Zai Lab Limited (NASDAQ:ZLAB) Q3 2023 Earnings Call Transcript
Zai Lab Limited (NASDAQ:ZLAB) Q3 2023 Earnings Call Transcript November 8, 2023
Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded. It is now my pleasure to turn the floor over to Christine Chiou, Senior Vice President of Investor Relations. Please go ahead.
Christine Chiou: Thank you, operator. Good morning, good evening, and welcome, to Zai Lab’s Third Quarter 2023 Earnings Call. Today’s call will be led by Dr. Samantha Du, Zai Lab’s Founder, CEO and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer, Dr. Rafael Amado, President and Head of Global Oncology and Research and Development, Dr. Harald Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases and Dr. Yajing Chen, Chief Financial Officer. Jonathan Wang, our Chief Business Officer will also be available to answer questions during the Q&A portion of the call. As a reminder, during today's call, we will all be making certain forward-looking statements based on their current expectations.
These statements are subject to numerous risk and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors including those discussed in our SEC filings. We will also refer to product revenue growth rates on a constant exchange rate basis, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on November 7, 2023 for certain disclosures regarding this non-GAAP financial measures. At this time, it is my pleasure to turn the call over to Dr. Samantha Du.
Samantha Du: Thank you, Christine. Hello everyone, and thank you all for joining us today. Throughout the year, we have continued to successfully advance our pipeline, including several important developments for key late-stage programs, such as Bema, KarXT [Indiscernible] and Efgartigimod. In the third quarter, we were especially excited about the launch of our 5th commercial product VYVGART following months of strategic preparation. Although still early in the launch, we are encouraged by the initial demand for VYVGART and by the positive feedback from both physicians and patients. Josh will provide more details on the progress of this very important product launch. We are well positioned to execute on our corporate strategic goals including the launch of multiple new products and new indications over the next few years.
Our pipeline of potential first-in-class and best-in-class products has significant potential to meaningfully improve the lives of patients and we expect this product candidates to contribute to our long-term growth to drive shareholder value. And with that, I'll pass it to Josh. Josh?
Josh Smiley: Thank you, Samantha. It is an exciting time at Zai Lab as we launched VYVGART, the first FcRn blocker approved for the treatment of generalized myasthenia gravis in China. There are over 170,000 patients in China living with gMG, many of whom continue to suffer from symptoms, such as decreased muscle strength and mobility despite receiving treatment. VYVGART is an important new treatment option for gMG and has the potential to significantly change the way patients are treated today. We've already made significant progress through our outreach efforts, having engaged around 75% of our top 200 hospitals since launch in September. And while we are still in very early stages of the launch of VYVGART, we are encouraged by the positive feedback from neurologists and patients.
We are seeing physicians gain experiences on VYVGART and impressively nearly 70% of our top 100 MG specialists have already prescribed VYVGART to a patient. Furthermore, many are repeat prescribers and we are seeing the depth and breadth of prescribing continue to increase. We are focused on increasing awareness, providing education on the benefits of this important therapy and building a strong support network for physicians and patients. Importantly, we are also working hard to increase patient access and we are in the negotiation process for VYVGART's inclusion on the NRDL, which would allow many more patients to be able to benefit from this therapy. We're very excited by the potential of VYVGART and not just in gMG but across a wide range of new opportunities.
Earlier this year, we saw positive pivotal data in CIDP. And by the end of 2023, we expect pivotal data in ITP and PV. Next year, we're expecting the approval of subcutaneous VYVGART and gMG and we believe that being able to provide alternative dosing options, both IV and subcutaneous, is beneficial for patients and caregivers. These are just some of the near-term opportunities for VYVGART to add additional layers of growth to the franchise. Now turning to the rest of the commercial portfolio. We delivered year-over-year product revenue growth in the third quarter of 22% on a reported basis and 27% on a constant currency basis. In addition to the launch of VYVGART, ZEJULA hospital sales grew and it continued to be the leading PARP inhibitor in hospital sales for ovarian cancer in China.
QINLOCK and NUZYRA continued to benefit from their inclusion in the NRDL and our team was able to expand supplemental insurance coverage for OPTUNE. Looking ahead, we will continue to focus on the execution of our strategic goals. First, we are seeking to accelerate our medicines in the market and drive revenue growth. Over the next 12 months to 18 months, we anticipate several important registrational data readouts, including for efgartigimod and Tumor Treating Fields in pancreatic cancer. And we expect to initiate several important trials, including FORTITUDE-102, a trial evaluating bemarituzumab in first-line gastric cancer. Next year, we could see three or more NMPA approvals and four NDA or supplemental NDA submissions in China. Second, we are focused on driving profitability by leveraging our existing capabilities and platforms and by increasing productivity across the organization.
And third, we continue to focus on expanding our pipeline through internal discovery and through regional and global collaborations. We entered into a strategic partnership with MediLink in April for a next-generation DLL3 program, which we are currently advancing to a global Phase 1 trial. And we also have our topical IL-17 Humabody, which is entering global Phase 2 development. In parallel, we will continue to look for meaningful new external opportunities in strategic areas to further expand our pipeline. We are very excited by the depth and breadth of our portfolio and we are confident that our commercial organization will be able to drive significant revenue growth over the next few years. We are well positioned financially with a cash position of $822 million as of September 30, which we believe will support our business and operations until we reach profitability.
And now, I'll turn the call over to Dr. Amado. Rafael?
Rafael Amado: Thank you, Josh. Within oncology, our R&D teams are focused on the development of our late-stage pipeline and we have had several updates during the third quarter, which I will briefly highlight. In August, repotrectinib received its fourth Breakthrough Therapy Designation in China for the treatment of patients with advanced solid tumors that have a neurotrophic tyrosine receptor kinase or NTRK gene fusions and have progressed following treatment with tyrosine kinase inhibitors. In addition, for potential treatment of ROS1-positive non-small cell lung cancer, newly disclosed results from the registrational TRIDENT-1 study, showed median duration of response of 34.1 months and median progression-free survival of 35.7 months in tyrosine kinase inhibitor-naive patients.
This impressive durability has the potential to be a major differentiating factor. The National Medical Products Administration has accepted our new drug application for repotrectinib in ROS1-positive non-small cell lung cancer with priority review and we look forward to bringing this important medicine to patients in need in China as fairly as feasible. Additionally, for KRAZATI or adagrasib, our partner Mirati presented two-year follow-up data from the KRYSTAL-1 study in September. In the pooled analysis, adagrasib demonstrated durable efficacy with a median overall survival of 14.1 months, up from 12.6 months previously reported and a two-year overall survival rate of 31% in patients with previously treated KRASG12C-mutated non-small cell lung cancer.
Exploratory analysis suggested clinical benefit in patients with treated stable central nervous system metastases at baseline with responses noted across most baseline communications, highlighting the potential differentiation for adagrasib in KRASG12C-mutated non-small cell lung cancer. We await the results of the KRYSTAL-12 trial of adagrasib against docetaxel, which is the ongoing confirmatory Phase 3 study and which will form the basis for a submission in China in 2024. In October, our partner Seagen announced that TIVDAK demonstrated superior overall survival progression-free survival and objective response rate versus chemotherapy and a prespecified interim analysis of the confirmatory Phase 3 innovaTV 301 global trial in recurrent or metastatic cervical cancer patients with disease progression on or after frontline therapy.
We have participated in this study and continue an extension portion in China. Moving to our internal global research and development programs regarding our DLL3 antibody-drug conjugate ZL-1310, we just submitted an IND in the US and are targeting to initiate a global Phase I study in the first quarter of 2024. Looking ahead over the next 6 months to 12 months we expect several important updates from some of our key oncology programs. As we continue to expand and advance our oncology pipeline, I am pleased to announce that Dr. Robert Brown has joined Zai Lab as a Chief Medical Officer of Oncology. Robert's impressive medical and drug development background will further strengthen our global oncology research and development team. Dr. Brown will report to me and he will provide strategic leadership and support with respect to the clinical development of our oncology pipeline.
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. We have made excellent progress across our autoimmune infectious diseases and neuroscience therapeutic areas this last quarter. Starting with VYVGART or efgartigimod we launched the product for its first indication in gMG in mid-September and already see significant market uptake. We're also very excited about its potential in treating patients with CIDP or chronic inflammatory demyelinating polyneuropathy. Data from the global trial we participated in showed a highly significant statistical and clinical benefit for patients, including the China subset. Indeed in September the CDE granted Breakthrough Therapy designation for SC subcu efgartigimod for the treatment of patients with CIDP. Existing treatment options are quite limited and problematic given the general reliance on long-term steroids or chronic immunoglobulin therapy.
We have seen how efgartigimod subcu can meaningfully improve and stabilize disease symptoms in these patients. We look forward to working with regulatory authorities in China to bring this important medicine to patients as soon as possible. We also see significant potential of efgartigimod across multiple additional indications and we will continue to work with our partner argenx on indication expansion. Turning now to KarXT. We are on track enrolling patients in the clinical bridging study to support our China registration. KarXT is the combination of xanomeline and trospium, which we are developing with our partner Karuna for acute schizophrenia. In September, Karuna submitted a new drug application to the FDA for this indication. As a new class antipsychotic we believe that KarXT could become an important new treatment option for schizophrenia patients in China.
For Alzheimer's disease-associated psychosis or ADP Karuna initiated the Phase 3 ADEPT clinical trial program in the third quarter and we plan to participate in these studies in Greater China next year. And now, Yajing will speak about progress with our commercial products and financial results. Yajing?
Yajing Chen: Thank you, Harald. Now I will discuss our third quarter 2023 financial results compared to the prior year period. Total net product revenues for the third quarter of 2023 was $69.2 million compared to $57 million for the same period in 2022 representing year-over-year growth of 22%. On a constant currency basis growth year-over-year was 27%. This increase was primarily driven by increased sales volumes the launch of VYVGART and decreased negative effects from the COVID pandemic. Our revenue growth was slowed by the effects on the hospital and physician practices from the recent industry-wide anticorruption enforcement efforts in China. Our total net product revenues included $41.6 million for ZEJULA, which increased 6% from $39.2 million as ZEJULA which is in the third year on the NRDL continued to be the leading PARP inhibitor in hospital sales for ovarian cancer in China.
$11.6 million for Optune which increased 8% from $10.7 million supported by increased patient access to this product in the private-pay market. $5.7 million for QINLOCK, which increased from $5.5 million supported by the NRDL listing in March 2023. $5.5 million for NUZYRA, which increased from $1.5 million supported by NRDL listing in March 2023 and $4.9 million for VYVGART, which launched in September 2023. Research and development expenses were $58.8 million for the third quarter of 2023 compared to $99.5 million for the same period in 2022. This decrease was primarily due to a decrease in license fees for our licensed and collaboration agreement. Selling, general and administrative expenses were $68.6 million for the third quarter of 2023 compared to $66.6 million for the same period in 2022.
The slight increase was primarily due to higher general selling expenses, to support new product launches, partially offset by a decrease in professional services fees. Zai Lab reported a net loss of $69.2 million or a loss per ordinary share of $0.07 for the third quarter of 2023 compared to a net loss of $161.2 million for the same period in 2022 or a loss per ordinary share of $0.17. This decrease in net loss was primarily due to increase of product revenue the decrease of licensing fees and the shift from foreign currency loss to gain. We are in a strong financial position ending the quarter with $822.2 million in cash and cash equivalents short-term investments and restricted cash compared to $876.4 million as of June 30, 2023. Based on our operating plan and our anticipated revenue growth, we expect to be able to fund our business through profitability.
And with that, I would now like to turn the call back over to the operator to open up the line for questions. Operator?
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