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.

Anupam Rama: Hey, guys. Thanks so much for taking the question. Maybe a broader question actually. You guys have talked a lot about private pay and supplemental insurance. What portion of revenues are currently reimbursed with this mechanism? And what does that look like as you model out to 2025 and 2030 timeframe? And which products do you see with the greatest portion being reimbursed by private pay and supplemental insurance? Thanks so much.

Harald Reinhart: Hey, Anupam. Josh, do you want to take this one?

Josh Smiley: Sure. Hi, Anupam. Thanks for the question. I’d say first, we’re pleased with the overall reimbursement environment in China and its development over the last few years. Certainly on the supplemental insurance side, we’ve seen number of people covered grow from about 40 million at the end of 2020 to 150 million at the end of 2022. We expect that number to grow over the next few years to somewhere between 200 million and 300 million, so a quite sizable population, if you start to look at that compared to other countries around the world. So that’s certainly positive and we see the benefits of that, most directly now in Optune. So in terms of percentages, while we don’t break it out, I think just looking at our 2022 results, ZEJULA has covered through NRDL, the other three products weren’t.

So just at a very macro level, about 70% or so of our sales were through some NRDL mechanism, the rest through a combination of commercial, supplemental insurance and private pay. I think as we look forward, though, certainly with the growth in supplemental insurance that provides a really important option at launch for our innovative products for a sizable number of patients to have access to the innovation and for physicians to get experience. But our strategies going forward for the kinds of drugs that we are developing, either in our internal pipeline or with partners, we think they are ultimately going to be NRDL opportunities. And Billy alluded earlier that even on the medical device side, we see some really important progress there. So I think, Anupam, our strategy is to bring great innovation, as it relates to China great innovation to Chinese patients.

And we want to do that as broadly as possible. So our lead strategy will be to leverage NRDL opportunities. We’re quite pleased with the three products we now have on NRDL and the economics associated with them. In other words, the net price we now have relative to the patient opportunities, we’ll continue to pursue that for innovative drugs, like efgartigimod this year, but certainly the multi layered system we’re seeing now in China, develop in a robust way provides a lot more flexibility and a lot more options for early access for some sizable amount of patients over time. Thanks for the question.

Anupam Rama: Thanks so much.

Operator: Thank you for your question. We are now taking the next question. The next question from Yigal Nochomovitz from Citi. Please go ahead. Your line is open.

Yigal Nochomovitz: Hi. Thank you for taking the questions. Billy, I think you said that you’re basically flat year-on-year on R&D upfront and maybe marginally higher year-on-year on SG&A. Just if you could just clarify is the spend basically going to be flattish going forward to drive to overall corporate profitability with the top line growth by the year-end ’25? Or might you have some flexibility to accelerate OpEx and still navigate to profitability with the top line growth by the end of ’25? Thanks.

Billy Cho: Yes. Hey, Yigal. So you’re right, you heard that correctly. In terms of core R&D, it was pretty much at the 250 level. So roughly flat year-over-year ’21, ’22. This year, you can expect a very modest increase. And as you know, we have a pretty active development calendar, given the anticipated approvals and launches over the next 3 years, I think we have around eight, at least in the queue. So — but I think we should expect that to be at that range. Now for SG&A, so we have with the we have said that this year, we’re going to be commercially profitable, or we target to be commercially profitable, even as we build a new sales team for efgartigimod launch. So that’s a great place to be. You can expect to see that operating leverage continue to increase as the revenue increases and as we launch additional products.

And so there is a lot of flexibility that we have, and that’s I think a kind of a great place to be when you have kind of a growing and relevant scale, a strong balance sheet. And sort of all the engines are firing on all cylinders, you can establish good baseline and preserve some optionality.

Yigal Nochomovitz: Got it.

Josh Smiley: Hey, Billy, I’ll just maybe add, just one quick point to that is, really our priorities are to grow the top line and to advance our clinical programs, and we’ve got a plethora of them. But if we execute on those two priorities, Yigal, the profitability is going to follow. So, if you look at products like ZEJULA and our women’s health franchise, and the expected growth over the next few years and then add TIVDAK on top of that, those are the things that are going to drive profitability and give us the flexibility that Billy mentioned. We continue to invest in sales force, continue to invest in the clinical program. So again, to us it’s more around portfolio that we built. If we execute as we expect to along that side, the profitability is going to come.

Yigal Nochomovitz: And just real fast, just one housekeeping on QINLOCK and NUZYRA. So can we say at this point what the discount is for the NRDL? I think you mentioned the press release, you expect significant increase, just kind of just for modeling purposes, what does that look like? Thanks.

Billy Cho: Yes, so the NRDL pricing for QINLOCK is $2,400 a month. And then for NUZYRA, it’s $450 a month.

Yigal Nochomovitz: Okay.

Billy Cho: Oh, sorry for NUZYRA, it will be for the treatment, the $450 million — $450 for the treatment costs.

Yigal Nochomovitz: Okay, great. Thanks.

Operator: Thank you for your question. We are now taking the next question. Please stand by. The next question from Jonathan Chang from SVB Securities. Please go ahead. Your line is open.

Jonathan Chang: Hi, guys. Thanks for taking my questions. First question just to, can you elaborate more on the assumptions underlying your guidance of achieving corporate profitability by end of 2025 and discuss your level of confidence in this? And then second question, can you discuss Zai Lab’s current state of compliance with the HFCAA and how you’re thinking about the situation going forward? Thank you.

Josh Smiley: Yes, thanks, Jonathan. So I can take these two. And maybe I’ll start with the second one, that’s got to be a quick point that I want to make. So you would have seen that our 10-K that we just filed is with KPMG U.S. And that means that we have five things that are fully accessible by the PCAOB . And as a result, we have and continue to believe that we are now fully compliant with all the requirements of the HFCAA. And that’s going to preclude us from now and the future to be all sort of any kind of list or any kind of potential for delisting from the NASDAQ. So very proud of the team that worked hard to get this done. And it was strategically very important for us. So I think, again, a little kudos to the team and welcoming KPMG U.S on board.

So to your first question, on kind of how do we feel about the statement that we made about getting to an overall profitability by end of ’25? Jonathan, we wouldn’t make such statements, unless we’ve carefully thought about it. So the best way to think about — we’re not giving guidance at this time, so we’re not going to kind of give you hard numbers. But if you took your — the number that you had for 2025, whether you Jonathan, or whether the Street, and I know, there’s a range out there, but you take that, and you assume even if you assume just today’s gross profit, and that’s going to continue to improve over the next several years, but use that. And then you kind of stick with sort of the modest assumptions on sales, marketing, and G&A, especially since we would have already done a lot of heavy lifting infrastructure spend by then you will be able to get that.

So I think you should — we feel pretty good about it. And that gives us the confidence to make a public comment about that.

Jonathan Chang: Got it. Thank you.

Operator: Thank you for your question. We are now taking the next question. Please stand by. The next question from Ziyi Chen from GS. Please go ahead. Your line is open.

Ziyi Chen: Thank you. Thank you for taking my questions. The first question is, if we’re looking at the commercial infrastructure, or with more drugs expected to be launched in 2023 and next year, including margetuximab, eGFR and more antibiotics. So the therapeutic category is becoming much bigger compared to what is now. Trying to understand a bit more about your plan in terms of commercialization team set up in order to achieve the sales efficiency and, of course, maintain the productivity when covering a variety of different therapeutic areas. And secondly, since you mentioned about, Optune, we’re looking forward to the data. But could you elaborate a little bit more about based on the LUNAR data and what you’re going to planning to communicate to in China and what could potentially be the pathway, and also timetable for the potential indication of in China. Thank you.

Jonathan Wang: Yes, thanks, Ziyi. And I’ll give your second question to Rafael. On your first question, as you know people who are familiar with Zai Lab story knows, we’ve been pretty thoughtful about curating a portfolio that’s clustered around specific areas that are very strategic for us. And within that, some of the — they’re all quite differentiated and some of the programs are quite large in terms of commercial potential. So potential blockbusters would be the likes of the based on data for LUNAR, the Tumor Treating Fields franchise, bemarituzumab, adagrasib as a pipeline program. I think that people are also under estimating under appreciating drugs like KarXT et cetera. So that’s point one. Point two is it’s actually a — if you look at a snapshot of a quarter, two quarter, three quarter, you will not see it.

But if you look at what we have in currently the NDA submissions, and you’ve already mentioned some of those, and you look at the programs that we have in pivotal stage right now. There’s also a lot of clustering effect going on. So for women’s cancer franchise that we’ve already built that with ZEJULA , but we have tipped back that Josh mentioned that these are pretty substantial operating leverage that kicks in, I believe that we have a slide on corporate debt that says, here’s a case study for ZEJULA, which is the first drug in women’s cancer franchise, you layer it back on top of that, and we’re sort of expecting commercial profitability kind of profit margins for that product to be in the 40% range, and you can build upon from there. And then you look at the long programs in just the near-term stuff.

And you’ve got in addition to of course, LUNAR, which benefits from of course, a specialized sales force for Tumor Treating Fields, and often anyways, the lung itself would have — a LUNAR, the KRAZATI, we got the ROS1, and probably missing one or two more. And so we think that we have a lot of just a great opportunity here to drive productivity as we scale kind of revenue, pretty much at the same time. Again, you will not see it in like a quarter view, two quarter view from within a 1 to 2-year timeframe, you should really begin to see that.

Rafael Amado: This is Rafael. Just want to — wanted to go over the second part of the question. And just briefly, NovoCure has made public that they expect to submit a PMA or pre market approval application with the U.S FDA, which by the end of — on the second half of this year, that’s the equivalent of the NDA for drugs. So our plan is to follow on the submission and submit following the U.S submission in China. So the timing of as we work with our partner for the exact timing of the submission in the U.S., but we will follow very closely the U.S submission. And then obviously, there’s no PDUFA timeline in China. But we work with the authorities to try to accelerate the approval as soon as possible. So we expect that this potentially could be approved in the not too distant future, and the file will be imminent after the U.S file.

Ziyi Chen: Got it. Thank you.

Operator: Thank you for your question. We are now taking the next question. Please stand by. And the next question from Seamus Fernandez from Guggenheim Partners. Please go ahead. Your line is open.

Seamus Fernandez: Great. Thanks for the question. So just two quick questions. Can you — team if you could just walk us through how you see the KarXT opportunity evolving? I think Billy, you specifically stated that you feel this particular program is under appreciated. And just again, from that SG&A spend perspective, what do you think is necessary to really effectively promote KarXT to kind of maximize the opportunity? And then just a second quick question, as we think about the Tumor Treating Fields opportunity, obviously manufacturing to support this potential size of that market opportunity is going to be important. Can you just help us understand how you’re going to approach that opportunity from a manufacturing perspective? Thanks.

Billy Cho: Hey, Seamus, thanks for your question. I’ll provide the manufacturing question to Josh. For your question on KarXT, the — you’re right. I did say people are underestimating the potential in China and we believe that there are more than 8 million people in China living with schizophrenia today. And we believe in this product. And we think that it’s got a potential to treat multiple symptom domain as monotherapy, or even adjunctive. So really the — and out of the 8 million people, we know that 8 — 4.3 million people are diagnosed with severe forms of schizophrenia in the national database. So these are truly significant figures. And so — and I think I hear my colleague, Harald, kind of clearing his throat, because I think he may be adding some comments here and there, but feel free to chime in Harald, on the potential impact of KarXT on a kind of the size of China.

Harald Reinhart: Yes, thank you. Thank you for the question, too. It’s clear that when the in-licensed KarXT, we were really keen on bringing something to China, which is differentiated. We have and see in KarXT in two studies now in the EMERGENT studies, that this drug is addressing the negative symptoms that are really difficult to treat with existing pharmaceuticals. So that was one major differentiating feature. The second one was the side effect profile, this is a totally different class of drugs. And that alone is an important piece to remember, because most of the other antipsychotics for schizophrenia, they do come from the serotonin dopamine series, and have a certain side effect profile, which is really problematic.

That’s one of the reasons why a lot of patients do not continue treatment. As far as the addressable patient population, there is a significant unmet need in the patients with schizophrenia, just because the negative symptoms are not adequately treated at this point in time. So we see this as a global issue. But we see it also in China, where there is a need to bring more psychiatric help to patients who are currently underserved. There is a government drive to increase the numbers of psychiatrists and to help patients out with schizophrenia, much more so than in the past. So from our perspective, we see a significant market potentially in China. And we see it in a patient group that currently has very few options. Thank you.

Billy Cho: Yes, Seamus, the second part of your question about what kind of infrastructure the commercial is needed. We’re not yet in the — we could provide a specific number later on as we close to the approval and launch. But while the prevalence of disease in neuroscience is quite large, it’s pretty concentrated market. And so we believe that a sales team that’s focused and smaller than even an oncology product will be sufficient. And on top of that will be to leverage existing capabilities that we have, that we built for, for example, CDIP, as you know the neurology. And so I think it will provide specific details later on, but it’s going to be an efficient build out.

Josh Smiley: Thanks. On the — I’ll take the manufacturing question on TT Fields. Thanks, Seamus. I think first, this is hopefully a great problem to have. Of course, NovoCure has been focused on the breadth and size of the opportunity for many, many years, and have a series of strategies in place to work to bring down manufacturing costs for the device. And I think if we look at the China opportunity, of course, it’s going to be driven by the data. But if you look at the studies that are underway today across various tumors, as well as where the data could lead us, I think our view is there’s probably somewhere in the range of 1.8 million patients in China who could benefit from the benefits of technology over time. So the volumes that we’re considering and thinking about here could be quite significant with those volumes, I think there will be very good opportunities to bring down unit costs.

And we’re working closely with NovoCure on those strategies. And again, they’ve got the same view as they look at the world, not just China. But I think we’re excited about the commercial opportunity. We certainly believe that given the potential volumes here, and the supply chain and manufacturing strategies that NovoCure is working on, we’re partnering with them on that we’ll be able to have this be a very attractive economic proposition as well as gross margin as well as that at the bottom line. So again, I think the big focus for us, of course, will be to get through the LUNAR data to see the readouts from the studies in other tumors, but we’re well aligned with NovoCure and well prepared to supply the volumes that we think could benefit Chinese patients and to be able to do that at a reasonable gross margins.

Operator: Thank you for your question. We are now taking the next question. Please stand by. And the next question from Yang Huang from Credit Suisse. Please go ahead. Your line is open.

Yang Huang: Thanks for taking my questions. I have two. First one is about LUNAR trial. We know that we are going to be LUNAR data in the first half of this year. And I think people are probably including us more intimidating understanding, some subgroup analysis for LUNAR given LUNAR trial in first line, people only receive chemo and the people receive PD-1 plus chemo. So my question is, is that case that the subgroup analysis for the patients who receive PD-1 plus chemo in the first line is a kind of key to allow us to file? And in worst case, let’s assume a worst case scenario. If the subgroup analysis in the PD-1 plus chemo group is not that great, considering the tumor landscape is different between U.S and China. Well, that consider finding for the indication. That’s my first question. Thanks.

Billy Cho: Rafael, I think this is — this one for you.

Rafael Amado: Yes, I’ll take that question. Thanks for this insightful question. I think the most important thing is to understand that with primary endpoint with both statistically and clinically meaningful results on the primary endpoint, and in any study, that’s really what matters. It is a randomized trial and population has been studied is the post-platinum population. So prior PD-1 is not an exclusion criteria. And the studies randomized so we see and strive to stratify as well and factors are supposed to mitigate professional imbalances. So the important point, I think, is that regardless of the makeup of the PD-1 subgroup, there was a statistically significant and clinically meaningful difference in overall survival in the overall population and in the PD-1 subgroup was a trend in the docetaxel group.

So the details of the patient characteristics and prior treatment history will be shared future data presentation and the release, its owned by . So rather than speculating on subgroups, I think it’s best to just wait for the full analysis. Also data set to interpret their results. But we should be cautious about subgroup analysis and really focus on the primary analysis, which has results that were pretty exciting as reported by .

Yang Huang: Okay, got it. Yes, my second question is, have you got more commercial preparation as to we understand the kind of rare disease in China as well. And so can company let us know — has company has started to try to identify some MG patient, just to prepare for the launch of the drug? And if so, can you let us know, kind of how many mg patients you have identified so far?

Billy Cho: Yes, hey, Yang, I’ll take this one. So, first of all, the addressable patient pool is quite large for MG. We’re talking about a prevalence of about 200,000. And we strongly believe that will become a very important treatment option for these patients. It’s early days, but we have started to build awareness ahead of the anticipated approval launch, as you know. We’ve launched a program in a part of China, where patients can potentially get access, it was really more for strategic purposes, given travel restrictions up until recently, but it really allowed us to engage with not only the physician, but patients and get some feedback responses, and it’s quite encouraged by what we see. And no surprise, right, given what’s been happening outside of China, I believe argenx just reported, a pretty, pretty strong first year sales and engagement and whatever metrics that you follow on the commercial side, so I think that provides a nice read through for the potential and opportunity in China.

Yang Huang: Okay, great. Thank you.

Operator: Thank you for your question. There are no further questions at the moment. I will hand back for closing remarks.

Samantha Du: Thank you, operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support. We look forward to updating you again after the first quarter of 2023. Operator, you may now disconnect the call.