InnoCare Pharma Limited (9969) Earnings Call Transcript & Summary

Okay. Good morning, and good evening. This is Chen Chen from UBS. Welcome to InnoCare 2024 Interim Results Earnings Call co-hosted by UBS and Morgan Stanley. Well, first of all, please allow me to introduce the management team joining today's call. They are Co-Founder, Chairwoman, CEO, Dr. Jasmine Cui; CFO, Mr. Xin Fu; and IR Director, Ms. Bonnie Yuan. So after the business update from management team, we will open Q&A. [Operator Instructions] And now I will pass it on to Jasmine. Thanks.

Thank you, Chen Chen. Good morning, good evening, everyone. Thank you for attending InnoCare 2024 Interim Results Earnings Call. So InnoCare is a high-tech drug innovation company. Our mission is a science-driven innovation for the benefit of patients. Our vision is to become a global pharmaceutical leader that develops and delivers innovative therapies for patients worldwide. Our drug innovation focuses on oncology and autoimmune diseases, 2 large therapeutic areas that with a lot of unmet medical needs. Last Friday, InnoCare celebrated its 9 years anniversary. During the 9 years, we have been through an exciting journey of innovation and development. From corporate milestone, the company was founded on August 18, 2015, and we got successful IPO in Hong Kong 2020 and IPO STAR Board in Mainland China by 2022. And we have been through -- we did 5 runs fundraising from beginning of the company to now 2 private runs and 3 public runs. We raised a total of USD 1.3 billion. And among that, we still have around USD 1.1 billion in hand. InnoCare, the biggest advantage, I think, is our ability for internal discovery. Right now, we have over 10 products in the clinical stage, and the majority of that discovered by InnoCare team internally. And our first product, orelabrutinib, got launched in Mainland China by 2020. And by now, we have 3 indications approved for hemato-oncology treatment in Mainland China. These are r/r CLL/SLL, r/r MCL and r/r MZL, and all 3 indications covered by NRDL. We also get approval -- market approval in Singapore for r/r MCL. Besides that, this first half year, we submitted 2 NDA package and -- for orelabrutinib. Besides orelabrutinib, we also have a number of other assets for hemato-oncology, autoimmune disease and solid cancers. Those products mostly are in Phase II and Phase III clinical studies, and we anticipated product launch in the next 2 to -- 3 to 4 years into the market. And so the company also stepped into a 2.0 stage and from 1.0, which is a fast development of the company. So 2.0 objective is to provide more innovative drugs to patients worldwide. It includes launch at least 6 commercial products and become a recognized leader in hemato-oncology and a strong competitor in autoimmune disease and solid tumor. And we are looking into by end of 2028. So besides the clinical asset now, we will add additional 5 to 10 well-positioned differentiated assets into our clinical pipeline and will further strengthen our unique research platform. And we will have 3 to 4 product globalization that includes out-licensing, partnership and et cetera. And by then, our sales revenue will increase significantly. And we will further strengthen our R&D, BD, manufacturing and commercialization platforms and further strengthen our operational excellency. So we have a strong confidence to reach our 2.0 objective by end of 2028. This is because we do have a robust portfolio. In short to midterm, as mentioned that we have a number of assets that will be launched commercially. And in mid- to long-term and our innovation platform will generate more assets to benefit patients worldwide. Here listed our business highlights in first half of 2024. Basically, in summary, we have a pretty outstanding performance, which underpins foundations for future sustained growth. In the commercial side, orelabrutinib revenue reached RMB 417 million, with a 30% year-to-year increase in the first half and, specifically, 49% year-to-year increase in the second quarter of 2024. So in this year, we expect orelabrutinib revenue will continue to grow because orelabrutinib is the first and only BTK inhibitors launched for MZL in China. MZL has great actually market space. We see a lot of potential in that. And right now, it is recommended like a Class I option for the r/r MZL treatment in CSCO guidance of malignant lymphoma 2024. And just imagine, all 3 indications already been covered by NRDL, actually started a new term from this year, and all 3 indications with the same price as a couple of years ago, no price cut. So that is quite actually beneficial for our commercialization. And most importantly, early this year, we have strengthened our commercial team and organization with a clear market strategy and the new team with strong ability to execute and with effective -- efficient approaches. In the financial aspect, our total revenue first half year is RMB 419.7 million, and our gross profit margin continued to increase in the past 3 years. By first half, we already reached to 85.7% due to the increased revenue and the reduced -- actually improved operational efficiency, our loss of period decreased by 37.6% compared to last year. And our cash and cash balance and, et cetera, we still have RMB 8 billion in hand, that providing long-term -- strong basis for our long-term future development and the flexibility of our business. So in the clinical trials, and we also made significant progress in the first half of the year. In hemato-oncology, orelabrutinib, we just mentioned were accelerated the first-line trials up to the line approvals. We have submitted 2 NDAs in this first half year. And we also started the first-line treatment of CLL/SLL, in combination with our BCL2 inhibitor, ICP-248. And we have finished the patient enrollment for the Phase II trial. Our second product, tafasitamab plus lenalidomide and we -- in Mainland China, we submit the BLA in May and then accepted in June with a priority review. And for our third product, ICP-248 is a BCL2 inhibitor, we are finishing those expansions, started the U.S. clinical trials. And also just to mention that we already finished patient enrollment of first-line CLL in combo with orelabrutinib. And also we start -- we submitted IND for AML and -- in China and in global. We are going to move to clinical stage quickly. In autoimmune disease side, orelabrutinib indication like ITP Phase III, we finished around 50% patient enrollment. This is a registrational trial, and we anticipate it to finish the whole clinical study by end of next year and then submit the NDA. So we will have autoimmune indications for orelabrutinib. This is an efficient life cycle management. For SLE, we finished the Phase IIa with a pretty promising result. We started with Phase IIb right now ongoing. We finished the patient enrollment of Phase IIb, and we are getting interim result by end of this year. We have 2 TYK2 inhibitors all made significant progress. The first one, ICP-332, we started Phase III atopic dermatitis. And we finished the Phase II. We disclosed the results, quite exciting results we are going to talk later. And also we submit IND for Phase II/Phase III trials for the second indication, vitiligo indication in China. In U.S., we also started the clinical trial. The second TYK2 inhibitor, ICP-488, and we achieved the PoC in Phase I psoriasis trial with 1-month study. And for Phase II 3-month study, we also finished clinical enrollment in May. We're supposed to get a result readout by end of this year in a couple of months. So in the solid tumor side, in the NTRK inhibitor, ICP-723, and we have finished patient enrollment for the registrational study. And we already entered into pre-NDA stage, anticipating to submit the NDA package in 6 months. And ICP-189, SHP2 inhibitor, and we have started a combo with EGFR, third generation of EGFR inhibitor. And we have got our first of few patient results that are promising. We anticipate to get full proof-of-concept this year. So next, we'll have our CFO, Mr. Xin Fu, to go over for the financial commercial highlights.

Okay. Thank you, Jasmine. Hello, everyone. It's my pleasure to share with you our financial and commercialization performance in the first half of 2024. Please note that all the financials we present here is based on Hong Kong financial reporting standards. For the financial space on China accounting standard, please refer to our announcement in the Shanghai Stock Exchange, which is also published on our website. There is no significant financial difference within 2 accounting standards in the financials, which will be presented in the following page. So I'm very pleased to report that we have seen strong revenue growth of our flagship product, orelabrutinib. For the first half of this year, the growth of orela has blossomed by a 30% increase, reaching to RMB 417 million. Notably, the second quarter growth achieved 49%. The strong performance of orela reflects our expansion into the indication of MZL and the effective market penetration strategies. Based on the progress we have made in the first half, we are confident to reach the full year growth guidance of orela to at least 35%, which means the second half year growth rate will be higher than 40%. In addition to our top line growth, we have also made improving our operational efficiency. We have narrowed down our net loss by 37.6%, reducing it from RMB 429 million in the first half of last year to RMB 268 million in the first half of 2024. This significant reduction is attributed to sales growth, operational efficiency improvement and a reduction in the unrealized foreign exchange loss. We continually optimize our cost structure. The total expenses, including our R&D expenses, SG&A expenses has also been well controlled with 5% increase compared to the same period in the last year. Particularly, the selling expenses was decreased by 17.8% to drive for 30% product revenue growth. The selling expenses savings were driven by improved operational efficiency and the onetime reduced share-based compensation expenses in the first half of this year. The other key financials also reflect our efforts for sustainable growth. We continually improved our gross margin ratio in the past 3 periods from 47.5% (sic) [ 74.5% ] to 85.7%. The increase in gross margin ratio attribute to quickly revenue ramp-up of our product sales, changing in revenue combination and also stable pricing of the product. Innovation remains at the core value of our strategy. The R&D side sales grew by 17.5% to RMB 420 million in the first half of this year, which is within our expectation. We have made significant progress across multiple pipelines with ongoing clinical studies that are crucial to our future growth. We believe these investments are essential to maintaining our competitive advantage and ensuring a steady stream for the innovation service in the coming years. So lastly, by the end of the half -- the first half of this year, our cash and related account balance stood at around RMB 8 billion, which is equivalent to around USD 1.1 billion. Compared with the beginning -- year beginning balance, the net cash consumption is around USD 40 million. This robust cash position provides with the flexibility and security needed to continue investing our pipeline development, accelerate our clinical studies and exploring a strategic opportunities to align with our long-term growth objectives. Based on the good efficacy and safety profile, next page, yes, and the new indication continue to accrue, which we obtained in the past several years, orela has achieved significant revenue growth, which has been instrumental in driving our financial performance. and it positioned us well to be at least 35% growth for this year. So one of the key growth driver for orela is new indication for MZL. Orela is, of course, our only BTK inhibitor for this indication, which is considered to be the second largest indication of NHL in China. It is also recognized by health care professional society, and they recommended as Class I option, the newly updated CSCO guidelines. This expansion has opened up a new market opportunities, and we will continue to work with physicians to enhance the diagnosis to benefit more patients. We are committed to be the market leader of this indication. The well-market indication for CLL and MCL, we will continue to leverage the advantage of orela to further extend the duration of treatment. We will also leverage a more real-world study to provide clinical evidence to enhance the recognition of this product. In 2024, we also have expanded our hospital coverage significantly, ensuring that orela is successful to a broader patient population. Last but not least, our experienced commercialization leadership team has played a pivotal role to executing commercial strategies. With focusing on maximizing the potential of orela, we have been able to enhance productivity, improve cost efficiency and deliver strong commercial results. So in conclusion, the first half of 2024 has been a period of strong financial performance and successful commercialization. So going forward, we are confident to -- we are confident in our ability to sustain a high growth revenue and also deliver long-term value for our shareholders. So with that, I will hand over to Jasmine for the introduction of our key pipeline progress. Thank you.

Sure. Next page. Great. Thank you, Xin. In hemato-oncology, our pipeline strategy is comprehensive coverage, indications and MoAs for multiple myeloma to non-Hodgkin's lymphoma to leukemia. So our 2 cornerstone products, orelabrutinib and tafasitamab, and in the first half year, we got significant progress. We submitted the 3 NDA packages for these 2 drugs. And we also made progress on other drugs later this year, like BCL2 and antibody, et cetera. So I will quickly review a few assets, in addition to orelabrutinib in hemato-oncology. So tafasitamab plus LEN, and for the treatment of second-line DLBCL, this is asset with licensed this from Incyte. This tafasitamab plus LEN is outstanding therapy for the treatment of DLBCL. And from table below, you can see the therapy demonstrated outstanding efficacy, particularly in duration of response, 43.9 months, and also overall survival, 33.5 months. This therapy is much more superior than other MoAs and other therapies approved for the treatment of DLBCL in specifically to 6x better -- more efficacious, better than others in terms of less of time. So for tafasitamab plus LEN therapy, we already got pilot use in Hainan and Greater Bay Area. We got approval in Hong Kong. And in Taiwan, we have formed a collaboration with TTY for the development and commercialization in Taiwan. And in Mainland China, I just said, our BLA package was accepted with a priority review in June this year. And we anticipate approval in the coming year. So our another product, just mentioned, ICP-248, is a novel BCL2 inhibitor with a lot of clinical advantage. As you may know, for BCL2, it's actually protein-protein interaction inhibitor. And by far, only of venetoclax approved for the commercial. And so in venetoclax, there is a metabolic soft spot that generated actually a major metabolite, M27. Both venetoclax and M27 inhibit CYP enzymes and also P-gp substrate and also the transporter, BCRP, that generates quite a risk for drug-drug interaction, et cetera. By blockade of the soft spot for metabolic spot, the advantage of 248 includes elimination of major metabolites, reduction of drug-drug interaction risks and improvement of PK. And we saw a very good efficacy, of course, with a good safety profile. By now, for 248 development, we already expanded for the patients at a 100-milligram dose in NHL. And we also mentioned combo with orelabrutinib to finish the Phase II enrollment for the first-line therapy, CLL/SLL. And the U.S. trial also started. And our dose escalation now is up to 150 milligrams and will finish very soon. And we also submit IND for first-line AML. So this page shows -- actually, the purpose we developed 248 is for the sequential combination of treatment with BTK inhibitor, orelabrutinib. And so in the 100-milligram QD expansion, we did enroll patients with BTK-naive or BTK-failed patients. In the 14 BTK-failed patients that you can see, we still see the ORR 71.4%, actually with very good PFS. And this is -- efficacy is better than venetoclax and other BCL2 inhibitors. And therefore, on the right-hand side showing in the animal study, we saw robust and significant synergy of 249 (sic) [ 248 ] with orelabrutinib. This is a scientific basis for us to start the clinical trials for the first-line CLL/SLL combo with orelabrutinib. So our next product is ICP-B02. It is CD3xCD20 bispecific antibody co-developed with Keymed. And from figure on the left, you can see it has outstanding efficacy. No matter by IV dosing or subcu dosing at 6-milligram and above, we observed 100% ORR in NHL, such as DLBCL, follicular, MZL, et cetera. On the right-hand side, you can see the subcu formulation has excellent PK profile. It avoided the exposure peak caused by IV injection and then, therefore, gives a much better improved safety profile and avoid of CRS and et cetera. So our molecular glue compound, ICP-490, we're still in development for both multiple myeloma as well as NHL. Both trials are progressing. So for our solid tumors we discussed before, we have -- our strategy, one, is the precisional medicine. It's to try to benefit the patient with specific mutations, gene abnormalities and benefit the patients more. And the second is immuno-oncology, a combo -- a combination try to benefit more patients. So we will use the 2 examples to exemplify our strategy. And the first is the precisional medicine, ICP-723, is NTRK inhibitor. It's a second generation of NTRK inhibitor and has a very good efficacy in patient that carry NTRK gene abnormalities, including the fusion and the mutation. And we have finished the patient enrollment for registrational trial. And we observed a very good efficacy, ORR 80% to 90% and the PFS over 36 months. And not only adult patients, we also did adolescents and pediatric patients. And also we saw a very good safety and efficacy profile in this young population. So our registrational trial includes adult, adolescents and pediatric patients. And at the bottom, it will show you the excellent efficacy achieved for ICP-723, not only in the fusion, but also in mutation cause by first generation of NTRK inhibitor. So our next compound is the first-in-class compound, SHP2 inhibitor. And it is the fastest inhibitor and in the Phase II clinical trial now. And monotherapy where we have been doing dose escalating now to 160 milligram, it is a very good safety profile, no SAEs observed. And for efficacy, we observed the single-agent efficacy in the dose-escalating study. And on the right-hand side, we are doing combinational therapy with the third EGFR inhibitor, furmonertinib. And by now, the study has initiated. We also observed the promising results. And those are patients after resistance to the EGFR inhibitor. As we know, EGFR inhibitor is -- actually, there are huge drugs for treating the non-small lung cancer lymphoma, not small cancer, lung cancer. And -- but when patient develop a resistance to the EGFR inhibitor third generation, there are no approved good therapies by far. So we hope the combo of SHP2 189 with EGFR inhibitor, we are providing a promising and a novel treatment therapy for patients develop resistant to third generation of EGFR inhibitors. For our autoimmune disease, we have been putting effort in both targeting B-cell pathway, such as orelabrutinib, and T-cell pathway, such as the TYK2 inhibitor, as well as the newly disclosed IL-17 inhibitor. And we have a number indications ongoing for that. So orelabrutinib, we -- in addition to targeting for hemato-oncology, we also try effort to extend the life cycle of -- and also to expand the market space. So for autoimmune disease in China, we have several indications for ITP. The Phase III is a registrational trial, and we finished around 50% patient enrollment as I mentioned. And we hope to finish all the clinical study by -- for next year and submit an NDA in 18 months from now. So that's -- once it's approved for ITP, then we'll significantly expand the market space for orelabrutinib in autoimmune disease. SLE is another indication that we have been putting a lot of effort. We've got Phase IIa positive exciting results. And we started much bigger and longer trials, 48-week trial treatment and with about 200 patients of Phase II trial. And we already finished the patient enrollment this month. And then we anticipate to see interim results by end of this year. And we hope these indications will be approved in the coming 2 to 3 years. Hopefully, this will -- and if it's approved, this will significantly expand the market space of orelabrutinib. So we have 2 TYK2 inhibitors, and the 332 is a TYK2 inhibitor with some minor JAK1 activity and very selective against JAK2 and JAK3. Another inhibitor, ICP-488, is only hit TYK2 without the effect on JAK family. And this is a Phase II result of ICP-332 we disclosed earlier this year. The primary endpoint is the percentage of new EASI score change from baseline. From here, we can see both 80-milligram QD and 120-milligram QD caused the significant change of the EASI score comparing to placebo. Right-hand showing that the change is time dependent. We look at 1 week, 2 week and week 4, and it's still showing a steady decrease of the EASI score. And here we also compared 332 with other MoAs in the treatment for atopic dermatitis. And either with JAK1-specific inhibitors or pan-JAK inhibitors, as well as larger molecules, such as IL-4R and IL-13. So no matter which one, even the treatment was 12 to 16 weeks, and our 4-week results are outstanding comparing to all these different MoAs. And actually, for the proof of the drug, upadacitinib is the best -- is better than the other therapies. And the Phase III was 53.3% and 46.8% of EASI 75. And even though ours is better than upa. So we also compare the very difficult end point, such as EASI 90 and the itching score, NRS above -- equal and above 4, we can see actually 332 showing quite big improvement comparing to upa. An indication, we also look at the quickness, how quick the compound response to the itching, which is a big problem for atopic dermatitis. And biologics, such as IL-4R and IL-13, actually, they have a delayed response. Patients get the drug, but there is no response in 2 weeks. Actually, for patients, that's very suffering. So we see whether 332 can fill up the space. And to our -- I'm really pleased to see 332 showing a significant improvement in NRS from day 2 and until every day and in the first 2 weeks and continuously to improve until week 4. And with this big improvement in NRS, we definitely see the very significant improvement of patient quality of life. And if you go back, we also started the second indication, vitiligo. And this is also very -- there's a big unmet medical need and also a large population of patients in China and worldwide. So for our second TYK2 inhibitor, ICP-488, in Phase I, in addition to healthy volunteers, we also add a cohort of psoriasis, and this is a 1-month treatment in the small cohort. Despite that, we still see statistical significant change of PASI score from the baseline and comparing 38% with 488 6-milligram QD dose compared to placebo. And we also compare to Takeda 279, and they also did a Phase I study, very small patient. And it seems it's equivalent or slight better than TAK-279. So we started Phase II early this year, and this is a 3-month treatment and with 1-month safety follow-up. And also, we -- this is a pretty large study with 129 patients. And the patient enrollment finished in May. And we anticipate to see the results in a couple of months in end of October to November time frame. Now we move to the preclinical space. We do have a number of assets in preclinical space generated from our innovative research platforms, and IL-17 is one of the example. And so this is IL-17, it's a small molecule inhibitor for the treatment of autoimmune disease. As you know, IL-17 is a proven target. The signaling pathway is well known, and it's already marketed. And -- but the small molecule, so far, there is no -- we are still quite ahead in the global market, and there's no proof of a small molecule yet. Small molecule gives a lot of, actually, convenience for patients. And hopefully, it will have better safety profile as well. So our small-molecule modulator of IL-17 blocks both heterodimer of IL-17A and heterodimer -- homodimer of IL-17A and heterodimer of IL-17A and F and with quite equivalent potency. And it has much more improvement compared to the reference compound, which is in the Phase I trial. And in the animal models, CIA animal model, we see the compound has excellent efficacy and also has very good exposure since you can see the clearance of the of the compound much decreased comparing to the reference. In addition to IL-17, we have a number of compounds in the preclinical space targeting autoimmune diseases from our innovative platforms. And if you separate that based on the targeted class, biologics like antibodies, PPI, protein-protein interaction blocker, and also small molecule kinase and the fast pace, et cetera. So you can see. for small molecule with less than 500, we have a number of compounds in the clinic already. Orelabrutinib is 022, and it's a covalent inhibitor. And ICP-332 is also orthosteric inhibitor, and ICP-488 is allosteric inhibitor. Of course, we also have other molecule gel and other molecules for treatment of autoimmune disease molecule with less than 500. And for protein-protein interaction blocker, we need a much larger molecule, still small molecule by the molecular weight, generally around 500 to 2,000. Among that, we have IL-17, just mentioned, and we also have other 3 or 4 projects in that space. Of course, we also have antibody for autoimmune diseases such as the bispecific antibody CD3xCD20, can readily being used for the treatment of autoimmune diseases. But besides that, we also have mono antibody and bispecific antibody, even ADC and other conjugation platforms to generate data asset for the treatment of autoimmune diseases. We will disclose them gradually in the next few quarters. So just as a note that autoimmune disease has huge unmet medical needs and a big market potential. So for indication-wise, there are over 100 -- over 150 different indications for autoimmune diseases. And patient-wise, over 500 million worldwide. In China, also over few thousands of million patients in China. And autoimmune disease indications can affect different organs and different places. It can be categorized like nephrology, gastroenterology, dermatology, hematology, neurology, rheumatology, and et cetera. Among that, by now in the clinic, we already covered 4 categories of the 6. And we are also looking to nephrology, like lupus nephritis; gastroenterology, like UC, IBD, et cetera. So we will continue our efforts and hope to get a comprehensive coverage for different indications of autoimmune diseases to benefit patients worldwide. I stop here, and we'll be happy -- thank you for your listening.

Okay. Thank you, management, for the detailed introduction. [Operator Instructions] And before investors are preparing the questions, I have several questions for management. Well, first of all, orelabrutinib, as we are glad to see that orelabrutinib has strong momentum in the first half, driven by MZL and NRDL coverages, so what's the current duration of treatment time? And to what extent do you think you may increase the DOT? Also how do you view the peak sales of orelabrutinib in oncology area in China? Yes, that's my first question.

Okay. Thank you, Chen Chen. Those are really good questions. So indeed, for hemato-oncology, it's quite different from solid cancer. And actually, the DOT gradually increase with the treatment time. So for the 3 indications that were approved, the r/r CLL/SLL, MCL and MZL, actually, the PFS is quite long for all 3 indications, particularly for CLL/SLL and also for MCL. So since the first 2 indications proved the CLL and MZL, about 3.5 years ago, actually, the DOT and also be covered by NRDL already 2.5 years. So actually, the DOT is pretty good. The DOT, I think, for CLL is close to 1 year or something. And -- so because launched earlier the drug. For MZL, the PFS is also long, but it's only covered by NRDL from January this year. And you can see our major -- the big effort started and after NRDL launch in first quarter. In the second quarter, the sales increased a lot. So the DOT is still short right now and still big room to grow because it's just covered by NRDL. We also anticipated the DOT increase to beyond over year. So for CLL, the PFS for MZL as well are several years. So this is almost like a chronic disease. So for the peak of sale, you mentioned in the past, actually, we also -- we always give a prediction of we will have 1/3 of market share. And also with the peak of sale for just oncology, maybe around RMB 3 billion to RMB 5 billion. And we still see, actually, by second quarter, our market share already pretty high, I have to say. And hopefully, we reach our goal of 1/3 of the market share by coming year. And the sales, we still anticipate a steady increase in the next few years. And we are -- we think we will reach the RMB 3 billion to RMB 5 billion -- between RMB 3 billion to RMB 5 billion just for oncology, with more indications approved. We still push a lot of first-line indications right now.

That's very exciting. And my second question is also about orelabrutinib. So we say that BTK as a class is liver toxicity, has been a concern in multiple sclerosis in a few clinical trials. And how do you comment the toxicity in other potential autoimmune indications, such as ITP, SLE? And what's your R&D plan for this drug in autoimmune indications in the overseas market? For example, which indication would you focus on? And are you considering any partnership?

Yes. Thank you, Chen Chen. There are several questions here. First of all, for the MS, like you mentioned, for RMS, relapsed MS, there are few companies for RMS, the clinical trials being partially held and including Sanofi, Merck Serono, Roche, et cetera, and ours as well. And so for us, since we already finished the Phase II trial. And for us, we have served actually 1 SLE in the MS trial. And because I think the experience with other BTK inhibitors, we also got the partial clinic on hold. And for RMS, as you all know pretty well, in the U.S. market, there are several. There are 3 to 4 CD20 antibody proof. And therefore, the risk bar are pretty high for the treatment of RMS. But for PMS, progressive MS, including the primary PMS, secondary PMS, et cetera, by now, there is no good treatment therapy. So those are the patients that actually much severe, and the primary end point is feasibility score. And for those, Sanofi already get the partial clinical hold lifted in the first half of this year, both for primary PPMS and SPMS. So because the huge unmet medical needs for PMS, and we believe orelabrutinib also can be used for the treatment of PMS as well. So we are in the middle of also communication with FDA. And hopefully, we can start the clinical trials, the Phase III for PPMS as well. And for RMS, besides the U.S., and we get approval in China and other regions for Phase IV initiative of Phase III trials. Because the cost doing MS trials, Phase III trials and the patient population and market potential, and we are still considering whether it will work to start Phase III outside of the U.S. for just RMS. So we have different options for that. And hopefully, we will sort it out in a few months, and I can give a clear path forward for that, for MS treatment. And we still think orelabrutinib is best-in-class for that based on brain penetration, based on the [indiscernible] exposure, et cetera. And we do have -- it has a really good chance for the treatment of PMS. And for other indications such as ITP, particularly SLE, is also lack of treatment globally for small molecules specially. There's no good drug for the treatment of SLE. And orelabrutinib is actually the only BTK inhibitor, again, to work in Phase II clinical trials for SLE. And we also considering doing global trial. But as you know, SLE, you do any drug need to be on top of standard of care. And that standard of care is quite different in China, in U.S. and different countries. So perhaps, it's very tedious or difficult to do a global trial, including U.S., et cetera, for the SLE. So we like -- for China, we are getting really proof of concept. We'll have a lot of Phase II studies with a large population. We should have the data this year. And if it is good, and we are also considering moving to the global clinical study. The plan is to separate from the China study. And that's our plan. Also for indications -- like severe indications like lupus nephritis, like we mentioned, PMS and others, we still think orelabrutinib has a great hope on those indications with unmet medical needs.

Well, that's very clear. And we are looking forward to the progress. Okay. I will pass it on to our co-host, Jack Lin, to see if Jack has any questions.

Can you hear me?

Yes, very clear.

Yes.

I have, I think, 2 main questions, 1 about orelabrutinib and I think 1 about, I think, ongoing company operation. So just kind of going back to Chen Chen's first question regarding orelabrutinib sales in the second quarter, and also trying to wrap my brains around the earlier guidance for the 35% year-over-year growth, I'm wondering if the management is guiding a bit more on the conservative side. Because if I apply the 35% growth this year, you would suggest that -- and taking into account the first half of sales, it would suggest that for the third and fourth quarter, we're kind of expecting more or less flat or even some small decline compared to our second quarter sales, which has been very robust. So in line of that, I -- the question I have is, I'm wondering for the various drivers that has allowed us to achieve this very strong growth in the second quarter, whether it's increase in DOT, it's MZL or there are any other major drivers, do we expect any of these drivers to weaken or no longer contribute to drive growth in the third or fourth quarter? If we don't, then, should we expect a more robust growth trend in the third and fourth quarter or much be a much higher guidance for the full year? So that's kind of, I guess, the first sub-question. And then if management can also help share, if we have any color in terms of sales breakdown between the indication, how much -- I think specifically, how much did the MZL contributed so far for, I guess, the first half and the second quarter? So that's the first question about orelabrutinib.

Yes. Okay. So thanks, Jack, for your question. Yes, you have a very quick calculation, right? Yes, in the first half, we have 34% growth, and we reached 35% for the full year. And that means the second half is over -- around 40% growth. So I think we see guidance, which pretty much safe. Of course, we said the risk, the gross percentage at least -- it is at least 35%. We think if we continue at least -- even we continue with the second quarter, we can achieve that target. Because in the last year, if we talk about growth, this is actually is this year achievement and a last year base. So in last year, our third quarter actually is lowest because the big environment issues, we see the lowest contribution in the last year quarter 3. So I think we do expect that in the -- for the growth rate-wise, the quarter 3 will be very, very high. And then we're gradually going back to normal, starting from quarter 3 and quarter 1 this year. So I think our growth will continue. But the -- we don't see our absolute dollar. The revenue number will not decrease. That means, I think 35% is pretty much safe target. So we can risk that guidance. That is, of course, for your question. Secondly, for the contribution with the growth driver, yes, we see that MZL is a new indication and also covered by the NRDL without any price cut. Well, from the volume point of view, the major contribution is still coming from our well-established indication for CLL and MCL because we already have the market lines for the -- about 2.5 years. And MZL is still growing based on the small basis. But the growth rate is very strong. So we feel that the MZL actually has a very big potential. The question and challenge will be now to see how -- for the diagnosis because the MZL patient not only coming from the hematology department, it's coming from different departments. So how to treat it, how to diagnosis the patient. Actually, we will put a lot of effort in the second half. So I think in the long run, we see that MZL will be coming for the second growth driver for this year and also for next year, several years. So this is our basic contribution. And also we don't have the exact number because we cannot collect the prescription from the hospital. We do see some of the market research data. While we see that MZL has contributed a lot of new patients, we do see that -- we hope that MZL patients will have longer DOT than CLL. So eventually, we think MZL, the contribution will be bigger than the sale in MCL.

Yes, to answer your question, there is not any factor will be -- it's weakening in third. And the fourth quarter, we'll continue to grow. And our team also play a big role. We have upgraded. We have strengthened our commercial team, especially the leadership team. We changed the CCO and Head of Marketing, Head of Medical and also our sales team. And so we will -- we expect continuous growth in third and fourth quarter. Yes, 35% is relatively conservative.

Understood. And I think the second one is, I guess, it will be a relatively quicker one. So in the second quarter, we see that our selling ratio has significantly declined, while, I guess, the first half altogether. And I think a large driver of that was from the share base payment reversal or reduction, whichever. But once we adjust for that, it seems like the selling ratio or -- yes, the selling cost ratio of your product seems to have remained fairly stable, whether compared to the first quarter or, I think, the second quarter last year. So wondering in terms of on a cost trend perspective, do we expect this selling trend to have stabilized? What trend -- if we expect to trend down, at what rate do we expect to continue trending down? And have we -- how does that impact and whether we have an updated timing or guidance on the breakeven?

Yes, I think the -- yes, you are right. In the second quarter because there's a onetime stock payment based compensation expenses, there's a reversal and also we'll reduce a lot, around RMB 30 million impact. So from a dollar-to-dollar-wise, even we excluded for this impact, I think the total spending compared with last year is quite equal. That is the dollar-to-dollar. Well, the revenue growth is very strong, if you divide it by the drug sales, I think our sales percentage is also improved. Traditionally, for the new products launched, the commercial expenses will be high. But we see that InnoCare actually has very strong cost and efficiency spirit. Our commercialization, the spending percentage readily decreased from 70% in 2022 and last year, 56%. This year, first half year is 37%. Well, I think the onetime impact happened in the first quarter will not continue on a recurring second quarter. While we do see the OpEx ratio will be further to reduce compared with last year ratio, we foresee that, maybe this year, the OpEx ratio will be lower than 50%. Well, I think with the MZL new launch in the market, we still keep a strong investment in the patient education, physician education and also diagnosis. I think we will still to be investing in this area and also to drive the top line revenue. Anyway, we will continue to reduce the full year the percentage compared with the last year. And also for the breakeven, yes, we're still a young company. We have to see that compared with the several peer companies, which has already disclosed the anticipated year for the breakeven. Well, we think the InnoCare entering into the second phase for our company, we do see -- starting from second quarter, our gross revenue has been -- revenue will be continued with high growth, collaborating with MZL strength. In the last year, the personal line for the sale will be approved, and we will have new products with tafa. The solid tumor products will be approved in 2025 and also in 2026. Starting from 2026, we will have entered into the autoimmune disease, which will be assured for the higher growth will be continue. So we can see that InnoCare entry into the accelerate growth period starting from this quarter from the short term, midterm and long term. For the breakeven, I think, we can anticipate maybe after our entry into the autoimmune diseases commercial launch, we do expect that we can have the breakeven. Well, even that considering we are establishing starting from the 2015, we can break even in the 2027 or 2028. We're still very successful biotech companies. And before that, if there's some BD deal could be concentrated, we will accelerate for the breakeven year.

Okay. We can now accept questions from investors. Sam, you can unmute yourself.

This is [ Sam Isley ] at [indiscernible]. A couple of questions. We've already spoken a lot about the orela situation, so I'll leave that alone, unless there's time. On the TYK2 candidates, do you expect those to be licensed out candidates? And have you begun clinical trials in the United States? Or when will you begin that? Secondly, you've given a breakeven scenario, I'll call it not a projection, of 2027 or 2028. Will you need any external financing to get that far? And last, are there any -- were there any special financial items, either positive or negative in this year -- this half year and last year's half year that would start comparisons between the 2? And if we have time, I'll ask you more about orela.

Okay. Sam, thank you for the question. And it's very -- I'm really pleased to hear from you. And so for TYK2 inhibitors, we have 2 TYK2 inhibitors, just mentioned. The first one, 332, since we got the Phase II results early this year, and we started Phase III in China. Yes, in U.S., we already started the clinical trial. In the U.S., actually, we need to do -- first of all, in healthy volunteer, a few cohort. We are doing 3 cohort MAD study, and we anticipate to finish it in 3 months. And then we are going to move to patients in the U.S. We're thinking about what is less competitive in the U.S. and what is the unmet medical needs. Learning from orelabrutinib, after this communication, we feel the unmet medical need is really the first important criteria for us to move up. So we're thinking 332, actually, from [indiscernible], it is a first-in-class compound. It's mainly TYK2 inhibitor and with the subject 1 activity. And we get such exciting results in atopic dermatitis. And inspired by that, we want to finish the Phase III study of atopic dermatitis in China and collecting more safety efficacy data. And perhaps in U.S., we are thinking to pursue new indications, such as IBD, UC and with a lot of unmet medical needs. That's the current consideration. So 488, and it's purely a TYK2 inhibitor, actually. And so far, the only thing approved to work and a proof of concept is psoriasis. And that's we are doing in China. We finished the Phase II, and we will know the results in a couple of months. And then we definitely will start Phase III if the result looks good. And for the global market, like I said, do we want to repeat the psoriasis study in the global market? We consider the [indiscernible] needs and the unmet medical needs. We're thinking to do a severe disease, such as SLE. Even is a T-cell therapy, even considering the combo with B-cell therapy for SLE and other indications. So that is the thought. And that's really brand new ideas, and they were -- our team is discussing that. But 488, we already have IND approved in the U.S.

Okay. Breakeven without financing?

Yes. Breakeven, as you know, InnoCare is very cautious and careful about spending. And as I mentioned, with total risk, $1.34 billion. By now, we still have $1.1 billion in hand. We do have a lot of cash. Based on our spending rate, our cash should last like 8, 10 years or something. A few of you will predict it will last a long time, by the way, beyond the 5 years. And whether -- despite of that, we're still trying to breakeven maybe global -- whether breakeven or not, it depends on how much global trials you are doing, right? You do a few Phase III trials for autoimmune disease. It is a lot of money. And we are considering partnership for the big Phase III, especially autoimmune disease studies. By this, we can -- actually, we do the clinical studies by ourselves in China and with really cost-effective way. And global study, we still try to get a partnership. And if we get a partnership sooner, we are going to breakeven sooner than 2027. And the other question about another run of financing, and with this in the market, the global market for health care, and there are a lot of cheap assets on the market, and we do have a lot of money. And we are also considering organic growth of the company looking for M&A opportunities and that. So we don't need to raise another run of finance. But if there are good opportunities ahead of us, we are not limited of it. We are not -- we keep open for it. But just for ourselves, we cost very little money first half year and comparing our cash reservoir.

Do you have time for additional thoughts on orela?

Sorry. What is the question?

So do you have time to take a question related to orelabrutinib?

Sure, sure. Yes. For you, always. Yes, please.

Look, the -- there's multiple indications, of course, for BTKs. But on a sort of top of the mountain view, on a worldwide basis, BRUKINSA is growing greater and taking share. And IMBRUVICA looks like it's disappearing. You're somewhere in between. Is -- you're at least maintaining share on this global basis, I think. But do you have your own assessment of that?

Yes. Actually, you raised a very good point. For hemato-oncology, like liquid cancer, et cetera, you're absolutely right. This is zanubrutinib, right? They are taking a lot of market shares, both CLL and MCL, and et cetera. And so for us, for actually oncology, since we are getting into global markets relatively late, our company established much later. So now since orelabrutinib has an excellent safety profile, we can do autoimmune disease. Other BTK inhibitors now marketed in China for oncology, they cannot do autoimmune diseases. They are not moving to that direction. So we are here for the global market, and autoimmune disease is our major direction. So we are communicating with the FDA for MS, just like I said. And also we are considering other indications, as mentioned, SLE, lupus nephritis and et cetera. So we think if we push, we prove a small indication like r/r MCL in U.S. and with the IRA, you probably well know. We will launch a drug by 30 years, like ibrutinib already decreased the price because they launched more than 9 years. And we are considering autoimmune disease is our mega direction. We are going to compete for that in the global market.

Next, I think my colleague, Dr. David Go, has a question for you, Jasmine. Over to you, David.

I see it's already over the time, and I will keep it very short. I just want to ask a simple question. So I know that the -- in the previous Q1 earnings call, we mentioned about to submit the MCL for orelabrutinib in the U.S. And I was just wondering, would there be any update of this target? And any more colors to update for its way out in the commercialization and future development?

Yes, David. And yes, you mentioned this question just exactly -- just to discuss with -- tie together with Sam's question. R/r MCL, indeed, we finished a single-arm study, and that's eligible for semi -- for the IRA conditional approval. And so -- but we are already #4 in the market or #4 even later #5. So with this market analysis in the U.S. and in global, it is -- the potential is not that great. And so also with the newly -- the policy in U.S., IRA, if you launch a drug to the market, no matter which indication and then you have 9 years. After that, you get price cut. And so with the IRA, we are discussing the strategy. We want to get the first into market or we want with a larger indications to be launched in the market. Since orelabrutinib has so much potential for autoimmune diseases, just mentioned, the very large indications like MS, SLE, lupus nephritis, and et cetera. And we are -- next few months, we're considering the strategy. Do we want the first-single market? Or do we want to actually launch larger indications first? For autoimmune disease, we'll have a longer life span for -- to preserve the price. So that's what we are discussing internally, and we'll have some strategy by maybe a quarter from now.

Okay. So Jasmine, we have no more questions from investors. So do you have any concluding remarks?

Thank you, Chen Chen, and everyone for today's conference. Thank you for attending our conference. I saw Sam's face, and it's so nice to see your name on the screen. And we look forward to seeing all at JPMorgan or even earlier than that. And thank you for your support and for your attention to InnoCare. Bye then. You have a good day and a good night.

Cool. Thank you, Jasmine, and the management team for your time. And thanks, all the investors for your interest in InnoCare. So see you next time. Bye-bye.

Bye.