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Management s Discussion and Analysis of Financial Condition and Results of Operations
Discussion and analysis below are limited to the operations of Burning Rock Biotech Limited ( we or us ).
Summary Consolidated Financial and Operating Data
The summary unaudited interim consolidated financial information for the six months ended June 30, 2021 and 2022 and as of June 30, 2022 has been
derived from our unaudited interim condensed consolidated financial statements as of and for the six months ended June 30, 2022 included elsewhere in this current report. Our unaudited interim condensed consolidated financial statements have
been prepared on a basis consistent with our audited consolidated financial statements. The summary consolidated balance sheet data as of December 31, 2021 has been derived from our audited consolidated financial statements included in our
annual report on Form 20-F for the year ended December 31, 2021 filed with the SEC on April 29, 2022 (our 2021 Form 20-F ). The summary
consolidated financial data should be read in conjunction with those financial statements and the accompanying notes and Item 5. Operating and Financial Review and Prospects included in our 2021 Form
Summary Unaudited Consolidated Statements of Comprehensive Loss Data
| Six months ended June 30, | ||||||||||||
| 2021 | 2022 | |||||||||||
| RMB 000 | RMB 000 | US$ 000 | ||||||||||
| Revenues: | ||||||||||||
| Revenues from services | 164,414 | 185,581 | 27,707 | |||||||||
| Revenues from sales of products | 69,488 | 80,789 | 12,061 | |||||||||
| Total revenues | 233,902 | 266,370 | 39,768 | |||||||||
| Cost of revenues (1) | ||||||||||||
| Cost of services | (46,731 | ) | (66,462 | ) | (9,923 | ) | ||||||
| Cost of goods | (20,000 | ) | (29,726 | ) | (4,438 | ) | ||||||
| Total cost of revenues | (66,731 | ) | (96,188 | ) | (14,361 | ) | ||||||
| Gross profit | 167,171 | 170,182 | 25,407 | |||||||||
| Operating expenses: | ||||||||||||
| Research and development expenses (1) | (185,485 | ) | (211,608 | ) | (31,592 | ) | ||||||
| Selling and marketing expenses (1) | (123,188 | ) | (194,845 | ) | (29,090 | ) | ||||||
| General and administrative expenses (1) | (232,389 | ) | (292,049 | ) | (43,602 | ) | ||||||
| Total operating expenses | (541,062 | ) | (698,502 | ) | (104,284 | ) | ||||||
| Loss from operations | (373,891 | ) | (528,320 | ) | (78,877 | ) | ||||||
| Interest income | 1,468 | 4,517 | 674 | |||||||||
| Interest expenses | (1,075 | ) | 90 | 13 | ||||||||
| Other income, net | 551 | 425 | 63 | |||||||||
| Foreign exchange loss, net | (503 | ) | (153 | ) | (23 | ) | ||||||
| Loss before income tax | (373,450 | ) | (523,441 | ) | (78,150 | ) | ||||||
| Income tax expenses | (1,626 | ) | (84 | ) | (13 | ) | ||||||
| Net loss | (375,076 | ) | (523,525 | ) | (78,163 | ) |
| Six months ended June 30, | ||||||||||||
| 2021 | 2022 | |||||||||||
| RMB 000 | RMB 000 | US$ 000 | ||||||||||
| Cost of revenues | 745 | 806 | 120 | |||||||||
| Research and development expenses | 43,230 | 24,222 | 3,616 | |||||||||
| Selling and marketing expenses | 5,442 | 3,932 | 587 | |||||||||
| General and administrative expenses | 118,750 | 128,330 | 19,159 | |||||||||
| Total | 168,167 | 157,290 | 23,482 |
Summary Condensed Consolidated Balance Sheets Data
| As of December 31, 2021 | As of June 30, 2022 | |||||||||||
| RMB 000 | RMB 000 | US$ 000 | ||||||||||
| Total current assets | 1,820,946 | 1,463,085 | 218,436 | |||||||||
| Total assets | 2,278,587 | 1,861,274 | 277,882 | |||||||||
| Total current liabilities | 372,184 | 359,450 | 53,664 | |||||||||
| Total liabilities | 433,276 | 429,041 | 64,054 | |||||||||
| Net current assets | 1,448,762 | 1,103,635 | 164,772 | |||||||||
| Total shareholders equity | 1,845,311 | 1,432,233 | 213,828 | |||||||||
| Total liabilities and shareholders equity | 2,278,587 | 1,861,274 | 277,882 |
Summary Unaudited Statement of Cash Flows Data
| Six months ended June 30, | ||||||||||||
| 2021 | 2022 | |||||||||||
| RMB 000 | RMB 000 | US$ 000 | ||||||||||
| Net cash used in operating activities | (232,143 | ) | (253,634 | ) | (37,871 | ) | ||||||
| Net cash generated from investing activities | 220,752 | 17,718 | 2,649 | |||||||||
| Net cash used in financing activities | (13,123 | ) | (73,493 | ) | (10,971 | ) | ||||||
| Effect of exchange rate on cash and cash equivalents and restricted cash | (17,427 | ) | 23,347 | 3,485 | ||||||||
| Net decrease in cash, cash equivalents and restricted cash | (41,941 | ) | (286,062 | ) | (42,708 | ) | ||||||
| Cash, cash equivalents and restricted cash at the beginning of period | 1,925,206 | 1,439,112 | 214,854 | |||||||||
| Cash, cash equivalents and restricted cash at the end of period | 1,883,265 | 1,153,050 | 172,146 |
| As of June 30, | ||||||||
| 2021 | 2022 | |||||||
| In-hospital Channel: | ||||||||
| Pipeline partner hospitals (1) | 22 | 25 | ||||||
| Contracted partner hospitals (2) | 34 | 43 | ||||||
| Total number of partner hospitals | 56 | 68 |
Results of Operations
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Our revenues increased by 13.9% to
RMB266.4 million (US$39.8 million) for the six months ended June 30, 2022, from RMB233.9 million for the same period of 2021, primarily attributable to an increase in revenues from sales of products to RMB80.8 million (US$12.1
million) for the six months ended June 30, 2022 from RMB69.5 million for the same period of 2021 and to a lesser extent, revenues generated from services to RMB185.6 million (US$27.7 million) for the six months ended June 30,
2022 from RMB164.4 million for the same period of 2021.
The tables below set forth a breakdown by business segment of our revenues in absolute
amount and as a percentage of our total revenues for the periods indicated:
| Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||
| Central laboratory business | In-hospital business | Pharma research and development services | Total revenues | |||||||||||||||||||||||||||||
| RMB | % of total revenues | RMB | % of total revenues | RMB | % of total revenues | RMB | % of total revenues | |||||||||||||||||||||||||
| (in thousands, except for%) | ||||||||||||||||||||||||||||||||
| Revenues from services | 154,560 | 66.1 | 8 | 9,846 | 4.2 | 164,414 | 70.3 | |||||||||||||||||||||||||
| Revenues from sales of products | 69,488 | 29.7 | 69,488 | 29.7 | ||||||||||||||||||||||||||||
| 154,560 | 66.1 | 69,496 | 29.7 | 9,846 | 4.2 | 233,902 | 100.0 |
| Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Central laboratory business | In-hospital business | Pharma research and development services | Total revenues | |||||||||||||||||||||||||||||||||||||||||||||
| RMB | US$ | % of total revenues | RMB | US$ | % of total revenues | RMB | US$ | % of total revenues | RMB | US$ | % of total revenues | |||||||||||||||||||||||||||||||||||||
| (in thousands, except for %) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues from services | 152,808 | 22,814 | 57.4 | 2,345 | 350 | 0.9 | 30,428 | 4,543 | 11.4 | 185,581 | 27,707 | 69.7 | ||||||||||||||||||||||||||||||||||||
| Revenues from sales of products | 80,789 | 12,061 | 30.3 | 80,789 | 12,061 | 30.3 | ||||||||||||||||||||||||||||||||||||||||||
| 152,808 | 22,814 | 57.4 | 83,134 | 12,411 | 31.2 | 30,428 | 4,543 | 11.4 | 266,370 | 39,768 | 100.0 |
The increase in revenues from the six months ended June 30, 2021 to the same period of 2022 was primarily due to an
increase in revenues from our in-hospital business and pharma research and development services.
Our cost of revenues increased by 44.1% to RMB96.2 million (US$14.4 million) for the six months ended June 30, 2022 from RMB66.7 million for the
same period of 2021. This increase was primarily attributable to an increase in cost of goods sold to RMB29.7 million (US$4.4 million) for the six months ended June 30, 2022 from RMB20.0 million for the same period of 2021, and to a
lesser extent, an increase in cost of services to RMB66.5 million (US$9.9 million) for the six months ended June 30, 2022 from RMB46.7 million for the same period of 2021.
The table below sets forth a breakdown of our cost of revenue by business segment for the periods indicated:
| Six months ended June 30, | ||||||||||||
| 2021 | 2022 | |||||||||||
| RMB 000 | RMB 000 | US$ 000 | ||||||||||
| Cost of Revenues | ||||||||||||
| Central laboratory business | 40,667 | 44,659 | 6,668 | |||||||||
| In-hospital business | 20,000 | 29,726 | 4,438 | |||||||||
| Pharma research and development services | 6,064 | 21,803 | 3,255 | |||||||||
| Total | 66,731 | 96,188 | 14,361 |
The increase in cost of revenues from the six months ended June 30, 2021 to the same period of 2022 was primarily due to
an increase in cost of revenues for our in-hospital business and pharma research and development services.
Gross Profit and Gross Margin
Our gross profit increased by 1.8% to RMB170.2 million (US$25.4 million) for the six months ended June 30, 2022 from RMB167.2 million for the
same period of 2021, primarily due to the growth of our pharma research and development business. Our gross margin decreased to 63.9% for the six months ended June 30, 2022 from 71.5% for the same period of 2021.
The table below sets forth a breakdown of our gross profit and gross profit margin by business segment for the periods indicated:
| Six months ended June 30, | ||||||||||||||||||||
| 2021 | 2022 | |||||||||||||||||||
| RMB 000 | Gross profit margin (%) | RMB 000 | US$ 000 | Gross profit margin (%) | ||||||||||||||||
| Gross Profit and Gross Margin | ||||||||||||||||||||
| Central laboratory business | 113,893 | 73.7 | 108,149 | 16,146 | 70.8 | |||||||||||||||
| In-hospital business | 49,496 | 71.2 | 53,408 | 7,974 | 64.2 | |||||||||||||||
| Pharma research and development services | 3,782 | 38.4 | 8,625 | 1,288 | 28.3 | |||||||||||||||
| Total | 167,171 | 71.5 | 170,182 | 25,407 | 63.9 |
Research and development expenses
research and development expenses increased by 14.1% to RMB211.6 million (US$31.6 million) for the six months ended June 30, 2022 from RMB185.5 million for the same period of 2021, primarily due to an increase in staff cost for our
research and development personnel and increased research and development activities for early cancer detection.
Selling and marketing
Our selling and marketing expenses increased by 58.2% to RMB194.8 million (US$29.1 million) for the six months ended June 30, 2022
from RMB123.2 million for the six months ended June 30, 2021, primarily due to (i) an increase in staff cost resulting from an increase in headcount; and (ii) an increase in marketing related expenditures, such as entertainment,
conference and marketing expenses.
General and administrative expenses
Our general and administrative expenses increased by 25.7% to RMB292.0 million (US$43.6 million) for the six months ended June 30, 2022 from
RMB232.4 million for the six months ended June 30, 2021, primarily due to (i) an increase in staff cost resulting from increased headcount; (ii) an increase in depreciation expenses for new office space; and (iii) an
increase in allowance for doubtful account in relation to accounts receivables.
Interest Income, Net
Our interest income, net increased substantially to RMB4.6 million (US$0.7 million) for the six months ended June 30, 2022 from RMB0.4 million
for the same period of 2021, primarily due to an increase in average balance of short-term investment and cash and cash equivalent.
Our net loss increased by 39.6% to RMB523.5 million (US$78.2 million) for the six months ended June 30, 2022 from RMB375.1 million for the six
months ended June 30, 2021, primarily due to a decrease in gross profit margin and increases in operating expenses discussed above, offset in part by an increase in our total revenues.
Liquidity and Capital Resources
2022, we had (i) cash and cash equivalents of RMB1,148.6 million (US$171.5 million), consisting of bank deposits, and (ii) restricted cash of RMB4.5 million (US$0.7 million). We believe that our cash and cash equivalents,
together with our cash generated from financing activities, our initial public offering and concurrent private placement, will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months. We
may, however, decide to expand our business through additional equity and debt financing. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed
obligations and could result in operating covenants that would restrict our operations.
Net cash used in operating activities for the six months ended June 30, 2022 was RMB253.6 million (US$37.9 million), while our net loss for the same
period was RMB523.5 million (US$78.2 million). The difference was primarily due to adjustment for non-cash and non-operating items of RMB262.1 million (US$39.1
million), primarily including share-based compensation of RMB157.3 million (US$23.5 million), depreciation and amortization of RMB60.2 million (US$9.0 million), non-cash lease expense of
RMB19.7 million (US$2.9 million), and changes in working capital. The changes in working capital primarily reflected (i) an increase in prepayment and other current assets of RMB25.6 million (US$3.8 million), primarily attributable to
the payment of royalty fee and human resources outsourcing service fee and (ii) an increase in deferred revenue of RMB20.2 million (US$3.0 million) primarily as a result of our overall business growth. These factors were partially offset
by (i) a decrease in accrued liabilities and other current liabilities of RMB29.5 million (US$4.4 million) primarily attributable to our decreased payroll payables; (ii) a decrease in operating lease liabilities of
RMB19.6 million (US$2.9 million) primarily as a result of adoption of ASC842, the new lease accounting principle; and (iii) an increase in accounts receivables of RMB14.4 million (US$2.2 million), primarily attributable to the
continued growth of our in-hospital business.
Net cash generated from investing activities for the six months
ended June 30, 2022 was RMB17.7 million (US$2.6 million), primarily due to proceeds from maturity of short-term investment of RMB65.6 million (US$9.8 million), partially offset by purchase of property and equipment of
RMB35.1 million (US$5.2 million) and prepayment of property and equipment and intangible assets of RMB7.9 million (US$1.2 million).
used in financing activities for the six months ended June 30, 2022 was RMB73.5 million (US$11.0 million), primarily due to the cash outflow for purchase of equity forwards of RMB66.9 million (US$10.0 million).
In June 2022, our board of directors
(the Board ) authorized a share repurchase plan under which we may repurchase our Class A ordinary shares in the form of American depositary shares ( ADSs ) with an aggregate value of up to US$10 million during a 12-month period (the Share Repurchase Program ). We have completed the Share Repurchase Program in full by repurchasing a total of 3,023,138 Class A ordinary shares in the form of ADSs.
In June 2022, Mr. Jing Rong resigned as a director from the Board, and we appointed Dr. Licen Lisa Xu as an independent director to the Board.
In July 2022, Ms. Yunxia Yang resigned as a director from the Board and a member of the compensation committee of the Board. Mr. Feng Deng, an
existing director of the Board, has been appointed as a new member to the compensation committee to fill the vacancy created by Ms. Yang s resignation.
In October 2022, we applied for admission of the ADSs to the standard listing segment of the Official List of the Financial Conduct Authority (the
FCA ) and to trading on the Main Market of the London Stock Exchange (the LSE ) by way of a direct listing (the Direct Listing ). The registration document and prospectus that were prepared in connection with the
Direct Listing were approved by the FCA on October 21, 2022 and October 27, 2022, respectively. Trading of our ADSs on the LSE commenced on November 1, 2022, under the symbol BNR. The ADSs listed on the LSE are fully fungible with
the ADSs listed on NASDAQ. Custodial and depositary links have been established between Euroclear, Clearstream and The Depository Trust Company to facilitate the cross-market transfers of the ADSs associated with secondary market trading.
2022 Long-Term Equity Incentive Plan
In July 2022, our board of directors approved the 2022 Long-term Equity Incentive Plan, or the 2022 Plan, which was subsequently approved by the shareholders
of our company at the annual general meeting in September 2022. The 2022 Plan replaces our 2021 Long-term Equity Incentive Plan and the share incentive awards granted thereunder. The 2022 Plan will grant options to senior management and employees.
The maximum number of shares that may be issued pursuant to all awards under the 2022 Plan is 11,775,525 Class A ordinary shares (the Awards ), which represents approximately 9% of our current total outstanding shares on a converted
and fully diluted basis.
The following paragraphs describe the principal terms of the 2022 Plan:
Type of awards. The 2022 Plan permits the awards of options.
Allocation and Plan administration. The Awards consist of three tranches of options (the Pool I Awards, Pool II Awards and
Pool III Awards ). The Pool I Awards, which represent options to purchase 1.65% of our total outstanding number of shares on an as converted and fully diluted basis, or 2,158,846 Class A ordinary shares, will be granted to our
officers and employees. Mr. Yusheng Han, our chairman and CEO, will not be granted any awards of options under the Pool I Awards. The Pool II Awards represent options to purchase 4.35% of our total outstanding number of shares on an as
converted and fully diluted basis, or 5,691,504 Class A ordinary shares, 62.07% (or option to purchase 3,532,658 Class A ordinary shares) of which will be granted to Mr. Yusheng Han, and the rest to other officers and employees. The
Pool III Awards represent options to purchase 3% of our total outstanding number of shares on an as converted and fully diluted basis, or 3,925,175 Class A ordinary shares, 45% (or option to purchase 3,532,658 Class A ordinary shares) of
which will be granted to Mr. Yusheng Han, and the rest to other officers and employees.
Award agreement. Awards granted under the 2022 Plan
are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee s employment or service terminates, and our
authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to senior
management and employees of our company under the 2022 Plan.