Zai Lab Limited (NASDAQ:ZLAB) Q4 2022 Earnings Call Transcript

Zai Lab Limited (NASDAQ:ZLAB) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab Full Year and Fourth Quarter 2022 Financial Results Conference Call. As a reminder, today’s call is being recorded. It’s now my pleasure to turn the floor over to Billy Cho, Chief Financial Officer of Zai Lab, who will make introductory comments.

Billy Cho: Thank you, operator. Good morning, good evening, and welcome, everyone. Zai Lab recently issued a press release providing the details of the company’s full year 2022 financial results, as well as some recent product highlights and corporate update. The press release is available in the Investor Relations section of the company’s website at ir.zailaboratory.com. Today’s call will be led by Dr. Samantha Du, Zai Lab’s Founder, Chief Executive Officer and Chairperson. After Dr. Du provides opening remarks with an overview of 2022 highlights, Josh Smiley, Chief Operating Officer, will further discuss key business updates and 2023 strategic priorities. Dr. Rafael Amado, President and Head of Global Development Oncology will discuss advances with our oncology product candidates; Dr. Harald Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases will speak about progress we’ve made in those three therapeutic areas.

And I will discuss the performance of our market products and conclude the comments on our full year and fourth quarter financial results. Additional executives will be available to answer questions during the Q&A portion of the call. As a reminder, during today’s call, Zai Lab will be making certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to our business plans and objectives, clinical trials, sales and revenue forecasts for our products and product candidates, regulatory applications and commercial launches. Such forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties and actual results could differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings.

At this time, it is my pleasure to turn the call over to Zai Lab’s Founder, Chief Executive Officer and Chairperson, Dr. Samantha Du.

Samantha Du: Thank you, Billy. Hello, everyone, and thank you all for joining us today. On this call, I’ll discuss highlights from 2022 and what would that accomplish in 2023 and in the longer term. In 2022, despite challenges from the COVID-19 pandemic in China, our four market product, each with substantial sales growth we made exciting program across our broad and expanse pipeline. Our continue to demonstrate potential best-in-class or first-in-class profile globally. The numerous positive data readouts announced during the year including adagrasib in non small cell lung cancer, cart-T in schizophrenia. and that quotation marks in ITP and DMT. We are also pleased to have contributed to several successful registrational studies, including the Tumor Treating Fields to LUNAR study, in the repotrectinib TRIDENT-1 study, We’re pleased to have added QINLOCK and NUZYRA reinforcement job risk in 2023.

We further deepened our women’s cancer franchise through our strategic collaboration with Seagen for TIVDAK. And we continued to significantly enhance our talented global team, further building on our solid foundation. Zai Lab is already a leading global biotech with various scale, a world-class pipeline, and a growing commercial portfolio in China. We expect to achieve commercial profitability this year, and are preparing to launch at least 8 additional products and achieve overall corporate profitability by the end of 2025. We will continue to invest in R&D as we seek to advance our product pipeline, including our internal discovery activities, and accelerate medicines to patients in need. We also aim to strengthen our portfolio and strategic positioning with potentially transformative assets and partnerships.

We believe that the global regulatory environment will continue to be supportive of innovative biopharmaceutical companies like Zai Lab. We will continue to build on our success in pursuit of our overall goal of improving human health, in China and globally. I’d like to now turn the call over to Josh to discuss other key business updates, and 2023 strategic priorities in more detail. Josh?

Josh Smiley: Thank you, Samantha. As Samantha mentioned, in 2022 we continue to attract top talent with deep domain expertise. I’d like to highlight a few recent additions to our global leadership team. In December, we were pleased to welcome Dr. Rafael Amado to our team as president, Head of Global Oncology Research and Development. Rafael joined us from Allogene and he has experience in leading worldwide discovery and clinical development across a broad range of oncology products. In November 2022, Dr. Peter Huang joined as our Chief Scientific Officer. Dr. Huang will lead and oversee our discovery efforts in translational medicine. We were also pleased to appoint Michel Vounatsos to our Board of Directors in January 2023.

Mr. Vounatsos brings to the Board extensive global leadership and management experience in the biopharmaceutical industry, including more than 25 years of service as an executive at leading companies. His expertise includes a significant amount of commercial experience in China and worldwide. We expect 2023 to be a very exciting year for Zai, as we anticipate achieving many significant milestones. First on the regulatory front for efgartigimod, we expect BLA approval and commercial launch for the IV formulation of efgartigimod in generalized myasthenia gravis, or gMG in 2023. And a BLA submission for the subcutaneous efgartigimod in gMG in mid 2023. We also plan to submit a new drug application to the NMPA for Repotrectinib in ROS1+ advanced non small cell lung cancer this year.

We’re also pleased to obtain the NMPA acceptance of the NDA for Sulbactam-Durlobactam for the treatment of infections caused by Acinetobacter baumannii. Regarding our commercial products, we delivered good growth, even though we faced COVID challenges last year. And now with the COVID challenges mostly behind us, we expect strong growth in revenue in 2023. We expect the ZEJULA to become the leader in PARP sales for ovarian cancer in China this year. In the fourth quarter of 2022, we continue to gain share of hospital sales across all indications, reaching 39% of total PARP hospital sales. Since last September, there’s been some concern around the ZEJULA’s China label for ovarian cancer in the recurrent setting on the back of the U.S FDA decision.

However, as we’ve previously communicated, we do not expect the U.S labor restriction to impact the approval from the NMPA for the ZEJULA in China. For QINLOCK and NUZYRA, we anticipate a significant increase in the sales of both products following their inclusion this year on the NRDL. Moving the key research and clinical development milestones for both Zai and partners, we are looking forward to the top line data readouts for subcutaneous efgartigimod for chronic inflammatory demyelinating poly radio nuclear — nucleo neuropathy in for CIDP in the second quarter of 2023, and pemphigus vulgaris or PV and chronic immune thrombocytopenia or ITP, in the second half of 2023. We also expect the full data readout of the Tumor Treating Fields LUNAR study in non small cell lung cancer in the first half of 2023.

We also look forward to the clinical data update for adagrasib in combination with pembrolizumab in first-line KRAS G12C-mutated non small cell lung cancer in the second half of 2023. In terms of clinical developments, we will complete the enrollment in the global Phase 3 innovaTV 301 study of TIVDAK in second and third-line cervical cancer in the first half of 2023. We also plan to join the global Phase 3 FORTITUDE-101 study of bemarituzumab in first-line gastric cancer in China in mid-2023. And we anticipate initiating a bridging study of KarXT for schizophrenia in China in mid-2023. I’d like to emphasize the advancement of these potential treatments for lung and gastric cancers continues to add design strength in these areas of large unmet patient needs.

We will continue to invest in R&D and advance our internal global pipeline. In terms of key research milestones, we plan to move ZL-1102 for potential in chronic plaque psoriasis into full global development with the initiation of a global Phase 2 study in 2023. We also plan to initiate a global Phase 1 study for ZL-1218 or CCR8 in the first half of 2023. Of course we also continue to evaluate business development opportunities, including the addition of potentially transformative opportunities and partnerships for our regional and global pipeline. Zai Lab is a trusted brand and strategic partner of choice, and we look forward to entering into more deals that we believe will create significant value and synergies to our existing business. Before I conclude, I’d like to welcome Dr. Rafael Amado to his first earnings call with Zai.

Rafael will make introductory remarks before discussing advances with respect for oncology product candidates. And now I’ll turn the call over to Dr. Amado. Rafael?

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Rafael Amado: Thank you, Josh. I’m thrilled to be joining Zai Lab in such a pivotal time in the company’s history. As a physician scientist, I’ve had the privilege to work on the development and approval of cancer therapies across various modalities and to form and lead R&D team. Zai have a broad portfolio of innovative product therapy capabilities for development in Greater China, and the ambition to continue to globalize research and development in oncology. The combination of products with transformational potential, excellence in execution, together with the ambition for global expansion made Zai Lab an easy choice as a next step in my career. I look forward to working with outstanding colleagues to continue to build capability and to help catalyze the expansion of our oncology pipeline.

In the fourth quarter of 2022, Zai Lab’s oncology franchise continue to make progress on all fronts, and we expect to have a productive year in 2023. For Tumor Treating Fields, in January 2023, Zai Lab and NovoCure announced that the LUNAR study made its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in overall survival over standard therapies along. The LUNAR study also showed statistically significant and clinical in meaningful improvement in overall survival when patients are treated with TTFields or an immune checkpoint inhibitors as compared to those with immune checkpoint inhibitors alone. And a positive trend in overall survival when patients were treated with TTFields and docetaxel versus docetaxel alone.

TTFields therapies was well tolerated with patients enrolled in the experimental arms of the study. We are excited about the potential of TTFields to help lung cancer patients. In China alone lung cancer is the most common cancer type with approximately 700,000 new cancers diagnosed each year. We are pleased to contribute and to be a part of the LUNAR study. Because LUNAR made its primary endpoint of overall survival, we’re optimistic about its broad potential across a range of hard to treat and prevalent cancers. The late stage studies underway in certain other cancer types include pancreatic were Zai is actively enrolling. Moving now to KRAZATI adagrasib, it was granted accelerated approval by the FDA in December 2022 for adult patients with KRASG12C mutated locally advanced or metastatic non small cell lung cancer who have received at least one prior systemic therapy.

In China, we will continue to accelerate the regulatory pathway for second line non small cell lung cancer monotherapy by leveraging the global data package for the FDA approval, study in China and the global confirmatory KRYSTAL-12 study with Zai Lab joined in July 2022. Further, in December 2022, the FDA granted Breakthrough Therapy Designation to adagrasib in combination with cetuximab in patients with KRASG12C-mutated, advanced colorectal cancer whose cancer has progressed following prior treatment with chemotherapy and an anti-VEGF therapy with the results published in the New England Journal of Medicine. Adagrasib demonstrated anti-tumor activity in heavily pretreated patients with KRASG12C metastatic CRC both as monotherapy and in combination with the cetuximab.

Mirati plans to submit the news supplemental drug application in third-line+ KRASG12C-mutated advanced CRC by year end 2023, and move forward with Accelerated Approval pathway. Zai initiated enrollment to the randomized study in second line metastatic CRC in June 2022 and the enrollment completion is expected by the end of 2023. We remain confident that adagrasib is potentially a best-in-class KRAS G12C inhibitor in colorectal cancer. For first line non small cell lung cancer, recall that in December 2022 Mirati reported results from the KRYSTAL-7 Phase 2 trial and KRYSTAL-1 Phase 1b cohort evaluating adagrasib in combination with pembrolizumab in patients for the treatment of first line non small cell lung cancer harboring a KRASG12C mutation across all PD-L1 subgroups.

We are excited that these results are the first to demonstrate the tolerability and feasibility of a concurrent combination regimen of a KRASG12C inhibitor and a PD1 — PD-L1 checkpoint inhibitor, and we will continue to work with Mirati on our first line inspection plan for adagrasib. We announced this July we were pleased that NMPA granted full approval to the first line ovarian cancer maintenance indication on February 3 2023, regardless of biomarker status. In December 2022, we present a new interim overall survival data in Chinese patients with platinum-sensitive recurrent ovarian cancer from the Phase 3 NORA study conducted exclusively by Zai Lab at the ESMO Virtual Plenary session. Median overall survival was numerically longer for patients receiving the ZEJULA regardless of biomarkers status at 46.3 months, compared to 43.4 months in the placebo group.

None of the safety issues were identified. We expect to present the final OS analysis of the Phase 3 NORA study sometime this year. Moving now to our internal global research and development programs, the translational and clinical biomarker data or ZL1211, an anti-Claudin18.2 antibody will be presented in a poster at our upcoming AACR Conference. And we plan to initiate a global Phase 1 study in the first half of 2023 for ZL-1218, an anti-CCR8 antibody. With an abundance of potentially best-in-class or first-in-class product, we’re very excited about our oncology pipeline at Zai Lab. And now I will turn the floor over to Dr. Harald Reinhart, to discuss the progress in our autoimmune infectious disease and neuroscience therapeutic areas. Harald?

Harald Reinhart: Thank you, Rafael. I’m excited for the opportunity to share with you today the progress across our autoimmune infectious disease and neuroscience therapeutic areas. Let’s start with VYVGART or efgartigimod. On the regulatory front, we and our partner argenx continue to make excellent progress. Argenx recently announced that the FDA has accepted for priority review, a BLA for efgartigimod Sub-Q for the treatment of adult patients with generalized myasthenia gravis. The PDUFA date is June 20, 2023. As a reminder, we submitted the BLA for efgartigimod IV for the treatment of patients with gMG in China in the second quarter of 2022 and expect approval in commercial launch this year. We also expect to submit a BLA for efgartigimod Sub-Q for gMG in mid 2023.

We continue to support argenx on indication expansion in China and worldwide indeed, enrollment in two proof-of-concept trials for autoimmune renal diseases has begun this February. Moving to KarXT, the combination of xanomeline and trospium, which we are developing with our partner Karuna in acute schizophrenia. Zai Lab’s proposed development plan for China has been accepted by the NMPA, and we expect to start a clinical bridging study in mid 2023. As you recall, results from Karuna’s EMERGENT-2 trial were released this August 2022. This pivotal trial made its primary endpoint with KarXT demonstrating a statistically significant 9.6 reduction in PANSS total score compared to placebo at week 5. In addition, Karuna expects top line data results from the Phase 3 EMERGENT-3 trial in schizophrenia in first quarter of 2023 and an NDA submission to the FDA for KarXT in schizophrenia in May 2023.

Regarding our infectious diseases portfolio, we have several noteworthy developments. First, Sulbactam-Durlobactam or SUL-DUR. We submitted the NDA for the treatment of carbapenem-resistant Acinetobacter baumannii infection to the NMPA in December 2022. We were granted priority review one month later in January 2023. And in February, the NDA was officially accepted by the NMPA. We look forward to bringing this novel drug to China and Asia Pacific, where severe CRAB infection are frequent and often can no longer be adequately treated, because of multidrug resistance. For omadacycline NUZYRA as Samantha mentioned earlier, we are happy to report that it was successfully listed in China’s NRDL as of January 2023. And lastly, our internally developed topical IL-17 product, ZL-1102 continues to progress towards initiation of a Phase 2 study for chronic plaque psoriasis in later 2023.

And now Billy will speak about progress with our commercial products and financial results. Billy?

Billy Cho: Thank you, Harald. Our four marketed products, ZEJULA, Optune, QINLOCK and NUZYRA continue to achieve solid revenue growth, driven by strong demand and commercial execution. ZEJULA continue to perform well and increase its share of PARP sales for ovarian cancer during the fourth quarter of 2022. We expect ZEJULA to become the sales leader in China this year. For Optune, we are starting to see a strong recovery, given the COVID situation throughout last year, achieving solid revenue growth in the fourth quarter. , our team focused on continuing to improve market access by expanding commercial and supplemental insurance coverage for Optune and educating physicians about its potentially significant clinical benefits including survival.

As of December 31, 2022 Optune was covered by 87 municipal or provincial supplemental insurance plans, up from 33 such plans to prior year. We’re pleased to have added QINLOCK and NUZYRA to China’s national reimbursement drug list in January 2023, and implementation starts this month. As discussed earlier, we expect strong revenue ramp up for these products as a result of their NRDL inclusion. For efgartigimod, the first and only U.S approved FcRn blocker with pipeline and a product potential. We’re getting ready for the commercial launch later this year. We plan to have specialized and experienced team efgar with about 100 employees at launch. We are quite excited about its blockbuster potential in China. Now I will discuss our full year and fourth quarter of 2022 financial results compared to the prior year periods.

Total revenues for the full year of 2022 were $215 million, compared to $144.3 million in 2021, representing a 49% year-over-year growth. Total revenues for the fourth quarter of 2022 were $62.6 million, compared to $44.2 million in the prior year, representing a 41.7% year-over-year growth. Product revenues for the full year of 2022 were $145.2 million for ZEJULA compared to $93.6 million in 2021, representing a 55.2% year-over-year growth; $47.3 million for Optune compared to $38.9 million for 2021, a 21.6% year-over-year growth and $15 million for QINLOCK compared to $11.6 million in 2021, a 28.7% year-over-year growth and $5.2 million for NUZYRA compared to close to zero in 2021. R&D expenses were $286.4 million for 2022, compared to $573.3 million for the same period in 2021.

The decrease in R&D expenses in 2022 was primarily due to lower upfront payments for new licensing agreements. Excluding upfront payments for new licensing agreements, R&D expenses were $256.4 million in 2022 compared to $252 million in 2021. SG&A expenses were $259 million for 2022, compared to $218.8 million for the same period of 2021. The increase was primarily due to higher payroll and payroll related expenses from the increased headcount as Zai Lab continued to expand and invest in its commercial operations in China and infrastructure in the United States in anticipation of substantial growth over the next few years. Zai Lab reported a net loss of $443.3 million, or a loss per share attributable to common stockholders of $0.46 for 2022 compared to a net loss of $704.5 million, or a loss per share attributable to common stockholders of $0.76 for 2021.

The decrease in the net loss was primarily attributable to lower payments related to new business development activities, and continued growth and product sales. As of December 31, 2022, cash and cash equivalents, short-term investments, and restricted cash totaled $1 billion, compared to $1.4 billion as of December 31, 2021. We would now like to turn the call back over to the operator to open up the line for questions. Operator?

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Q&A Session

Operator: The first question from Michael Yee from Jefferies. Please go ahead.

Michael Yee: Hey, guys, thanks and good morning from our side. We had two questions. One was maybe you could just give us sort of a real time update with how things are going in China as opposed — as regards to opening up as COVID evolves there both from a commercial execution standpoint, but also from a clinical trial execution standpoint for all the partners. And how is that progressing, sort of relative to pre-COVID? And then second is obviously with TTF and lung cancer. That was a big announcement recently appreciating that that needs to probably get filed first, et cetera. How are you thinking about that launch and opportunity relative to GBM, and, in particular in the reimbursement side, how to think about that opportunity? Thank you.

Harald Reinhart: Hey, thanks, Mike, for your questions. Maybe I’ll get started and other colleagues can chime in. So on the ground reporting from COVID kind of opening, I think everyone is quite familiar with the challenges that everyone faced in 2022 and the impact, of course — even all the way through end of ’22, as well as early this year. We’re clearly monitoring the situation very closely and we’ll continue to do that. But so far, so good. And it looks like as we kind of enter right now, in March, and wrapping up the first quarter, it looks like we’re being optimistic going into the spring and beyond and getting back into some semblance of normalcy. So pretty, pretty energized. And if you’re here, and I’m in Shanghai, right now, the activity is quite active and buzzing, so it’s great to see that, traffic not so much.

But for the — on the commercial side and the R&D side, on the R&D piece, I think we’ve really learned with our team in the clinical development. team has done a terrific job of navigating the challenges with COVID in the past, and you’ve seen us consistently execute and have a very resilient performance and not slipping up in any of our commitments to the patients, to the physician community, to our partners, et cetera. So I think, for us we had — we managed it quite smoothly, so quite proud of that, as well as commercial, and you would have seen consistent growth. I think fourth quarter came in, given what happened, even through the end of December and parts of early this year, I think, relatively speaking, quite happy with the outcome and looking forward to a more normal environment.

So we expect 2023 to be a strong year for growth. On the Tumor Treating Fields, I think your question was really more towards on the commercial opportunity part and reimbursement part. So you’ve probably heard us say before that, like NRDL, National Reimbursement Policy for a technology like Tumor Treating Fields, we think that there’s a possibility, it can be formalized as early as this year. So we’ll all sort of be on standby for that. And if we hear something we’ll kind of upstream to everybody else. And the significance of — I mean, this subject to data, of course, for LUNAR, but the opportunity is quite significant. I think Rafael said that there’s, and people know, there’s 700,000 new cases per year for non small cell lung cancer, half of whom are going to be in Stage 4, and about 30% in Stage 3, and despite treatment options available with a significant unmet medical need and at that type of quantum that number is pretty dire.

So again, substitute data that should be coming out sometime this year. The opportunity is quite significant. And it could be a blockbuster program opportunity for us.

Michael Yee: Thank you.

Operator: Thank you for your question. We are now taking the next question. Please stand by. The next question from Anupam Rama from J.P. Morgan. Please go ahead. Your line is open.