Interface News Reporter | Chen Yang
Interface News Editor | Xie Xin
On August 31, domestic tumor NGS (high-throughput sequencing technology, also known as next-generation sequencing technology) company Burnstone Medical announced its performance data for the second quarter of 2023. During the reporting period, the company's revenue was 146.3 million yuan, a year-on-year increase of 11.8%. The net profit attributable to the parent was a loss of 131 million yuan, which was half narrower than the 262 million yuan in the same period last year, and nearly 30% lower than the 185 million yuan in the first quarter of this year.
In addition, the Company's non-GAAP gross profit less SG&A (selling, general and administrative expenses, both excluding respective share-based compensation and depreciation and amortization) was $7.6 million for the reporting period. This also achieves one of the company's performance targets for 2023, which is to break even in one quarter.
This can be seen as the result of the company's cost reduction and efficiency increase. In addition to the aforementioned revenue growth, the company's operating expenses fell 32.2% year-on-year to 236.1 million yuan, mainly due to budget control measures and layoffs. In fact, as early as 2022, Burnstone Medical has laid off employees. Compared with 2021, the company decreased its employees by 18.36%, or 156 people, in 2022. Among them, the staff of R&D, medical affairs and administrative departments were cut by nearly 20%, and the sales personnel were cut by 25%, or 142 people.
As of press time, the company's share price was $1.355 per share, down slightly by 0.37%, down about 90% from the issue price.
Founded in 2014 and listed on NASDAQ in June 2020, Burnstone Medical is the first oncology NGS stock in China. Specific to the business, the company's main business can be divided into three major sectors: tumor disease population detection business, pharmaceutical enterprise cooperation business and multi-cancer early detection business.
Obviously, from the perspective of prospects, compared with genetic testing and companion diagnosis, early screening products have more target groups, more difficult research and development, and more investment. Drug research and development is mainly in cooperation with pharmaceutical companies, and the payers are pharmaceutical companies. Therefore, from the perspective of balancing the risk of commercial returns, oncology NGS companies usually involve the above three directions, and use the relatively mature genetic testing, companion diagnosis, and drug research and development to support the huge R&D expenditure of tumor early screening.
However, it should be noted that the money of the tumor genetic testing business itself is not easy to earn.
In fact, in 2020 and 2021, two years before listing, the revenue of Burnstone Medical's tumor genetic testing business was 415.2 million yuan and 484.5 million yuan, respectively, accounting for more than 95%, and the growth rate was about 15%. However, during the same period, the company's marketing expenses and general and administrative expenses have been rising, exceeding revenue, and the growth rate in 2021 is as high as 71.27%. This means that it is difficult to make blood for the company by relying on the tumor genetic testing business alone.
This can also be seen from the rapid growth of the cooperation business of pharmaceutical companies since 2022. In the current period, the revenue of the company's pharmaceutical enterprise cooperation business was 73.17 million yuan, a year-on-year increase of 212.8%, and the proportion of total revenue rose from less than 5% to 13.00%. The latest results show that in the second quarter of this year, the revenue of tumor genetic testing business and pharmaceutical enterprise cooperation business was 120 million yuan and 26.19 million yuan, respectively, an increase of 6.5% and 44.9% year-on-year, accounting for 82.1% and 17.9% of the total revenue, respectively.
In addition to the cooperation business of pharmaceutical companies as the second growth point, the revenue structure of Burnstone Medical's tumor genetic testing business is also adjusting.
In fact, not all oncology NGS products are registered and approved by the Food and Drug Administration and sold in the form of IVD (In Vitro Diagnostic Products), and many are commercialized in the form of LDT. LDT stands for Laboratory developed test, which is a test method developed, validated and used by laboratories on their own, and this service does not require regulatory approval.
Compared with IVD, LDT has the advantage of low product development cost and more flexible iteration. Therefore, many tumor genetic testing products are the first to land in the form of LDT and obtain commercial returns. However, at present, LDT is still in a vague area, and only some regions are carried out in the form of pilots at the regulatory level, which has certain compliance risks. Therefore, companies in the industry usually adopt the IVD+LDT parallel model for commercialization.
Specific to Burnstone Medicine, it can correspond to two channels: central laboratory testing and in-hospital testing. In 2021 and 2022, the proportion of central laboratory testing revenue was stable at 65%. However, since the second half of 2022, the company has vigorously promoted in-hospital channels, and the revenue gap between the two has gradually narrowed. By the second quarter of this year, the revenue of central laboratory and in-hospital testing was 66.24 million yuan and 53.84 million yuan, respectively, a year-on-year change of -15.7% and 57.5%, respectively, a slight increase from the previous quarter. The latter accounted for 45%. According to Burnstone Medical, the decline in the former means that the company continues to promote in-hospital channels, so the number of tests has declined.
This change is partly due to compliance considerations, and on the other hand, to improve the company's efficiency. Based on the data of unit hospital revenue (revenue per channel/number of channel hospitals), it can be seen that the revenue brought by in-hospital testing is much higher than that of central laboratory testing. The former has a unit revenue scale of around 650,000 yuan, while the latter is only about 300,000 yuan.
However, the gross profit margin of central laboratory testing is higher than that of in-hospital testing, with the former gross profit margin exceeding 80% and the latter at 65%-70%. Will tilting towards the latter drive down the company's gross margin?
On September 1, Burnstone Medical told Interface News that in-hospital channels are the only way to standardize development. The company believes that the in-hospital model is a long-term mainstream model, and although the gross profit margin is slightly lower than that of the central laboratory model, the profitability level is higher than that of the out-of-hospital model because of higher sales efficiency.
In addition, in terms of cost optimization, Burnstone Medical significantly reduced sales and marketing expenses, general and administrative expenses. In the second quarter of this year, these two expenses were 70.84 million yuan and 69.53 million yuan, respectively, down 32.9% and 53.7% year-on-year. The former causes include lower staff costs due to restructuring the sales department and improved operational efficiency, and lower marketing and conference expenses. The latter includes a reduction in share-based compensation amortization expense, lower general and administrative staff costs, and accelerated processing of long-term receivables. In fact, the aforementioned cost optimization measures have already been reflected in 2022.
Burnstone Medical told Interface News that the company will timely adjust the company's business strategy in combination with the dynamic changes in the macroeconomy, medical industry and tumor precision detection industry. In fact, the company is also continuing to recruit talents for R&D, medical, sales and other positions, ultimately improving operational efficiency and ensuring the long-term development of the company.
In addition, in addition to breaking even in one quarter, another performance guidance for Burnstone Medical includes a 20% year-on-year increase in revenue in 2023. In other words, the sum of the company's revenue in the two quarters of the second half of the year needs to reach 386.8 million yuan.
In the early screening business with more imaginative space, in 2022, Burnstone Medical launched an early screening product Ran Xiaoan for 6 types of cancer, which is used for early screening of lung cancer, liver cancer, esophageal cancer, pancreatic cancer, colorectal cancer and ovarian cancer, and landed in the form of LDT. Currently, a prospective, interventional study PREVENT study for this product is underway and interim data is expected to be read out in the second half of this year. Early screening products for 22 types of cancer are also undergoing PREDICT and PRESCIENT studies.
As of June 30 this year, Burnstone had cash, cash equivalents, restricted cash and short-term investments of $733.3 million.