Reported by Guo Yilin and Yu Na from Huaxia Times in Beijing
Amidst a wave of questioning, the early screening track for cancer is struggling. After the delisting of Fanshengzi, the trading volume of Ranshi Medical's stock on the financial reporting day was less than 3000 shares.
On June 18th Eastern Time, Burnstone Medical (BNR) fell 2.24% during trading, closing at $7.2 per share with a trading volume of 1831.00 shares. According to financial data, as of March 31, 2024, the total revenue of Burning Stone Medicine was 126 million RMB, a year-on-year decrease of 11.85%; The net profit attributable to the parent company was RMB 122 million, a year-on-year increase of 34.39%. It is reported that Burning Stone Medical has achieved its second turnaround in business history through budget control and layoffs.
On June 12, 2020, Firestone Medical was listed on NASDAQ in the United States, with the stock code BNR. Calculated at an issue price of $16.5, the market value reached $1.68 billion. As the company's performance continues to narrow, its stock price continues to decline. Until December 29, 2023, Burning Stone Medicine received a delisting warning from NASDAQ due to its low stock price. It is understood that the closing bid for its American Depositary Stock (ADS) has not reached the required minimum of $1.00 in the past 30 consecutive business days.
Therefore, a reporter from Huaxia Times wrote a letter to Ranshi Medical in an attempt to understand the reasons for its performance and stock price decline. As of the time of publication, no response has been received from the company. A secondary market analyst, who declined to be named, told our reporter, "In recent years, the National Health Commission has released the" Healthy China Action - Cancer Prevention and Treatment Action Implementation Plan (2023-2030) "to promote early screening, diagnosis, and treatment of cancer. However, from a market perspective, there are still many links in the implementation of early screening for cancer that have not been fully established, such as market channels and user education. Some patients need to pay more attention to their health, while others are too lazy to consume due to fear of trouble. Various reasons have led to public resistance to early screening for cancer, which in turn hinders market development and ultimately affects the performance of enterprises."
Layoffs 18.36%
According to the Q1 2024 performance report of Ranshi Medical, the company achieved a revenue of 126 million yuan and a gross profit of 85.7 million yuan in the current period. It is worth mentioning that in Q1, Ranshi Medical achieved its second turnaround in business history after deducting Non GAAP sales, general and administrative expenses from its gross profit.
In this regard, the industry's voice in early screening of cancer believes that the cost of turning around losses for Burning Stone Medicine is budget control and layoffs. According to the financial report, compared to 2021, the company reduced its employees by 18.36% in 2022, or 156 people. Nearly 20% of the staff in the research and development, medical affairs, and administrative departments were laid off, while sales personnel were laid off by 25%, or 142 people.
Public information shows that Burning Stone Medicine has stated that in order to optimize costs, Burning Stone Medicine has significantly reduced sales and marketing expenses, as well as general and administrative expenses. The former is due to the restructuring of the sales department and the improvement of operational efficiency, resulting in a decrease in employee costs, as well as a decrease in marketing and conference expenses. The latter includes a reduction in share based compensation amortization expenses, a decrease in general and administrative staff costs, and an acceleration in the processing of long-term accounts receivable.
According to Qichacha, founder Han Yusheng founded Burning Stone Medicine in Guangzhou in 2014. As the first stock of China's tumor NGS, the company was listed on NASDAQ in 2020. Its specific main business can be divided into three major sections: tumor patient detection business, pharmaceutical enterprise cooperation business, and multi cancer early detection business.
At the beginning of the establishment of Burning Stone Medicine, the domestic cancer early screening market was improving. At that time, the domestic in vitro diagnostic market size exceeded 37 billion yuan and 40 billion yuan respectively in 2014 and 2015, with growth rates of 17% and 25%, respectively. "From the perspective of application prospects, compared to genetic testing and concomitant diagnosis, early screening products have a larger target audience, greater research and development difficulty, and more investment. However, from the perspective of balancing commercial return risk, cancer early screening assists in the closed-loop of the tumor product chain. Therefore, tumor NGS companies usually use the money earned from relatively mature genetic testing, concomitant diagnosis, and drug development to support the huge research and development expenses of tumor early screening," said the analyst.
However, it is worth noting that relying solely on tumor gene testing business is difficult to turn the company around. The reporter reviewed the financial report and found that Ranshi Medical is in a continuous loss state. From 2018 to 2023, Ranshi Medical had net losses of 178 million yuan, 169 million yuan, 407 million yuan, 797 million yuan, 971 million yuan, and 654 million yuan, respectively, totaling over 3 billion yuan.
Contrary to the decline in net profit, its sales expenses have been singing high all the way. From 2020 to 2022, the sales expenses of Burning Stone Medicine were 169 million yuan, 303 million yuan, and 370 million yuan, respectively, with sales expense ratios of 39.3%, 59.65%, and 65.84%. The above analyst believes that "this data needs to be combined with the strategic changes in the internal and external markets of Ranshi Medical College, and the different marketing methods directly stimulate the growth of sales expenses."
The financial report shows that in order to meet the different needs of different hospitals, Ranshi Medical has adopted a "central laboratory+in hospital" model in its business model, which is the "in hospital+out of hospital" dual wheel growth model promoted by Ranshi Medical at the beginning of its listing. Among them, the central laboratory model is called the external market, while the internal laboratory is called the internal market. The difference between the two is that the samples and fees in the hospital market are transferred from patients to hospitals, while the samples and fees in the out of hospital market are directly handed over to third-party laboratories without going through hospitals. As a leading domestic NGS enterprise, the business composition of Ranshi Medicine includes both of the above businesses.
With the gradual deepening of the business, the focus of the business of Ranshi Medicine has begun to shift comprehensively to the in-house model in recent years. In its view, the in hospital model has unparalleled competitiveness. In its previous financial report, Ranshi Medicine mentioned that "once the in-house laboratories, equipment, and systems are in place, we will regularly sell our reagent kits to them, creating high entry barriers and high customer loyalty." This means that Ranshi Medicine believes that the in-house model business is more stable and the profit margin may also be higher.
Delisting warning
In the view of the above analysts, performance growth is considered an important factor driving the upward trend of stock prices in the secondary market. Under normal circumstances, a company's operating revenue and net profit can achieve a growth of over 20%, and its stock price performance will not be unsatisfactory.
For Burning Stone Medicine, its stock price has experienced a "cliff like" decline from $38 to $0.8 on the Nasdaq market. On the evening of January 4, 2024, Burnstone Medical announced that it had received a notice from NASDAQ stating that the closing price of its depositary stock had been below $1.00 per share for 30 consecutive trading days, which did not comply with the listing rules.
According to the NASDAQ listing rules, the company has 180 natural days, which is the deadline until June 26th, to restore the minimum bid price requirement of maintaining a minimum of $1.00 for at least 10 consecutive business days for its ADS closing price.
If Burning Stone Medicine fails to restore compliance before the June deadline, it may be eligible for an additional 180 day compliance period. Regarding Nasdaq's delisting warning, Burnstone Medical stated that "the notice did not affect its business operations, and the company plans to monitor its ADS bidding prices and restore compliance."
In fact, the performance of Burning Stone Medicine in the secondary market was not satisfactory last year. Although its adjusted gross profit turned positive in Q2 last year, and then in Q3, its core in-house business accounted for over 50% of the testing business revenue, it did not bring the stock price back to life.
It is reported that on January 4, 2024, the stock price of Ranshi Medical was 0.96 US dollars, a decrease of 74.74%. Until mid day on March 14th, it fell to its lowest level of 0.57 US dollars, setting a new low since its listing. Subsequently, the company's stock price hovered between $0.6 and $0.9 until May 14th.
Within the four months from January 4th to May 14th, Ranshi Medical has not yet met the minimum bidding price requirement of "maintaining at least 10 consecutive business days of no less than $1.00", and the risk of delisting is increasing as it enters the second 180 day compliance period.
In this context, Ranshi Medicine has reversed its decline through a "joint stock" strategy. On May 15, 2024, Burnstone Medical announced that it would change the ratio of its American Depositary Shares ("ADS") representing its common stock from 1 ADS representing 1 common stock to 1 ADS representing 10 common stocks.
The first fundamental impact was that on May 16th, the stock price of Ranshi Medical surged to $8.99. Although its stock price continued to slowly decline, as of May 29th, its lowest price was $7.5, restoring compliance for listing on NASDAQ.
But for Burning Stone Medicine, a "joint stock" reversal is not a long-term solution. From 2021 to 2023, the trading volume of Burning Stone Medicine on NASDAQ has significantly declined from 30.301 million shares to 19.687 million shares, while its trading volume has only remained at 5.541 million shares since the beginning of this year.
"Throughout the NASDAQ market, although a company's stock price can be repeatedly inflated through stock trading or pie painting when its performance is insufficient to support the stock price, the risks brought to investors by pie painting and speculation are enormous. Even with the support of industrial policies, if it cannot be translated into an increase in the performance of listed companies, then this kind of speculation is still difficult to sustain," said the analyst.
The reporter learned that the tumor early screening track where Burning Stone Medicine is located has officially entered the commercialization stage. Compared to the crowded field of personalized tumor treatment, early screening of tumors is still in the "blue ocean" market. For potential high-risk groups, unlike the fixed frequency of clinical products, early screening products have a certain degree of repurchase ability, and the market size is several times larger than the accompanying diagnostic market.
According to the prospectus of Burning Stone Medicine, the size of the domestic cancer early screening market will increase from $18.4 billion in 2019 to $28.9 billion in 2030. Cancer is the number one enemy threatening human health, and early detection and treatment are considered by clinical medicine to be the main means of fundamentally controlling cancer. Its difficulties in landing and slow progress may be solved over time.