the first quarter 2021 from RMB47.6 million in the same period of 2020, this was driven by HCCscreen sales as well as the LDT diagnostic tests. LDT diagnostic tests sold in the first quarter 2021, totaled approximately 5,100 units, representing an increase of 29.6%, compared to the number of our LDT tests sold in LDT diagnostic tests sold in the same period of 2020. IVD revenue decreased by 20.5% to RMB15.3 million in the first quarter 2021 from RMB19.2 million in the first quarter 2020. The decrease was due to RMB16.6 million of COVID-19 test revenue that was booked in the first quarter of 2020. So, excluding that revenue sales of IVD products grew 490%, driven primarily by those of S5 instruments. We continue to expect our expanding installation base propelled by Genetron’s IVD sales team, along with our collaboration with Siemens to drive our regions and their overall sales in the coming quarters. Revenue generator from development services decreased by 50.6% to RMB 5 million in the first quarter 2021 from RMB 7.1 million in the same period of 2020. The change many resulted from the decrease in sequencing services, reflecting our continued adjustment of business strategy towards more highly value -- high value biopharma services. Biopharmaceutical revenue continued to increase by several folds compared to a year ago and we are optimistic, our overall biopharma services trends. Cost of revenue increased by 8.6 – 8.4% to RMB 37.5 million. So the three months ended March 31st, 2021 compared to RMB 34.6 million in the same period of 2020.

[Sizhen Wang:]

Yes. Thank you, Evan. In closing, we’ve had good start to 2021 financially and operationally, highlighted by our new strategic collaboration and encouraging HCCscreen data. Shown on slide 20 and 21, our strategic focus going forward will be to accelerate the development of a liquid biopsy based solutions across the full cycle cancer management, particularly, in early screening and MRD. While continuing to ramp up our commercialization efforts and grow our base business. We remain on track to initiate Registrational trials of HCCscreen and OncoPan Scan shortly, although as well as launching Seq-MRD for our biopharma customers in their clinical house for Hematologic cancers. And we look forward to sharing CRC case control early screening data and MRD liver cancer data with you in the near future. So overall, we remain confident that we are well positioned in the fast growing precision oncology sector. And we are excited about our growth prospects. And last but not least, we remain highly committed to focusing on innovation, to develop high quality products that would benefit more cancer patients. Well, this concludes the prepared remarks portion of today's call. Operator, we're now ready for questions.

[Operator:]

Certainly. Thank you. We've the first question from the line of Sung Ji Nam from BTIG. Please go ahead.

[Sung Ji Nam:]

Hi. Thanks for taking the questions. Maybe starting out with your Biopharma business, could you talk about the trend there? Obviously, it was also impacted by the pandemic and just kind of curious, you saw growth year-over-year again this quarter. Are you seeing that business normalizing, anticipate more projects that Biopharma work, clinical trials will continue to normalize going forward?

[Sizhen Wang:]

Right. So I got that. Definitely, you're looking at a very fast growth phase for in house business. In fact, our CMO was just called back from a very busy meeting in Soochow over the weekend, right. There’s DIA meeting in China. And they're so many -- so much Biopharma activities going on in China which reminds me stabilizing the impact, we see the Biopharma activities are picking up in generally coming back to a normal pace starting the second half of last year. And although we have disruption in the first quarter of this year, especially December -- essentially, December last year and January this year, but with the environment back to normal in March, like I said, the Biopharma activities are really picking up speed. And Genetron again is very well positioned to serve the surging demand from this Biopharma sector. Given that, we are the very few players in the market that possess the -- that will run at a capability to help them -- the drug development, that the full cycle of their drug development. Given that, we have a strong R&D capability and we have probably the world class regulatory capability as well as we already built up a nice coverage in terms of the testing market. So we basically have everything that the Biopharma are looking for. So that's why we see a strong demand in this line of business of Genetron. So, remember, we had a very slow start last year, but now we have over 40, I think we have 40 biopharma partners now, including the big MNC, as well as the cutting-edge, the leading local startups. And they're covering full range from the small molecule to CTG, Celgene to CTG sector or Celgene Therapy Sector and that we are leveraging fully our proprietary technology, such as One-Step technology, the FusionScan, as well as the Mutation Capsule. And we're collaborating Operator? Operator, we have lost the line for our main speakers. We will wait until we have our lines with main speakers connected.

[Sung Ji Nam:]

Should I redial or they're calling back?

[Hoki Luk:]

No, I think you are good Sung Ji. Yes.

[Sung Ji Nam:]

Okay.

[Unidentified Company Representative:]

Pardon for interruption. We have the speaker line back.

[Hoki Luk:]

Yes. We're back. Hello. Yes.

[Unidentified Company Representative:]

Please continue. Sorry.

[Q – Sung Ji Nam:]

Yes. Could I follow-up with a couple more questions? So thank you so much for that. That was very thoughtful.

[Hoki Luk:]

Yes. Sure.

[Q – Sung Ji Nam:]

Maybe one on Siemens, obviously, Siemens Healthineers exciting partnership there. Could you talk about that based on my knowledge they have not done a lot of partnerships in terms on the genomic diagnostic side. So that seems pretty unique from that standpoint. So we'd love to hear kind of what they might be thinking as well in if there are opportunities for them to partner advantage to this area. And also from you guys' standpoint, are there opportunities to also partner with other multi-national large IVD players, such as Roche and others added another?

[Hoki Luk:]

Yes. So you're right, Sung Ji. So we're pleased that we established a partnership with Siemens Healthineers that they are -- they do have a sizable IVD business portfolio in China and they are, I think, the fourth largest player among all the big international players, such as Roche Diagnostics or others. And they do have extensive outreach to the in-hospital testing market in China with a special -- the strong presence in certain areas. And they run out in their offering. They do see the molecular profiling or molecular diagnostics offering is a relatively weakness. So, that's why they do have strong motivation to collaborate with for French molecular diagnostics -- oncology molecular diagnostics players, like Genetron. And so Genetron have one of the leading molecular diagnostics solutions for oncology in China, right? We have with the combination of S5 medium-throughput sequencer with our One-Step Seq technology-based lung cancer 8-gene assay. We have the stop offer -- we have the solution that the hospitals need for their more effective treatment on the lung cancer patients. So we do believe that partnership between our innovative product solutions with very extensive distribution network will good results in this faster growing in-hospital testing market in China. And for your second part of the question, yes, but we are definitely open. And I can't share what exactly or other partnerships we might be making. But I can tell you is that Genetron is a innovative company focusing on developing the first-class molecular diagnostic solutions, right? And we will be always looking for the right partner in order to educate and penetrate the market together more effectively.

[Q – Sung Ji Nam:]

Great. Super helpful. And then lastly for me just a clarification. You mentioned the timeline for the CRC screening test take control study data readout. What about the MRD for CRC, did you guys talk about the timeline there in terms of when the data readout might be available? Thank you.

[Sizhen Wang:]

Yeah. I think we mentioned over the call that we're making significant progress in our --already quite a rich pipeline. So leveraging the same Mutation Capsule technology, we are not only pushing our HCCscreen into Registrational Trial at Penn, but also we have already started our work or study on CRC study screening, and we do expect to release the case -- preliminary case control data sometime this year on CRC. And again, by leveraging the advantages of Mutation Capsule, right, so basically, we can profile a mutation in parallel with methylation changes. So we are developing our MRD product platform as well. And we do expect to release our preliminary liver cancer MRD study data sometime this year. And we also see some encouraging early -- encouraging early data on CRC as well. And as I mentioned the call, we will be launching a larger, a multicenter study for liver cancer MRD as well as your CRC MRD sometime this year.

[Sung Ji Nam:]

Great. Thank you so much.

[Sizhen Wang:]

Thank you, Sung Ji.

[Operator:]

The line from Credit Suisse is open. You can ask the question now. Thank you. Yang Huang from Credit Suisse your line is open. You can ask your question now.

[Unidentified Analyst:]

Okay. Thank you. Yes. This is Yang from Credit Suisse, and congrats for the nice quarter. My first question is about HCC commercialization progress in the first quarter. So can you provide a maybe more color on HCCscreen sales in the first quarter? What is the percentage in our LDT sales? And the second, can you provide more details on the registrational trial we are going to launch later this quarter for our HCCscreen? I suppose we now have completed trial design detail and also we probably have a number of clinical trial sites in?

[Sizhen Wang:]

Yeah. Sure, Yang. Yeah, to answer your first question about the update on the commercialization progress of HCCscreen. So remember, we previously guided HCC -- revenue from HCCscreen will be roughly about 10% to 15% of our annual revenue of 2021. In the first quarter, I mean, at this point, we have not broken out our HCCscreen quarterly sales yet, but I can tell you that early screening revenue is cyclical in Q1. It's part of the reason that our LDT sales process is quite strong in Q1. And I can also share here is that with the developing the all these channels we have set up, since the Q4 of last year, we do see that the HTC spring, as a new service, as a new product has started to generate, has already exhibited the ability to generate sustainable growth. So, we do expect the revenue from this product will continue to grow for the rest of this year. So for the channels, right, and you see that, we have started the work, the rollout with IKON last year, and starting beginning of this year, we're in this Q1, this year, we're pretty much in all of their major house, check these down centers, and we do observe the trend of the same hotels is actually growing months-by-months. So, this is a very good trend that we observed. As this reflect that with the proper education or proper, outreach to the customer, we're very effective channel. We will -- we are starting to generate essentially the awareness among the high risk population and then lead the buying interest from these people is going strong. So, this reflect our belief that, we, at this stage, we want to work with the best upon this, to invest heavily into the market education. We need to tell the people who need the early screening, and where and what products to get, and that area, we will continue to invest along with our partners, and we believe this will translate eventually to high profit revenue growth. And Yang, you also -- I'm pretty sure you also noticed that the recent announcement was -- sorry. So, okay, so you probably have also noticed that the recent announcement, our punisher was a JD Health house. Yeah, so, that's essentially another very good channel. We believe that we will be able to effectively educate the market and it will be effectively build up the brand or build up the awareness. And again, like I said, it will eventually translate to the sustainable revenue growth.

[Unidentified Analyst:]

Yes, thanks, by the way, are you going to consider to increase your guidance for HCCscreen for this year?

[Sizhen Wang:]

Well, I think, as you can imagine, all these channels have a really great potential, right. And then these channel, these partnerships will position us well for future revenue growth. We have no doubt about that. But again, all these partnership building and then like I said, the market education penetration will take time, right. We will take our steps. We, as a company, not only focusing on commercializing the HCCscreen LDT Service, but also we're investing heavily into pushing this into researching tile and turning into eventually IVD product. And we do believe that the big, big potential, that potential is a billion dollar revenue product, like HCCscreen, its full potential will be head when you get the regulatory approval and when you are working away over lease partnership is to build again -- build up the awareness among your target population. And we do have high expectation that we're going to complete the trial and get approval timely even in the very near future, we expect now -- we just restated in the earning call that we expect to have the title down in next year and have the assay approved introduction industry and we're also optimistic that we can eventually drive down the cost structure -- drive down the cost and thus drive down the price and eventually obtain the national reimbursement coverage. And then that's when you will see this product, which a hyper growth period, and then we'll see that this product will -- the last few application of this product will eventually serve our purpose, I mean our ultimate goal of driving down the death rate of liver cancer. And we have -- we are all working very hard on that, from R&D team, the regular team to customer.

[Unidentified Analyst:]

Okay, great. And maybe my second question, can you provide maybe more details on the traditional study for the HCCscreen?

[Sizhen Wang:]

Yes, so the registration is -- as we stated, will start very soon and we're just finalizing the final list of the clinical side. And the product design, as our CMO Yun-Fu, mentioned the last couple of months ago, in our last running call, we're pretty much finalized this with Nempa. And the trial design will call for a head-to-head comparison between epi and with our HCCscreen. And it will be in the size of a several thousands of patients enrollment and again, I like I said, we do expect the trial will be completed sometime next year. So, we were fully on track for that.

[Unidentified Analyst:]

And -- okay, I remember last time, we said the trials are going to kind of do the test only as a baseline, and there will be no follow-up or various sharp follow-up, is that you're thinking?

[Yun-Fu Hu:]

This is Yun-Fu, yes, -- so, there will be additional tests done at the same time just to get the cling of truth, but not just our test. As Sizhen mentioned, there will comparison of our test against the epi ultrasound, but the end point is the clinical truth term by CT or MRI, and our statistical hypothesis is our test will be superior to the Enercare AFP plus ultrasound in terms sensitivity are non-inferior for the specificity. And we expect to have no fewer than 4,500 patients in the study.

[Unidentified Analyst:]

Okay. So just want to make sure. So we're going to have our HCCscreen Test, as a baseline. And there are some people will get the comparison test as AFP and Ultrasound Test. And if we look at Clinical Tools Test will be done as a baseline or will be done after a sample off time.

[Yun-Fu Hu:]

Okay. So all the pages we wrote in our study were have HCCscreen Test, AFP and Ultrasound and the clinical tools term by CT or MRI and at the same time, or approximately same time.

[Unidentified Analyst:]

Okay, as a baseline.

[Yun-Fu Hu:]

Yes. So there will be no…

[Unidentified Analyst:]

Okay. Oh, sorry. Okay, okay. Okay. And do we know how many sites, when things are okay?

[Yun-Fu Hu:]

You mean the, clinic sites? We are…

[Unidentified Analyst:]

Yeah. The clinical sites, yes.

[Yun-Fu Hu:]

Yeah. We're looking for both sites probably some around are five to eight sites.

[Unidentified Analyst:]

Five to eight, okay. Number of patients is about 4,500. Okay, got it. Thank you.

[Operator:]

Thank you. Thanks once again.

[Sizhen Wang:]

No more question?

[Operator:]

Gentlemen, so, we have a next question comes from the line of Christy from HSBC. Please go ahead.

[Unidentified Analyst:]

Hi, management. Thank you for your presentation and congratulation on results. So I have a quick question on, the COVID-19 Test kit. So I think for this quarter, it's quite a significant part of the IVD revenue. So I'm just wondering, so including that, first of all, for this year would expect the IVD gross could be compared to last year. And overall, how much does this over COVID-19 Test kits take as a percentage in terms of overall IVD revenue from last year? Thank you.

[Evan Xu:]

All right. So regarding your second question, the most of the COVID Test last year, so was being concentrated in Q1, throughout the year there was a small revenue in Q4 as well. But in terms of scale, Q1 was the majority part of the whole year for last year. And …

[Yuchen Jiao:]

And the first? Yeah.

[Evan Xu:]

And the first, can you repeat the first question, sorry. Can you repeat that?

[Unidentified Analyst:]

Yeah. So the first question is more on the guidance for this year, in terms of IVD revenue growth.

[Evan Xu:]

Okay. We don't provide guidance on individual revenue segments. However, we do -- we gave -- we reiterate our full guidance of RMB 615 to RMB 625 million for this year, driven by growth in all business segments from LDT to IVD, and also, early screening and biopharma services. And out of these, we obviously, we do believe that IVD and early screening revenue will be strong growth drivers among the other business segments. And this year, we continue to focus on getting more IVD solutions into the hospitals, given that last year, the impact from the pandemic was still quite severe throughout the whole year, right? And this year, assuming that COVID is within good control, our diagnosis business, the key strategic focus is to target the top 100-plus hospitals and to work with the hospitals and penetrates those hospitals with our IVD solution, the Genetron S5 platform lung 8 solution, which provides a lot of competitive advantages compared to other solutions offered by other players in this sector. Given our solution provides a simpler solution, as well as faster turnaround time from sample to report only requires two days. And this has been well-received by public hospitals in China. So this year -- this will be continued to be our focus in terms of IVD commercialization and we intend to accelerate the number of in-hospital IVD partnerships.

[Unidentified Analyst:]

Thank you. And I have another question on the development services. So I understand that development service has been under pressure, because it's shifting away from -- shifting towards biopharma services. So I’m just wondering when will we -- when can we expect to see a turnaround in terms of revenue contributions from this? Thank you.

[Evan Xu:]

Yes. So each quarter we share with the investors that within development services, our focus is really the high value biopharma partnerships, biopharma services. And although, in terms of absolute dollar amount, this is still relatively small -- relatively small percentage of the total revenue. However, we do see significant strategic value from these partnerships. As Sizhen introduce it in the beginning, we are quickly establishing Genetron’s reputation and brand name in this community. Thanks to our CMO, Dr. Hu. And I think, by now we can be proudly saying that we are leading player and we have earned quite a bit of good trust from the biopharma community, with approximately 40 partnerships already established. Many of these partnerships and contracts takes time to execute, given that they are usually tied to the biopharma partner’s research timeline, especially for clinical trials, we have to collaborate with them and sync up with their schedule. However, all these backlog partnerships, they will help us to establish our solid foundation in this community. And then we believe that this is really a good start and we’ll continue to build on top of this. And with more partnerships and word of mouth, we’re confident that biopharma’s revenue soon will become the prominent part of the development services and eventually will be the major part of the development services segment.

[Q –Unidentified Analyst:]

Thank you. And in terms of dollar terms, I think on a percentage terms, when do you expect the growth territory to be back to positive for development service overall?

[Evan Xu:]

I can't have – I'm not providing a guidance on exact timeline. But I guess my estimate is that, in the next few quarters we should be able to see the development services revenue to return to positive growth trends.

[Sizhen Wang:]

Yes, its Wang. In addition to that and we started see higher percentage coming from the high value or high margin of biopharma service sector. And one more thing I want to add around this one, I think from first questions about this sector as well. So, we all know that, the partnership or the business with biopharma companies not only going to generate revenue immediately for us, but also it will – I mean in -- in most of these partnerships we’ll lead to a -- co-develop the product, or in many cases its the company back now. I can tell you that one of our first partnership or -- one of one of our -- early partnerships with Siemens, right. With their new drug approved in China, we have already completed our companion diagnostics kit clinical trial. It’s EGFR testing kit. And we do expect the approval in a near future, that will welcome our first completed companion diagnostics project. And these kits will lead to stainable product landing in the future. So which means that, some of these development service sectors -- this development will lead to future IVD business most. So we're very excited to see that the growth in this sector will -- and we believe that will translate to more growth in the future in IVD business sector.

[Unidentified Analyst:]

And in terms of higher margin that you mentioned earlier, is there like a rough -- like range or guidance that you're looking at?

[Sizhen Wang:]

Yes. So like Evan said, right, we cannot provide a detail breakdown of different business segments for smart in this point, especially for the young business segment, like the biopharma service. It’s still going through -- it's far from being mature, right? So at this stage, I guess any projection of gross margin would not be meaningful.

[Unidentified Analyst:]

Okay. No problem. Thank you so much.

[Sizhen Wang:]

Thanks.

[Operator:]

Thank you. As there are no further questions, I would like to turn the call back to Hoki Luk for any closing remarks. Over to you, ma'am. Thank you.

[Hoki Luk:]

Thank you again for joining us for our first quarter earnings and business update call. We appreciate everyone's ongoing support. If you have any questions, please do not hesitate to reach out to the Investor Relations team. Have a good day and evening. Thank you.

[Operator:]

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect. Thank you.