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Edited Transcript of ZLAB.OQ earnings conference call or presentation 3-Sep-19 12:30pm GMT

Q2 2019 Zai Lab Ltd Earnings Call

Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Zai Lab Ltd earnings conference call or presentation Tuesday, September 3, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jonathan J. Wang

Zai Lab Limited - Senior VP & Head of Business Development

* Ki Chul Cho

Zai Lab Limited - CFO

* Tao Fu

Zai Lab Limited - President, COO & Director

* Yi Liang

Zai Lab Limited - Chief Commercial Officer & President of Greater China

* Ying Du

Zai Lab Limited - Founder, Chairman & CEO

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Conference Call Participants

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* Anupam Rama

JP Morgan Chase & Co, Research Division - VP and Analyst

* David Simms Ruch

SVB Leerink LLC, Research Division - Associate

* Maurice Thomas Raycroft

Jefferies LLC, Research Division - Equity Analyst

* Wai Chak Yuen

BOCI Research Limited - Research Analyst

* Xiang Gao

Macquarie Research - Analyst

* Yang Huang

BofA Merrill Lynch, Research Division - Research Analyst

* Yigal Dov Nochomovitz

Citigroup Inc, Research Division - Director

* Ying Shao

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Zai Lab First Half 2019 Financial Results and Corporate Progress Update Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to Billy Cho from Zai Lab. Thank you. Please go ahead.

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Ki Chul Cho, Zai Lab Limited - CFO [2]

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Thank you, operator. Good morning, and welcome to Zai Lab's First Half 2019 Earnings Conference Call. Earlier this morning, Zai Lab issued a press release providing the details of the company's financial results for 6 months ended June 30, 2019, as well as a corporate and clinical update. The press release is available in the Investor Relations section of the company's corporate website at ir.zailaboratory.com.

Today's call will be led by Dr. Samantha Du, Zai Lab's founder and Chief Executive Officer; and we'll be joined by Tao Fu, President and Chief Operating Officer, who will provide more detail on our pipeline, product highlights, including upcoming milestones and commercial progress. Dr. Yong-Jiang Hei, Chief Medical Officer for Oncology and Jon Wang, Head of Business Development, will also 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 to the extent that statements discussed on this call are not descriptions of historical facts regarding Zai Lab. They are forward looking statements reflecting the current beliefs and expectations of management. Such forward-looking statements involve substantial risks and uncertainties that could cause future results, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements. Factors that may materially affect future results include, among other things, the scope, rate and progress of clinical and preclinical trials and other research and development activities, the timing of new clinical trials, planning, our plans to commercialize Zai Lab's product candidates and the timing of, and ability to, obtain and maintain necessary regulatory approvals for product candidates. Such forward-looking statements made on this call speak only as of the date of this presentation.

Zai Lab undertakes no obligation to update or revise any forward-looking statements made on this call to reflect any change in expectations or any change in events, conditions or circumstances, on which such statements are based, unless required to do so by applicable law.

For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward looking statements as well as risks related to Zai Lab's business, in general, please refer to the annual report on Form 20-F, filed in March of this year, with the Securities and Exchange Commission, and Zai Lab's future, current and periodic reports filed with the Securities and Exchange Commission.

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

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [3]

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Thank you, Billy. The first half of 2019 was an exciting period for Zai Lab, during which, we've made significant progress towards our goal of building [about as a leader] in China and a global commercial-stage biopharm company.

Importantly, the advancement we have made since the beginning of the year has set the stage for potentially transformative events to take place in the second half of 2019. Today, I would like to comment on some key highlights from the first half of the year, and why these milestones provide us such great enthusiasm about what the future holds for Zai Lab.

Our current portfolio consists of 10 base case assets, targeting over 20 indications across oncology and infectious disease. In the first half 2019, we initiated our first commercial launches: niraparib in Hong Kong and Macau; and Optune in Hong Kong, and pleased to report that both products are outperforming our targets through the first several months of commercialization. And our team is gaining real and significant market insight which, we believe, will be valuable as we prepare for the anticipated launches in Mainland China.

Regarding the Mainland China opportunity for our 2 lead programs, our NDA for niraparib, as a second-line treatment, for ovarian cancer, was granted priority review at NMPA in January. We have oncology dialogues with the agency, and we are making good progress towards receiving approval for niraparib before the end of the year.

Our partner, GSK, recently reported positive top line results from PRIMA, the Phase III study of ZEJULA, as a maintenance therapy, in patients with first-line ovarian cancer, following platinum-based chemotherapy. The study met its primary endpoints of a statistically significant improvement in progression-free survival regardless of biomarker status. And we expect full results from the study to be reported at the future scientific meetings.

In addition, we've recently submitted our market authorization application for Optune, a revolutionary system that uses electric fields to disrupt cancer cell division, inhibiting tumor growth and causing affected cancer cells to die.

Just recently in August, Optune was granted Innovative Medical Device Designation at NMPA. This designation will allow us to be on the fast track approvals with the NMPA. We're working closely with the agency to potentially have Optune approved before year-end.

Simultaneously, we're encouraged by the recent approval with mesothelioma for Optune. This is the first indication approved outside of the brain and we'll work closely with the agency to pursue the approval of this indication quickly as well.

In the first half of the year, our partner, MacroGenics, announced positive, top line results from the Phase III SOPHIA study for margetuximab of Fc-optimized anti-HER2 monoclonal antibody in patients with HER2-positive metastatic breast cancer showing the trial met the first primary endpoint of prolonged progression-free survival.

MacroGenics plans to file a U.S. BLA in the second half of this year and initiated the global Phase III MAHOGANY trials in HER2-positive gastric cancer in collaboration with Zai Lab.

In addition to the important regulatory progress we have made, our business development efforts continue to yield impressive results, as we recently enhanced our portfolio with 2 new partners, the Deciphera, with their lead asset, ripretinib, for the treatment of GIST and the Incyte for 012, a promising anti-PD-1 monoclonal antibody. Ripretinib is a novel, late-stage oncology asset that's highly synergistic with our current pipeline, both clinically and commercially. Licensing of ripretinib is consistent with our successful business development strategies of the current clinically de-risked assets with best-in-class potential in China's rapidly growing segment of the oncology market.

Earlier this year, Deciphera announced positive top line results from INVICTUS. This pivotal study of ripretinib is a fourth-line treatment of -- for GIST, which Tao will discuss momentarily. GIST presents a major unmet medical need for therapeutics in the second line and beyond, not only in China, but globally. The incidence rate in China is much greater than that of the Western world, which results in a significantly larger patient population in China, compared to the combined markets of the U.S. and Europe. They are estimated 100,000 patients being treated currently in China with over 30,000 new cases diagnosed each year. Additionally in July, we announced a licensing collaboration agreement with Incyte for 012, the investigational anti-PD-1 monoclonal antibody. This is highly compelling anti-PD-1 that expands our oncology portfolio and is expected to generate significant combination potential and the synergies with our existing pipeline products.

In addition to these important clinical regulatory commercial milestones, we continue to build out and add steps to our global teams. I'm proud to report that at July 31, our employee count stood at 577 with roughly 250 employees on the commercial team and 250 in discovery and development. We have recruited many new talents, both in Greater China and at other U.S. sites, in San Francisco and Boston, to help achieve our strategic and operational objectives. This includes the hiring of Dr. Valeria Fantin, a seasoned oncology research scientist, to lead our global discovery efforts.

This is a very exciting time at Zai Lab. We have an aggressive set of goals and high ambition on a global scale and have the strategy and resources, most importantly the teams needed to be successful. As always, we thank you all for your support.

We look forward to the many opportunities that lie ahead.

With that said, I would now like to turn the call over to our President, COO, Tao Fu. Tao?

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Tao Fu, Zai Lab Limited - President, COO & Director [4]

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Thank you, Samantha. As Samantha mentioned, the first half of 2019 was an extremely busy and exciting period for Zai Lab, across a variety of fronts. We became a commercial-stage company with the launches of Optune and ZEJULA in Hong Kong. We made significant headway towards potentially getting these products approved in the Mainland China, by securing priority review status for ZEJULA and Innovative Medical Device Designation for Optune. We've further expanded our portfolio with 2 new partnerships, and we continue building out our commercial and R&D infrastructure through the recruitment of top talent. While our press release from this morning provides an update on all of our programs, and we'll be happy to answer your questions on assets that are not covered in our prepared remarks, I'd like to focus my comments today on a few selected programs and related near-term catalysts.

I'll start with niraparib or ZEJULA, a PARP inhibitor, approved globally for the treatment of ovarian cancer and in development of other solid tumors. We believe that it is a highly differentiated PARP inhibitor with [affluent] efficacy and safety profiles without the need for blocker testing and superior pharmacological properties, including once daily dosing, low drug-drug interactions and ability to cross the blood-brain barrier. I'm pleased to report that our commercial launches in Hong Kong are performing ahead of our initial expectations. Based on IQVIA, formerly IMS data, ZEJULA is now the market-leading PARP inhibitor with market share in Hong Kong of 66% in the second quarter of 2019.

This is particularly impressive given that Lynparza has been on the market in the Hong Kong for more than 2 years. The launch curve for ZEJULA, during the first 6 months, is significantly ahead of that of Lynparza in Hong Kong at similar phase.

While it is a small market compared to Mainland China, we believe, our initial performance validated the compelling profile of ZEJULA and the capabilities of our commercial team. We're also learning valuable lessons that can be applied to the Mainland [new] launch to further position ZEJULA for success in our primary market.

Our new drug application for niraparib for the second-line maintenance treatment of platinum-sensitive ovarian cancer patients was accepted by NMPA under priority review, recognizing both the urgency of the medical need and the importance of the niraparib as the novel therapeutic option for patients. We continue to expect an approval decision from NMPA in the coming months and are prepared for our commercial launch immediately following the potential approval.

Through our ongoing clinical studies, which are not required for the initial approval, we're building a robust body of clinical evidence in China that we believe will meaningfully support our planned commercial efforts and help differentiate the niraparib. We're very encouraged by the positive headline data released by our partner for the PRIMA study and are eagerly awaiting the full dataset.

These data will be an important part of our submission for niraparib, as a first-line or combination treatment for ovarian cancer. This will be significant for us, as Lynparza, the only PARP inhibitor currently approved by NMPA, was only studied as a monotherapy in the first-line settings in patients with the gBRCA mutation, which represents just 15% of the total patient population. We're working closely with our partner GSK to identify label expansion opportunities, including small-cell and non-small cell lung cancer, gastric cancer and other tumor types.

Turning to Optune. We recently received Innovative Medical Device Designation and are working closely with the NMPA to accelerate the approval of the product in China. In February, we held our formal launch event for Optune in Hong Kong, following the regulatory approval late last year. Similar to the ZEJULA, Optune is outperforming our expectations in the Hong Kong, and the initial uptake curve in terms of patient number is among the best in all major market launched countries for Optune. We view this as an encouraging sign for the compelling clinical profile for Optune and the unmet medical need that it is addressing, ahead of the anticipated commercial launch in Mainland China. As a reminder, we build a broader Tumor Treating Fields technology as a potential pipeline in the products with GBM as a first indication. In May, our partner, Novocure, announced the U.S. FDA approval of TTF for the treatment of mesothelioma.

There are a number of other solid tumor indications, for which TTF is currently being evaluated, including non-small cell lung cancer, brain metastases, pancreatic and ovarian cancers, and we look forward to supporting these trials as well as initiating our Phase II study in gastric cancer patients, which remains on track for the second half of this year.

Now turning to margetuximab, licensed from our partner MacroGenics, for the treatment of HER2-positive breast and gastric cancers for Greater China. As Samantha mentioned, the top line results of the SOPHIA trial were presented at the ASCO, showing margetuximab plus chemotherapy significantly prolonged progression-free survival versus trastuzumab plus chemo in a head-to-head comparison. Our preliminary overall survival analysis was also presented and MacroGenics plans to have a second look of the OS data concurrently with their BLA filing by the end of this year. We are actively pursuing the development of the breast cancer indication in China by leveraging the SOPHIA data, and we'll participate in the Phase III MAHOGANY trials in gastric cancer.

Looking at recent business development initiatives, we added 2 very exciting products to our portfolio in the last several months. In June, we've announced an agreement with Deciphera Pharmaceuticals, giving up exclusive Greater China asset to their lead product candidate, Ripretinib, a KIT and PDGFR-alpha kinase switch control inhibitor, in development for gastrointestinal stromal tumors or GIST. Several weeks ago, Deciphera reported positive top line results for INVICTUS, their Phase III pivotal study of ripretinib, as a fourth-line treatment for GIST. The study demonstrated that ripretinib significantly prolonged improved progression-free survival versus placebo with a median PFS in the ripretinib arm of 6.3 months versus 1 month in the placebo arm and significantly reduced the risk of disease progression or death by 85% or have a ratio of 0.15. In an exploratory analysis, ripretinib also extended overall survival versus placebo, 15.1 versus 6.6 months or has a ratio of 0.36. These data compare favorable with avapritinib, which was only studied in a single arm trial in the fourth-line settings.

Based on these impressive data, Deciphera plans to submit its NDA to the U.S. FDA in the first quarter of 2020. Ripretinib is also being evaluated in a Phase III INTRIGUE trial, as a second-line treatment for GIST, which has the potential to be a first-line therapy, not only in China, but globally. Zai Lab and -- with Deciphera intent to expand the INTRIGUE study to potentially include clinical trial site in China, so that we can concurrently submit marketing application in China, if the data is positive.

More recently, in early July, we announced an agreement with Incyte for the development and commercialization of Altral, an anti-PD-1 monoclonal antibody in Greater China. As we have outlined previously, we believe that, based on its profile, Altral has the potential to be a highly competitive PD-1 inhibitor. This transaction was important for us on a number of levels, most notably, for the combination potential with certain other oncology assets in our portfolio. Site partner, MacroGenics, the original developer of Altral, has already been evaluating the combination of another product candidate, for which we hold Greater China [right], margetuximab with Altral in the global Phase III MAHOGANY trial in gastric cancer. Owning 012 in the Greater China market will enable us to harmonize our development work and own both components of the combination. Furthermore, we have multiple compound in our current clinical-stage portfolio that can work synergistically with an anti-PD-1 and have the resources necessary to move these programs forward.

With that, I will hand the call over to Billy Cho, our financial -- Chief Financial Officer, who will provide an overview of our financial highlights. Of course, we're able -- available to answer questions on these and other Zai Lab programs during the Q&A section of the call. Billy?

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Ki Chul Cho, Zai Lab Limited - CFO [5]

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Thanks, Tao. I will now review our financial results for the 6 months ended June 30, 2019.

Revenues for the period were $3.4 million, compared to no revenue in the first half of 2018. Our revenues for the period were comprised of $1.9 million in sales of ZEJULA and $1.5 million of Optune sales in Hong Kong.

As we previously highlighted, ZEJULA is already the #1 PARP inhibitor in Hong Kong with the launch curve significantly ahead of Lynparza in Hong Kong at a similar phase. Optune was officially launched in February of this year, and we are showing strong initial revenue. Both ZEJULA and Optune have strong momentum for the second half of 2019, and we look forward to commercial launches in Mainland China.

R&D expenses were $58.9 million for the period ended June 30, 2019, compared to $34.6 million for the same period in 2018. The increase in R&D expenses was primarily attributable to an increase in licensing fees, ongoing and newly initiated late-stage clinical trials, payroll and payroll-related expenses and expansion of research efforts to support internal development programs.

Selling, general and administrative expenses were $29.5 million for the first half 2019, compared to $6.4 million for the same period in 2018. The increase was mainly due to the increase in payroll and payroll-related expenses, as Zai Lab continue to expand our commercial operations in China. For the 6 months ended June 30, 2019, Zai Lab reported a net loss of $83.3 million or net loss per share attributable to common stockholders of $1.37 compared to a net loss of $41.5 million or net loss per share attributable to common stockholders of $0.83 for the 6 months ended June 30, 2018.

As of June 30, 2019, cash and cash equivalents and short-term investments totaled $393.2 million, which includes a net proceeds from our follow-on offering in May of this year.

We would now like to turn the call back over to the operator, so we can go ahead and take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Yigal Nochomovitz from Citigroup.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [2]

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Tao, you mentioned that the launch in Hong Kong is going very well with ZEJULA with 66% share. I wonder if you could speak in a little bit more detail as to the factors contributing to that very strong launch as well as you specifically mentioned some of the lessons that you're learning in Hong Kong, and I assume also in Macau that will apply to your launch in Mainland China. So I'd be curious as to, more specifically, what those lessons are that will position you even better for a successful launch in Mainland China.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [3]

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Yes. And Yigal, it's a very good question. Our CCO, William Liang, is online. I will let him to give you the highlights.

William, are you online?

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Yi Liang, Zai Lab Limited - Chief Commercial Officer & President of Greater China [4]

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Yes, yes. I'm online. So firstly, we -- in Hong Kong, we have the very good team. So we recruited best talent from the market and formed this Hong Kong team. So the team is executing very, very good. On the other hand, the ZEJULA itself is best-in-class product and is the only once daily use PARP inhibitors and also the statistical evidence is very good. So our medical team also did a great job for medical education. So -- and we have the best people, we have the best products and our education program is so good. So these kind of things help us for gaining the market share for our company.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [5]

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I also like to add a little bit on, just from my observation. I think the team in Hong Kong has many years of experience launching successful oncology products. And overall, our team has launched 8 of the top 10 oncology products, either launched or did those programs over the last 8, 10 years. So I think that's number one, to me, on top of what William said. Number two is also, we do have, not only the -- at least in the China, we dose the patients according to -- now starting from 300, based on the more body weight. So that give us better safety profile as well as everyone knows the efficacy is -- this has superior efficacy. In terms of delivery form, it's once a day, in terms of the metabolites, we go -- we don't go 650 -- [600] is that, that gives reduced drug-drug interaction, as we know many oncology patients are taking multiple drugs. But another thing I want to highlight is that, as William said, this is the best-in-class, but also this is the only ovarian cancer drug so far approved in this part of the world, I believe, even globally, has a brain penetration. And another thing I want to add, just briefly, is, as more and more publications came out, the doctors want to actually bring the drugs earlier to prevent the metastases happening. Thank you, Yigal.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [6]

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Okay. Great. And then just more generally, I was just wondering if you could speak to how you expect some of these new scientific advisory board members to help shape the early development pipeline. You've recently added Alex Adjei and Lieping Chen. Just curious, how you expect them to contribute to the strategy in the earlier stage trials?

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [7]

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That's a good question, again, Yigal. As we are continuously building our discovery efforts and globally, as Tao mentioned, we have already full year's operation in Shanghai in discovery. But again, we added, last year, sites in San Francisco and in Boston. We brought in Dr. -- seasoned oncology -- oncologist in discovery from -- in San Francisco -- bring her to San Francisco. And she is leading our discovery efforts with Dr. Lieping Chen and a new -- the new SAP onboard, to help overall on the company strategy, especially on the research front. We do have a full meeting of the year with them and also ad hoc necessary meetings. And I think this will be very helpful. But on top of these people, we always have advisers and also consultants in the fields we're involved and we use them at ad hoc basis as well.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [8]

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Great. And just one for Billy, if that -- if you wouldn't mind. Billy, regarding the shareholder base, is it the expectation that you're going to remain an ex U.S. filer? Or could we see, down the road, that you shift to a U.S. filer if you become more than 50% held by U.S. investors?

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Ki Chul Cho, Zai Lab Limited - CFO [9]

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Yes. Yigal, thanks for that question and joining this call. That is a function of capital market forces, so it's really hard to say and predict the future. But right now, we remain a foreign private issuer, but we, of course, have a lot of investors in the U.S.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [10]

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Well, just as last -- as the last follow on, we brought in more and long only health care reputable investors. For example, in our (inaudible) other than Fidelity as #1 public investor, we have Wellington as our #2 and -- #2 public investor. We've got Baillie Gifford. We have all the -- no one know -- who is who for the market size, we can accommodate. So we not really, particularly, favor one or another, we're really looking for investor base. We want the investors who are -- can grow with the company in the long term, could -- knows the business, understand what we are doing.

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Operator [11]

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The next question comes from the line of Anupam Rama from JPMorgan.

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Anupam Rama, JP Morgan Chase & Co, Research Division - VP and Analyst [12]

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Congrats on all the progress. Two quick questions from me. The first question is, you've got the potential approvals in China on the horizon for ZEJULA and Optune. Maybe you could walk us through sort of the final steps and the gating factors to getting an approval for both.

And then the second question is there's been some business unrest in Hong Kong recently. I'm wondering how we should think about any potential second half ZEJULA-Optune impact in Hong Kong specifically.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [13]

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Thank you, Anupam, and let me answer your second question first because that's a very easy quick answer. While this demonstration has gone on in China, in Hong Kong, for actually a couple of months. It's not just recent phenomenon. And we haven't seen any impact to our commercial launch or to our revenue. So we think that's more political, not on business side. And so that's the answer to your second question.

On the first question, as we talked about in our earlier script, ZEJULA, we've launched without an CTA -- No. NDA last year. In December, we got quickly -- got the acceptance and also priority review.

And currently, if you -- we -- of course, we are not working for the agency. So we cannot disclose lots of these details of how agency operates. But what we can tell you is, we think the agency has really put a lot of efforts to work closely with us since we are the -- not only has one medical needs, I'm talking about ZEJULA, but also we're talking about the category 1, and this is also under lots of endorsement from the KOL networks, and this also brings basically the product to -- well adopted from all the characteristics I've mentioned earlier and to China because it's very much needed right now.

So far, we haven't changed our guidance and because -- as you know -- and we haven't get told otherwise. We haven't been told otherwise from the agency.

And lastly, I do want to say, China does not have a -- [to participate]. So there's always a risk. And any product, we can only -- company can only give you the best estimation we can. Thank you.

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Operator [14]

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The next question comes from the line of Maurice Raycroft from Jefferies.

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Maurice Thomas Raycroft, Jefferies LLC, Research Division - Equity Analyst [15]

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Congrats on the progress, and thanks for taking my questions. First question is just based on ZEJULA. So you've talked about some of the advantages of the drug on the call. But just wondering with AstraZeneca's Phase III PAOLA-1, Lynparza plus bevacizumab data that came out recently. I'm just wondering how we should think about those data from Lynparza in the context of Phase III PRIMA and the eventual commercial opportunity there.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [16]

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Thank you, Maury, for [telling me]. It's a very good question. So first -- and we should still wait for the actual data presentation at upcoming medical conferences for both -- the details of both products.

But also, the key differences between PRIMA and PAOLA-1 is PRIMA is a monotherapy, it's niraparib against placebo, which -- well, PAOLA-1 compare it -- it's a combo, compared and Lynparza plus Avastin, which is -- as you know -- overall, we feel very confident. We remain high confident in niraparib in a competitive -- with competitive advantages not only as a monotherapy but also it's from overall efficacy, quality of life perspective. And even from pharmacoeconomics, particularly in China, we feel confident about this product.

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Maurice Thomas Raycroft, Jefferies LLC, Research Division - Equity Analyst [17]

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Got it. That's very helpful. And then also in the press release, you mentioned that there's going to be some PRIME -- data from PRIME and NORA at the upcoming ASGO meeting in a few weeks, just wondering if you could talk about -- talk more about what to expect at that medical conference?

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [18]

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First of all, that particular one, we cannot disclose, especially on behalf of GSK. No, no, no, on behalf of Lynparza combo from (inaudible). So it's -- basically it's our -- it's up to them. They have the data package.

But from our side, we did see the top line from our GSK top line analysis, and we're getting more details and learning more details as we go this week. So we can't really comment. But all, as I said earlier, we feel very confident about our mono first-line study. We feel it's very competitive in the Greater China markets.

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Operator [19]

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Your next question comes from the line of Jonathan Chang from SVB Leerink.

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David Simms Ruch, SVB Leerink LLC, Research Division - Associate [20]

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This is David Ruch on for Jonathan. Congrats on the progress. My first question in terms of commercialized expectations, we obviously noted the rapid uptake of niraparib in Hong Kong over the first half of the year. Could you give investors some context on how you're thinking about benchmarking commercial sales of niraparib in China and comparisons to Lynparza sales reported to date?

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [21]

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First of all, thank you, David, and thank you in joining the conference on behalf of Jonathan Wang. And I'll divert this question to our Chief Commercial Officer, Dr. William Liang.

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Yi Liang, Zai Lab Limited - Chief Commercial Officer & President of Greater China [22]

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So we believe after the China launch, we can (inaudible) also from where we are in regards to [winning] Hong Kong. So as I said, we have the best teams and the best products and also very good promotions. So we're very confident for our success in China.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [23]

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I have to say over the past -- okay. On top of what William just mentioned, I want to also talk about we actually not only have done PK but also for competitive -- for market competitiveness, we have also data from additional close -- beyond 250 patients down in China market. And this -- that's actually going to be very helpful to get us to -- get more PIs and also KOLs aware of this product that their strong support and their strong endorsement of this product and also with the publication coming forward, many of the PIs will be very proud they participate in leading the product. There are more than 30 PIs involved in this trial.

And number two, I want to say, I want to -- also, again as I mentioned, I want to compliment William's team because they again have launched. And 8 of the top either launched or the -- 8 of the top 10 launched oncology products in China. The team has lots of experience in the field, and they have done the last few months a lot of medical education, a lot of reach out to the whole KOL, PI networks. And so far, it's very well adopted.

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Yi Liang, Zai Lab Limited - Chief Commercial Officer & President of Greater China [24]

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Also, Hong Kong launch is also very successful and also very critical to China. So 2 things. One, internally, the China team can learn the experience from our very good Hong Kong team. On the other hand, externally, the Hong Kong KOLs' experience through (inaudible) medical exchange can transfer to China's doctors. After launch, we can leverage this.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [25]

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Yes. It's a very interconnected community and especially in the Southeast of -- especially in the southern part of China, back in the Pearl Harbor area, and you're talking about the Hong Kong, Macau, Guangdong, and all those provinces, doctors actually are very, very -- it's a high-income area in China. And they have been having -- as a group, has been highly endorsed and have very good experience. And we have been given examples. We have seen patients how they benefit from our niraparib after being treated by our competitor drug.

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David Simms Ruch, SVB Leerink LLC, Research Division - Associate [26]

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Great. Then second one in regard to margetuximab, you mentioned in SOPHIA results and your plans to participate in the MAHOGANY study in gastric cancer. Could you remind us what your current expectations are for NMPA submission in breast cancer? And how you're thinking about a bridging study for that population?

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [27]

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Let me start, and I may ask certain questions, details about the work of our CMO in oncology, Dr. Yong-Jiang Hei. Just 4 years of communication, that's how we've been -- we gave a feedback before by many people talking at the same time. So let me just start with this. And as you know, for the second-line breast cancer -- and we're still waiting for their interim data. Once we got a whole package, we will file CTA and that's for the market, for the second line. But for gastric cancer, we're ready when you -- they are to provide us a full document then to file an NDA directly.

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David Simms Ruch, SVB Leerink LLC, Research Division - Associate [28]

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Great. And then last one for me. One program that doesn't get discussed as often is the bemarituzumab program in partnership with Five Prime. Could you give investors some context on how your assumptions on that patient population have evolved over the last couple of months and reasons for confidence in the program headed into the first half utility analysis?

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [29]

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First of all, I want to say -- thank you, David. Okay. So another very good question. First of all, this is a global program lead by Five Prime. So from partner perspective -- and we have to respect on their news release, and we cannot separately making any news release or disclosure on the progress of how many patients being recruited or why there is a futility test, okay, put in place.

And I think from our understanding, our discussion, all we can say is our partner is making prudent decision and because this is a -- it's not a small trial and even though with [lots of] medical needs.

But from our side, we have -- we can say, we recruited the first. And even though this is led by Five Prime, we recruited the first patient from China. And from our side, we -- everything goes as planned, and we're very proud of our contribution.

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Operator [30]

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The next person comes from the line of Serena Shao from Crédit Suisse.

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Ying Shao, Crédit Suisse AG, Research Division - Research Analyst [31]

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First of all, congratulations on the successful [soft] number for ZEJULA and Optune. And my first question is actually for Billy, with the launch of our product in Hong Kong and China, do I have roughly guidance for the SG&A in the second half and/or first half next year, products and the expenses?

And my second question is actually for William...

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Ki Chul Cho, Zai Lab Limited - CFO [32]

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Yes. Serena. Did you want to -- are you going to ask the second question or do you want me to handle the first?

So Serena, this is Billy. I will answer your first question and then you can ask, William, the commercial-related question. We're not yet providing forward-looking guidance in addition to SG&A. You can see that from first half of 2019, we did say that SG&A was $29.5 million. That is compared to 2018 full year SG&A, as you may have remembered of $22 million. So we started building some of the commercial infrastructure late last year, and we continued through the first half of this year. And we have made very nice progress in that effort.

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Ying Shao, Crédit Suisse AG, Research Division - Research Analyst [33]

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Okay. Got it. Yes. And my second question is actually for William. So just could you give us some color on what kind of prelaunch activities you have had for the 2 drugs in China?

Also, I'm quite interested in Optune. The Hong Kong sales number seems pretty good. So how do you see the challenges in Chinese market like from patient size, patient affordability or physician education point of view, where do you see the challenges for Optune in Chinese market?

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Yi Liang, Zai Lab Limited - Chief Commercial Officer & President of Greater China [34]

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So for -- yes, you're right, the Hong Kong Optune progress is very good. After China launch, I think to prepare for the potential launch in China, our medical affairs team worked very hard. So they do many disease education and the medical-sharing programs with our KOL to introduce this TTFields and the disease burden about the GBM, also for the same for the [ZEJULA] and ovarian cancer. So our launch really is in China is -- rely on our medical affairs teams. That program is a -- also progressed very well in China.

For the Optune. Yes, please?

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [35]

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And -- go ahead, Billy. No, no. Go ahead, William.

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Yi Liang, Zai Lab Limited - Chief Commercial Officer & President of Greater China [36]

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So you're right, the affordability is always, like I said, always the issue for China, and not only for development but also for many premium oncology products. So we will try many things, for example like a PAP or other financial program to support -- to improve the market access for our patients. We are -- try all means to help of our China patients after launch.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [37]

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May I just add a little bit for you, more color on this, Serena?

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Ying Shao, Crédit Suisse AG, Research Division - Research Analyst [38]

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Yes.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [39]

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So first of all, welcome on the call, and thanks for the question. I think William gave some very good highlights on what's ongoing. I have to say this one, so far I've been very, very impressed by how the team rolled out the medical education, the market access actually province by province and city by city. And with the support, actually, with the Novocure team, we have sponsored so many neuro-oncologist conferences, participated and specifically talking about this product.

Number two, this product -- remember, it's a [GBM]. This is the one and only product. We don't have any competition. And so this -- also the market -- because in China, it's a very, very big market, considerably much, much bigger. 7 -- Hong Kong has only 7 million population. If you think about China, China's population, the patient number and even consider affordability, let's say, even from self-pay, China now has -- even 2016, they -- the purchasing power. So look, equivalent to the upper-middle class to the wealthy people. It's about 70 million in 2016 in U.S. But in China, it's already by the [powers of 110].

So I think 2 years passed -- 3 years passed by, the number, as you know, especially pharmaceutical market, innovative ones, grow very fast in China. The second quarter -- just you see the second -- new earnings from [AT], they actually -- they already reached for second quarter alone, USD 1.2 billion sales and is with a 44% year-to-date -- year-to-year increase.

Same with -- marked the second quarter, this year, they reported $740 million, $750 million roughly sales with, actually, also beyond 45% increase on second quarter year-to-year. So innovative oncology products are now under -- I have to say most of their products not being reimbursed -- reimbursement yet.

But still with high demand, people are willing to pay. But another thing I want to highlight is, this drug, before this one was ever actually reached to China, a lot of Chinese patients, and actually, of course, not a lot, I would say, maybe 1% patient population, even those getting treatment to U.S. and now because it's very -- it's a unmet medical need. And it's a very -- one day, we recently hired -- and KOL just basically gave us at a scientific meeting, talk about everyday delay of this product, reach to patients can really cause not even every day -- earlier death by day or by month or could be by a year because this is very rapidly growth in a tumor.

And another -- last one I want to comment is, also, we should realize, in China, and this is a very unique -- this one, before this getting -- got approved in China, already put in a category 1 recommended list. And as you know, very few drugs get recommended in category 1, which means when doctors prescribe any other GBM drug, chemotherapy, they have to -- they're obligated to mention there is a treatment option with the TTFields. So this is actually, that's why we will see rollout and why William team and we did the rollout. We realized how many people understood this already. And they're actually calling to say how can -- they even together rolled many people from the medical community together -- rolled like lobby letters to people -- to People's Congress. And ultimately, they talk about it to even send it to commissioner level, their support for this product. So that's all I want to add thanks, Serena.

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Operator [40]

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The next question comes from the line of Yang Huang from Bank of America.

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Yang Huang, BofA Merrill Lynch, Research Division - Research Analyst [41]

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This is Yang. So I have 2 questions. First one is about commercial sales in Hong Kong for ZEJULA and Optune. So could management give us some colors on a few points, for example, like how many patients have been on ZEJULA or Optune? And also about the healthcare patient coverage in Hong Kong for these 2 drugs.

Second one is about our pricing strategy in Hong Kong compared to our competitors, which might be able to give us some color about your many prior strategy. That's my first question.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [42]

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Let me take a -- Yang, let me take a first quick [crack] on that because -- and William is actually dialing from China from distance, and it's very hard for him to be able to -- especially William is -- Dr. William Liang is fully trained in China.

And even though he worked in multinational companies, and I just want to say things to highlight. But a few things first. If you miss [mastery], he can go down to the next level. So in terms of commercial sales of a -- and -- so number one, the question you have is in terms of pricing -- the last one is pricing strategy, right? And I have to say...

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Yang Huang, BofA Merrill Lynch, Research Division - Research Analyst [43]

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No, compared to competitors, yes.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [44]

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Yes. Competitor to competitor, I have to say Lynparza sales, 785 -- 750,000 per patient, right, in Hong Kong. And our product, I would say, the way -- because in Hong Kong, we are -- we haven't disclosed that number. But it seems that we cannot give you the exact number because the Hong Kong is very different from the other places. You actually can charge differently based on the hospital or clinics and also based on the patient needs, patients' affordability. So that's number one, pricing strategy. So we always stay competitive. Remember, we are best-in-class and also with unmet medical needs.

So we -- so far, we're saying we're very competitive not in terms of dropping the sales, the price, but more in terms of the product quality.

Number two, in terms of the -- the number two question you had was about the number of patients. And again, I don't think we are not in a position to comment that details because I believe, typically, that's not a number we release, especially the first 6-month launch.

And what is your other question? Oh, reimbursement. I have to say, Lynparza (inaudible), Lynparza has launched 2 years ago, still not in reimbursement in Hong Kong. And we are just also launched 6 months, we are not in reimbursement either. So thank you for all the 3 questions, Yang.

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Yang Huang, BofA Merrill Lynch, Research Division - Research Analyst [45]

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Yes. If you don't mind, my last one is about -- in PD-1. So can you comment on your PD-1 clinical trial progress and the potential timeline for trials and eventual registration in China?

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [46]

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Okay. Let me go from different -- just highlights, okay, then further details, I'll defer to our CMO. In the first [trial], PD-1, the interest for us to do PD-1 is not like we want to be a PD-1 company because as you know there are more than 200 PD-1s already in China.

But the reason we groomed this PD-1 is really because we believe our current portfolio has a lot of synergies with PD-1, especially, for example, margetuximab, and we're going to do a combo with -- for gastric cancer with PD-1. And it's important, we hope, both combos in this part of the world, not only from [drug's] effectiveness, effectiveness of the supply also clinical development but even more for the pricing and instead of negotiating with 2 companies or plus the government, 3 parties, we now own both products. We'd be going -- we already we negotiated with the government. And based on the competitive landscape of PD-1 in China, we can decide how to allocate to each -- in combo, each portion of the combo on the pricing.

And so number two, I want to highlight is, we brought this product in also based on all the PD work we had done, all the PD-1s we have revealed. We do believe this is based on their preclinical and the limited -- not limited, actually, a lot of clinical data. They are -- they have the KEYTRUDA like quality, which is we believe is very high quality in PD-1 because not all PD-1 or PD-1 are not all the same, as you know. So we're always looking for the best. Our philosophy always is either for best-in-class or first-in-class. So that still fits into the category, especially in China. And so what -- so Incyte has already gone down 3 pivotal trials. And those pivotal trials are likely to be getting approval in U.S.

And with that, we are going to -- we are simultaneously -- and seeking to file CTA to see what breeding or what -- or PK studies we're going to do to quickly launch the product in China as well. So that's number two.

Number three, as I mentioned, we are bringing in for combos, right? So like we talked about gastric combos, with our -- with the 013. We're talking about combos with our internal programs. And so those timeline, I can say, we started all the processes. Some of them, we are already typically -- and we don't have to do certain studies in China. But as you know, we do start trials in this part of the world. And the key when we do that is, number one, we want to make sure, and we do it most effectively and also what we're trying to do with the combos is -- and we never announce when the CTA gets accepted or IND gets accepted.

As a company policy, we always announce when the first patient's in. So I would -- I think you'll hear news from us in not-distant future about the patient recruitment process for those combos. And that -- in terms of approval time. And that really is a little bit further down the road, and especially, the Chinese government does not have PDUFA date. We're really -- PDUFA date. Sorry, for my English. PDUFA date. We have to be very careful how to guide our investors. We want to be responsible. So once we get closer to the timeline, we can give you more color on this.

Thank you, Yang.

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Operator [47]

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The next question comes from the line of Xiang Gao from Macquarie.

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Xiang Gao, Macquarie Research - Analyst [48]

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I have 2 small questions. First one is the SG&A cost, I just wanted to know, basically what is the breakdown between the ZEJULA and Optune in Hong Kong? And how much of the SG&A goes to that? And how much is for the preparations to launch in China? That's my first question.

And the second question about the R&D cost. With more and more drugs entering the late stage, but I suppose drug KOL partner's more in milestone phase. So I just want to know roughly, how much it can go up in the second half and first half 2020?

And if you don't mind, I just ask another small question about the PD-1 competition. It is already very competitive in China. So how are we going to compete to be the big pharma, especially about (inaudible) and (inaudible)?

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Ki Chul Cho, Zai Lab Limited - CFO [49]

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Xiang Gao, maybe I can start with the first 2.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [50]

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Xiang Gao. Yes. Yes. Billy, why don't you start with the first 2, I'll address the last one. And if necessary, I'll just chip in. Yes.

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Ki Chul Cho, Zai Lab Limited - CFO [51]

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Sure. So Xiang Gao, your question -- first question on SG&A. We are not breaking that up between products at this juncture. But I think based on our previous answer to the question, a lot of this increase of SG&A went into building our commercial infrastructure, of course, not only in Hong Kong, but in our main geography of Mainland China.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [52]

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We also -- in R&D, we also are expanding our development team and certain discover team. And so it's not really just for these 2 products. And also, I want to highlight is, it's not just for -- milestone is very small portion of all of the cost because -- but it's more clinical development, more of these new discoveries and more expanding our pipeline and more opening up new indications.

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Ki Chul Cho, Zai Lab Limited - CFO [53]

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Yes. And Xiang Gao, to your second question. So that was SG&A, and then also, Samantha already provided guidance -- some commentary on R&D, but I -- we would like to point to also, not only first half year-over-year, but also how we track from the full year or second half of last year to this year. So what I'm saying is our R&D expenditure for first half of this year came out to about $58.9 million, right? Last year, the full year R&D was actually $120 million. But to your point, we do have many more projects coming up. But I wanted to also highlight those numbers for you.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [54]

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Right. Now also, our goal is produce, and at this stage in China, we believe it's very important to be national champions. So rather than to make EBITDA even and/or positive, our goal is to -- this is land grabbing in China. And this is building national leaders that 20 years ago from Japan where with all the competitions, you come out 3 national champions. That's where we want to be or at least one of them. And that's why we have very strong supporters from investment community, from you guys, and that's why we have all the confidence.

And -- but I haven't said so, if you're looking at historical numbers, if you look at how much we spent as a company with current portfolio, you see Billy, can give you the very exact number. We are very effectively in using investors' money and deliver the most portfolio. And also in terms of licensing, you can see we did some controversial licensing. But 3 times in a row, we proved to the market, we have done good BD work. We have done enough market analysis in China. We have understand the policies, which is the right product to bring in.

So far, I'm very confident in our BD team, our commercial team, discover team and the development team. Development team also shows exemplary execution capabilities in China. If we go to details, you can see exactly every program, how we break through the system, how we make it really faster approval in China.

Yes, Jonathan. Go ahead.

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Jonathan J. Wang, Zai Lab Limited - Senior VP & Head of Business Development [55]

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I just want to add one other quick point about the R&D cost because you specifically asked about the milestones and future costs. Although we can't give specific guidance for each or one of our licensing projects, but on an overall level, most of our milestones are regulatory-approval related. So these are not immediate milestones that gets triggered, a lot of them by clinical trials. And I think the other thing is that we have a very capital-efficient model. So a lot of our trials are also global trials where we contribute a small percentage of patients to those trials.

So consequently, they're not stand-alone trials, which may cost a lot of money. We help our planners, and together, we're trying to get some simultaneous approval.

And I think lastly, I just want to start on the PD-1 competition. In addition to there may be niche opportunities in monotherapy, the rationale as Tom and Samantha mentioned earlier, is to fully open up the other best-in-class or first-in-class assets in our pipeline. So a lot of these are de-risked on a global basis whether it's combination with the PARP or combination with VEGF, et cetera. We have a lot of these best-in-class agent, single agents, which together with this good PD-1 have a lot of commercial opportunities really expanding the pie for us.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [56]

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And on top of that, I also want to add is, the reason we decided not to do a PD-1 very early on is, as you mentioned, we do believe PD-1 market is very crowded. And if we develop a PD-1, internally, just start from, let's say even license at Phase I -- preclinical, like most of the companies are, but that can develop one niche indication, PD-1, if you do it just for China alone, not leveraging for global packages.

That requires minimum USD 80 million. But by doing so, we're working with partners already generated pivotal data. We just need to do briefing in PK study, which is very cost efficient. And still, I agree more or less. But because also I wanted to highlight, we're not here just for PD-1 monotherapy, it's a combo expanding our portfolio. And still, this is the -- we believe this is the best PD-1 with -- going to be with the Chinese company that promote this. It's not a PD-1. We believe this is very unique from both from the manufacture cost effecting from the safety, efficacy data. We have been done [BD] so far and has got us, as Jonathan said, a lot of synergies with our (inaudible) [existing] portfolio.

Thank you, again, Xiang.

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Operator [57]

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The last question comes from the line of Wai Chak Yuen from Bank of China International.

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Wai Chak Yuen, BOCI Research Limited - Research Analyst [58]

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So I just want to follow up one quick question on R&D. So can you provide us some information on the breakdown on the R&D spending in the first half in terms of different programs?

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Ki Chul Cho, Zai Lab Limited - CFO [59]

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Yes. Sure, happy to. The R&D breakdown -- I think you can pretty much imply, we did before the -- before we finished the first half of the year, we had the Deciphera deal, right, where the upfront was publicly announced at $20 million? So you can assume that -- correctly assume that $20 million of the $58.9 million was the upfront licensing fees.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [60]

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And also, we had $17.5 million upfront from Incyte, right?

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Ki Chul Cho, Zai Lab Limited - CFO [61]

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Yes, for July.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [62]

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Yes, yes. And again, we don't -- each individual programs, we don't breakdown to their details because lot of our internal IP people working on multiple projects. Even though we do have a kind of tracking system, but we're not in a position to comment that.

Thank you, Yuen. Just sorry for, Yuen, sorry for -- it's not this -- it's not for you. But as a company, as a public company, we have to be consistent and responsible to all investors.

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Operator [63]

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We have reached the end of question-and-answer session. I would like to hand the conference back to the Zai Lab's CEO, Samantha, for closing remarks.

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Ying Du, Zai Lab Limited - Founder, Chairman & CEO [64]

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Thank you, operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support and look forward to updating you periodically on our progress throughout the year. Again, operator, thank you, and you may now disconnect this call.