Genetron Health Announces Unaudited Financial Results and Operational Highlights for the Third Quarter of 2020
Beijing, China, November 9, 2020—Genetron Holdings (the “Company”) (NASDAQ: GTH), a leading cancer precision medicine company in China focused on providing tumor molecular testing, early cancer screening, and companion diagnostic development services, today announced its unaudited financial results for the third quarter of 2020.
Financial and Recent Operational Highlights for the Third Quarter of 2020:
1. Total revenue in the third quarter reached RMB 112 million, representing a 37.6% year-on-year increase compared to the same period in 2019.
2. Revenue from diagnosis and monitoring services in the third quarter reached RMB 101.5 million, representing a year-on-year increase of 45.0%.
3. The overall gross profit margin was 62.2%, representing a significant year-on-year increase of 18 percentage points.
4. In September, Genetron Health’s HCCscreen™—a blood-based early screening test for hepatocellular carcinoma—received Breakthrough Device Designation from the U.S. FDA
5. In the field of early screening for lung cancer and gastrointestinal cancers, Genetron Health has launched the National Key R&D Program on Cancer Early Screening supported by the Ministry of Science and Technology of China.
6. In October, Genetron Health and ImmuOnco signed a global exclusive licensing agreement to accelerate the development and commercialization of kits for detecting minimal residual disease (MRD) in blood cancers.
7. The avapritinib companion diagnostic kit, jointly developed by Genetron Health and strategic partner CStone Pharmaceuticals, has initiated clinical trials
8. Genetron Health and Dima Biologics, a global clinical contract research organization (CRO), have entered into a strategic partnership to provide “one-stop” new drug development services to pharmaceutical companies in the Chinese and U.S. markets
9. Genetron Health Presents 18 Research Findings in Oncology at the 2020 European Society for Medical Oncology (ESMO) Annual Meeting
Mr. Wang Sizhen, Co-Founder and CEO of Genetron Healthstated: “In the third quarter of 2020, although some key markets covered by Genetron Health were impacted again by the pandemic, the company’s revenue still achieved a robust year-on-year growth of 37.6%, further accelerating from the 28.3% revenue growth rate recorded in the first half of 2020. Meanwhile, gross margin steadily improved, and the expense structure was effectively optimized. Overall, all of Genetron Health’s business lines made significant progress in the third quarter, achieving satisfactory results both operationally and financially as per management’s expectations.”
Mr. Wang Sizhen stated, “Looking ahead, although the COVID-19 pandemic has been effectively controlled in China recently, we will remain vigilant in the face of ongoing uncertainties. By 2021, Genetron Health’s in vitro diagnostic (IVD) products and early screening tests are expected to achieve encouraging growth, gradually becoming a key driver of the company’s expansion. Our development strategy will continue to focus on accelerating the development and clinical application of liquid biopsy solutions, covering the entire spectrum of cancer management, with particular emphasis on early screening and minimal residual disease (MRD) detection. The company plans to prioritize the commercialization of liver cancer early screening in China, while simultaneously preparing for clinical trials in both China and the United States. We are currently conducting a case-control study for colorectal cancer early screening, with preliminary data expected to be released in 2021. Genetron Health is already developing multiple MRD detection assays for solid tumors, initially focusing on liver cancer and colorectal cancer. In terms of pharmaceutical partnerships, thanks to Genetron Health’s breakthroughs in MRD technology for hematologic malignancies, our commercial collaboration pipeline with pharmaceutical companies has become stronger. We believe that Genetron Health will emerge as a distinguished company in the field of liquid biopsy, committed to delivering innovative technologies to patients more rapidly.”
Total revenue for the third quarter of 2020 was RMB 112.0 million (USD 16.5 million), representing a 37.6% year-over-year increase from RMB 81.3 million in the same period of 2019.
In the third quarter of 2020, revenue from diagnostics and monitoring services amounted to RMB 101.5 million (USD 15.0 million), representing a year-over-year increase of 45.0%, compared with RMB 70.0 million in the same period of 2019. The year-over-year growth in diagnostics and monitoring revenue was primarily driven by significant increases in revenue from Laboratory Developed Tests (LDT) services and In Vitro Diagnostics (IVD) products.
1. LDT service revenue in the third quarter reached RMB 71.4 million (USD 10.5 million), a year-on-year increase of 17.9%, compared with RMB 60.5 million in the same period of 2019. The number of LDT tests performed in the third quarter of 2020 was approximately 5,900, representing a 5% year-on-year increase from the same period in 2019. Meanwhile, the average selling price of LDT testing services also increased year-on-year, driven by a shift in customer purchasing behavior toward higher-value products, such as Genetron Health’s large-panel test, Onco PanScan™. Revenue from LDT services in the third quarter of 2020 included a small portion from sales of the HCCscreen™ test for early detection of hepatocellular carcinoma.
2. In the third quarter of 2020, revenue from IVD products increased significantly by approximately 2.2 times year-on-year, reaching RMB 30.1 million (USD 4.4 million), compared with RMB 9.5 million in the same period of the previous year. The growth in IVD revenue was primarily driven by increased sales volumes of test kits and sequencing instruments in the third quarter of 2020, with notable increases in sales of the Genetron S5 and the 8-Gene Lung Cancer Test Kit.
In the third quarter of 2020, revenue from development services amounted to RMB 10.4 million (USD 1.5 million), representing a slight year-on-year decrease of 7.6%, compared with RMB 11.3 million in the same period last year. This change was primarily attributable to the Company’s proactive adjustment of its business development strategy, with a focus on high-value pharmaceutical enterprise services, while revenue from sequencing services declined. Revenue from pharmaceutical enterprise services within development services achieved strong growth in the third quarter of 2020.
In the third quarter of 2020, while revenue posted strong year-on-year growth, the cost of sales decreased by 6.8% year over year to RMB 42.3 million (USD 6.2 million), compared with RMB 45.4 million in the same period of 2019. The reduction in cost of sales was primarily attributable to business optimization and economies of scale.
In the third quarter of 2020, gross profit was RMB 69.6 million (USD 10.3 million), representing a significant year-over-year increase of 93.7%, compared to RMB 35.9 million in the same period last year. The gross margin for the third quarter was 62.2%, a substantial increase of 18 percentage points from 44.2% in the same period last year. The gross margins of the company’s three major business segments all saw significant growth, primarily driven by expanded sales scale, further optimization of business operations, and an improved product mix.
Total operating expenses for the third quarter of 2020 amounted to RMB 128.8 million (USD 19.0 million), representing a slight year-on-year increase of 7.4%, compared with RMB 120.0 million in the same period of 2019.
Selling expenses decreased slightly to RMB 60.6 million (USD 8.9 million) in the third quarter of 2020, a year-on-year decline of 7.9% from RMB 65.7 million in the same period of the previous year. Meanwhile, the ratio of selling expenses to revenue dropped significantly, from 80.8% in the third quarter of 2019 to 54.1% in the third quarter of 2020. The reduction in selling expenses was primarily driven by continuous improvements in sales productivity.
In the third quarter of 2020, general and administrative expenses amounted to RMB32.4 million (USD4.8 million), representing a slight year-on-year decrease of 2.9% from RMB33.4 million in the same period of the previous year. The ratio of general and administrative expenses to revenue decreased from 41.1% in the third quarter of 2019 to 29.0% in the same period of 2020, primarily driven by the Company’s continuous optimization of operational efficiency.
R&D expenses in the third quarter of 2020 amounted to RMB 38.6 million (USD 5.7 million), representing a significant year-on-year increase of 85.8% from RMB 20.8 million in the same period of 2019. The rise in R&D expenses was primarily driven by the Company’s accelerated development and innovation in new products and technologies, such as early screening, MRD, and IVD.
In summary, the operating loss for the third quarter of 2020 decreased by 29.5% year-on-year to RMB 59.2 million (USD 8.7 million), compared with RMB 84.0 million in the same period last year.
Financial revenue in the third quarter increased to RMB 12.8 million (USD 1.9 million), compared with RMB 26,000 in the same period of 2019. The growth was primarily driven by foreign exchange gains.
Net Loss and Non-IFRS Net Loss
The net loss for the third quarter of 2020 was RMB 48.0 million (USD 7.1 million), compared with RMB 274.1 million in the same period last year.
In the third quarter of 2020, the net loss under Non-IFRS standards, which excludes share-based compensation expenses, losses from changes in the fair value of preferred shares, and other preferred share-related losses, decreased significantly year-on-year to RMB 43.7 million (USD 6.4 million), compared with a Non-IFRS net loss of RMB 75.4 million in the same period of 2019.
In the third quarter of 2020, the basic net loss per ordinary share was RMB 0.11 (USD 0.02), compared with a basic net loss per ordinary share of RMB 2.15 in the same period last year. After excluding share-based compensation expenses, losses from changes in the fair value of preferred shares, and other preferred share losses, the non-IFRS basic net loss per ordinary share was RMB 0.10, compared with a basic net loss per ordinary share of RMB 0.59 in the same period of 2019. The diluted net loss per ordinary share was equal to the basic net loss per ordinary share. Each American Depositary Share represents five ordinary shares, with a par value of USD 0.00002 per share.
The fair value of cash and cash equivalents and financial assets in the third quarter of 2020 was RMB 1.8685 billion (USD 275.2 million).
Genetron Health (NASDAQ: GTH) is a leading precision oncology company in China, dedicated to cancer genomics research and applications. The company is committed to transforming cancer diagnosis and treatment by leveraging advanced molecular biology and big data analytics capabilities. Genetron Health has established a comprehensive portfolio of products and services covering the entire cancer care continuum, from early screening, diagnosis, and treatment recommendations to monitoring and prognosis management. Additionally, Genetron Health collaborates with global pharmaceutical companies to provide customized products and services.
This press release contains Genetron Health’s expectations, plans, and forward-looking statements regarding the future. Such statements are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties, as well as numerous factors that could cause actual results to differ materially from those described in any forward-looking statement. Other statements containing words such as “anticipate,” “believe,” “expect,” “plan,” and similar expressions also constitute forward-looking descriptions. Additional information regarding these and other risks and uncertainties is included in the company’s filings with the U.S. Securities and Exchange Commission. All information provided in this press release should not be construed as representing the company’s views at any point in time after the date of this announcement. Genetron Health expects that future events and developments will cause its assumptions and estimates to change; however, except as required by applicable law, the company undertakes no obligation to update any forward-looking descriptions, whether as a result of new information, future events, or otherwise.
The financial statements in this announcement, or amounts presented elsewhere, have been translated from Renminbi (“RMB”) into U.S. dollars (“USD”) solely for the convenience of readers, using the exchange rate of USD 1 = RMB 6.7896 as published by the Federal Reserve Board in its H.10 statistical release on September 30, 2020. The Company makes no representation that any RMB amounts in this report could have been, or may be, converted, realized, or settled into USD at such exchange rate or at any other exchange rate as of September 30, 2020.
Genetron Health uses Non-IFRS net loss and Non-IFRS net loss per ordinary share to evaluate the Company’s operating results and to make financial and operational decisions. The Company believes that Non-IFRS net loss and Non-IFRS net loss per ordinary share help identify underlying trends in its business, which may be distorted by the impact of certain expenses included in the net loss for the current year/period. The Company believes that Non-IFRS net loss and Non-IFRS net loss per ordinary share provide useful information regarding its operating results, enhance overall understanding of its past performance and future prospects, and improve the visibility of key metrics used by management in making financial and operational decisions.
In measuring Non-IFRS financial metrics for the current year/period, Genetron Health’s Non-IFRS net loss and Non-IFRS net loss per ordinary share should not be considered in isolation, nor should they be regarded as substitutes for operating profit, net loss, or any other performance measures for that year/period, or as indicators of its operating performance. The Company encourages investors to review the Non-IFRS net loss and Non-IFRS net loss per ordinary share for the year/period, along with the reconciliation to the most directly comparable financial measures under International Financial Reporting Standards (IFRS). The Non-IFRS net loss and Non-IFRS net loss per ordinary share presented herein for the year/period may not be comparable to similarly titled financial measures provided by other companies. Other companies may calculate similar financial measures differently, thereby limiting their usefulness as comparable data. Genetron Health encourages investors and others to comprehensively review the Company’s financial information rather than focusing solely on a single financial metric.
Non-IFRS net loss and Non-IFRS net loss per ordinary share calculated under the net profit metric for the current year/period exclude share-based compensation expenses, losses from changes in the fair value of preferred shares, and other losses related to preferred shares (if applicable).
Please refer to “Reconciliation of Unaudited Non-International Financial Reporting Standards (Non-IFRS) Financial Measures” at the end of this announcement for the complete reconciliation of the net loss and net loss per ordinary share under Non-IFRS for the current year/period.