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December 4, 2019
Yusheng Han
Director and Chief Executive Officer
Burning Rock Biotech Ltd
601, 6/F, Building 3, Standard Industrial Unit 2
No. 7, Luoxuan 4th Road
International Bio Island, Guangzhou, 510005
Peoples Republic of China
Re: Burning Rock Biotech Ltd
Draft Registration Statement on Form F-1
Submitted November 4, 2019
CIK No. 0001792267
Dear Mr. Han:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form F-1 submitted on November 4, 2019
Prospectus Summary
Overview, page 1
1. We note your reference to findings by China Insights Consultancy. Please
provide us with
a copy of the report.
2. The prospectus summary should include a balanced presentation of your
business,
including your competitive position in the industry. In the presentation
of your business,
you present your organization as a "China's number one cancer
diagnostics company" and
your platform technologies as "unrivaled" and "world-class." Please
revise to state the
Yusheng Han
FirstName LastNameYusheng Han
Burning Rock Biotech Ltd
Comapany4, 2019
December NameBurning Rock Biotech Ltd
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December 4, 2019 Page 2
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basis for your performance claims or revise to state such claims are
management's belief.
Additionally, please balance your summary presentation by providing
equally prominent
disclosure about the competitive, regulatory and technical challenges
you face.
3. We note your statement that your "products are validated by the
medical, pharmaceutical
and scientific communities...." Please clarify what you mean by
"validated" in your
disclosure.
4. We note that you currently offer 13 NGS-based cancer genotyping tests
applicable to a
broad range of cancer types. Please revise your disclosure to identify
in the Summary the
specific cancer types.
5. Where you reference your collaborations on clinical trials, please
revise your disclosure to
indicate you primarily provide central laboratory services and
companion diagnostics
development services, as discussed on page 119. Please also expand
your disclosure in the
Business section to include any compensation arrangements with
oncology key opinion
leaders.
Our Addressable Markets, page 3
6. Please revise your references here and throughout your registration
statement to your
"addressable" market to remove any implication you have captured or
are likely to capture
the stated market potential.
Implication of Being an Emerging Growth Company, page 5
7. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
Risks Related to Our Business and Industry
If we were to be sued for product liability or professional liability.....,
page 16
8. We note your disclosure that similar to other Chinese companies, you
do not carry product
liability or professional liability insurance. Please briefly explain
the relevant features of
the China market that impact this decision.
We rely on a limited number of suppliers, or in some cases, sole suppliers, for
some of our
laboratory equipment and supplies, page 19
9. We note your disclosure that you source sequencers, reagents and
certain other laboratory
supplies used in your laboratory operations from several sole
suppliers. Your supply
agreements appear to be material contracts. Please expand your
disclosure in the Business
section to provide the material terms of your material supply
agreements, including each
parties' rights and obligations, financial terms, term and termination
provisions.
Yusheng Han
FirstName LastNameYusheng Han
Burning Rock Biotech Ltd
Comapany4, 2019
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Please also file your supply agreements as exhibits to your
registration statement or tell us
why you believe such filing is not required. Refer to Item 601(b)(10)
of Regulation S-K.
Risks Relating to Our ADSs and This Offering
Our dual-class structure with different voting rights will limit your ability
to influence corporate
matters...., page 53
10. We note your disclosure that each Class B ordinary share will be
entitled to six votes.
Please expand your disclosure to discuss the risk that future issuance
of Class B shares
may be dilutive to holders of Class A shares and that your dual-class
structure may render
your shares ineligible for inclusion in certain stock market indices
and the potential impact
on the market price and liquidity of your ordinary shares.
Use of Proceeds, page 58
11. Please revise the discussion to disclose the estimated net amount of
the proceeds broken
down into each principal intended use, (i) research and development of
our early cancer
detection technologies, (ii) obtaining NMPA approvals for additional
cancer genotyping
products, including completing related clinical trials; and (iii)
other general and
administrative matters. If the anticipated proceeds will not be
sufficient to fund all the
proposed purposes, please disclose the order of priority of such
purposes. To the extent
material amounts of other funds are necessary to accomplish the
specified purposes, state
the amounts and sources of such other funds needed for each specified
purpose. Refer to
Item 3.C.1 of Form 20-F.
Capitalization, page 60
12. We note on pages F-24 and F-36 that all of your outstanding preferred
shares will convert
automatically into ordinary shares in the event of a "Qualified IPO".
Please revise your
disclosures to clarify all of the stipulations of a "Qualified IPO"
and explain why you
believe that it is factually supportable that the outstanding
preferred shares will
automatically convert into ordinary shares.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Key Components of Results of Operations
Operating Expenses
Selling and Marketing Expenses , page 76
13. We note your disclosure that selling and marketing expenses primarily
consist of staff
costs for personnel engaged in sales and marketing functions, travel
and entertainment
expenses and convention expenses. We further note your disclosure on
page 80 that your
selling and marketing expenses as a percentage of total revenues
decreased in 2018
primarily due to economies of scale. Please expand your disclosure to
discuss your
Yusheng Han
FirstName LastNameYusheng Han
Burning Rock Biotech Ltd
Comapany4, 2019
December NameBurning Rock Biotech Ltd
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FirstName LastName
compensation structure with your sales force. Refer to Item 5.A of
Form 20-F.
Additionally, please reconcile the description of selling and
marketing expenses with your
statement on page 80 that your general and administrative expenses
increased in 2018 in
part due to an increase in travel and entertainment expenses.
Fair Value of Share Options, page 88
14. We note that the estimated fair market value per ordinary share is a
significant assumption
in your share option grant valuation. Accordingly, please bridge for
us the fair value per
share determinations used for each option grant subsequent to December
31, 2018 to the
current estimated IPO price per share. We will delay our assessment of
your response
pending inclusion of the estimated IPO price in the filing.
Business
Overview, page 106
15. With respect to your early detection technologies, please briefly
explain what you mean
by "specificities of 96%." Similarly, please revise the graphics and
expand your disclosure
as appropriate on page 112 to provide appropriate context for an
investor to evaluate the
graphics. Please also briefly explain what you mean by a
"capture-based" fully automated
NGS library preparation system on page 106. Additionally, please
revise your statement
on page 123 that the testing success rate of your LungPlasma is 99.5%,
on par with world-
class genomic testing companies to indicate how testing success rate
is measured and the
basis for your competitive claim.
Intellectual Property, page 124
16. We note your disclosure regarding your patent rights. For each of your
material patents,
please clearly disclose:
applicable jurisdictions where patents are issued or where patent
applications are
pending;
type of patent protection (e.g. composition of matter, use, or
process); and
the specific NGS-based cancer genotyping test or technology to which
the patent
relates and the patent expiration date or expected expiration date
for patent
application.
Note 1. Organization and Basis of Presentation , page F-10
17. We note here and throughout the filing that you consolidate Burning
Rock (Beijing)
Biotechnology Co., Ltd. ("VIE") and the VIE's subsidiaries within your
financial
statements as of each balance sheet date and that those VIE agreements
were amended on
October 21, 2019. Please revise the filing to disclose the process by
which you formed
the VIE structure, including relevant chronological dates. Also,
revise the filing to explain
why you are consolidating this VIE and the VIE's subsidiaries as of
each balance sheet
Yusheng Han
Burning Rock Biotech Ltd
December 4, 2019
Page 5
date and how the amended agreements signed on October 21, 2019 impacted
your
consolidation conclusions.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue from central laboratory business, page F-20
18. We note that when you are expected to be entitled to a breakage amount,
it is recognized
as revenue in proportion to the pattern of rights exercised by the
patient. Please revise the
filing to explain how you estimate breakage in these situations and the
significant
judgments underlying those estimates. Refer to ASC 606-10-50-17.
Revenue from in-hospital business, page F-21
19. We note that you recognize revenue on a net basis related to the
provision of the
facilitation services for the laboratory equipment sales to hospitals
since you have
determined that you are an agent. We also note that you purchase this
laboratory
equipment from third-party suppliers when the hospital makes a purchase
request and
resell the laboratory equipment to the hospital. Please explain in more
detail how you
have considered all of the requirements in ASC 606-10-55-36 through 55-40
to conclude
that you are the agent in these transactions.
20. Please revise the filing to disclose if you have any warranty obligations
or customer rights
of return from the sales of reagent kits to hospitals. Refer to ASC
606-10-55-22 thru 55-
35.
General
21. Please provide us proofs of all graphics, visual, or photographic
information you will
provide in the printed prospectus prior to its use, for example in a
preliminary prospectus.
Please note that we may have comments regarding this material.
You may contact Tara Harkins at 202-551-3639 or Kevin Kuhar at
202-551-3662 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Jeffrey Gabor at 202-551-2544 or Christine Westbrook at 202-551-5019
with any other
questions.
Sincerely,
FirstName LastNameYusheng Han
Division of
Corporation Finance
Comapany NameBurning Rock Biotech Ltd
Office of Life
Sciences
December 4, 2019 Page 5
cc: Shuang Zhao , Esq.
FirstName LastName