Zai Lab Limited (ZLAB) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's conference call discussing Regeneron and Zai Lab's strategic collaboration for REGN1979 in Mainland China, Hong Kong, Taiwan and Macau. [Operator Instructions] As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to Billy Cho, Chief Financial Officer of Zai Lab, who will make introductory comments.

Thank you, operator. Good morning. And we are pleased to welcome you to Zai Lab's conference call, discussing our strategic collaboration with Regeneron for REGN1979 in Mainland China, Hong Kong, Taiwan and Macau. Earlier today, Zai Lab and Regeneron issued a joint press release providing the details of the agreement. The press release is available in the Investor Relations section of our respective corporate website at ir.zailaboratory.com and regeneron.com. Today's call will be led by Dr. Samantha Du, Zai Lab's Founder, Chairperson and Chief Executive Officer. We will be joined by Tao Fu, President and Chief Operating Officer; and Jonathan Wang, Head of Business Development. Because each of us are dialed in remotely, Samantha will take the lead on the questions and defer to Tao, Jonathan and myself as needed. As a reminder, during today's call, Zai Lab will be making certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our business plans and objectives, the timing and success of our clinical trials, regulatory applications and commercial launches. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. I refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today. There is a short presentation accompanying this conference call. Webcast and replay will be available on the Investor Relations section of our website. At this time, it is my pleasure to turn the call over to Zai Lab's Founder and Chief Executive Officer, Dr. Samantha Du.

Thank you, Billy. Hello, everyone. Thank you all for joining us. First and foremost, I hope you and your family are safe and healthy during this ongoing pandemic. It's a powerful reminder to all of us the importance of health care and how we need to work together as a global community. At Zai Lab, we're even more determined to bring life-saving treatments to patients. In this spirit, we are very pleased to announce the strategic collaboration with Regeneron with their CD20 and CD3 bispecific antibody, REGN1979 or 1979 for Mainland China, Hong Kong, Taiwan and Macau. As you know, Zai Lab has been committed to quickly bring transformative medicines to patients in China and around the world. This collaboration is another important step towards achieving our vision of becoming a global leader in biopharma. Regeneron is a global leader in the research and development of innovative medicines. We are delighted to partner with them on 1979 as we expand our oncology franchise into hematologic cancers. We believe this collaboration cements Zai Lab as safe partner of choice in China for innovative biopharmaceutical companies. This slide presented by Regeneron at the JP Morgan conference earlier this year highlights why they are an ideal partner for Zai as we build for the future. With 7 approved medicines and 18 novel candidates in clinical stage, we are excited to begin our formal relationship with Regeneron with their most advanced and wholly owned, clinical-stage oncology asset. We believe 1979 is a potentially best-in-class and first-in-class CD20 and CD3 bispecific antibody and an ideal asset, as we embark into the new disease area of hematologic cancers. As with our existing disease areas, such as women's cancers, gastric cancer, lung cancer and bone cancer, we plan to expand our oncology franchise cogently into hematologic oncology and establish another disease stronghold. We believe the CD20 and CD3 bispecific asset class has the potential to become a blockbuster in blood cancer treatment. Jonathan will highlight some of the latest data from the general Phase I study that give us confidence that this is a truly differentiated asset. We look forward to participating in Regeneron's ongoing global and potentially registrational Phase II study. We are confident that Zai can help accelerate 1979's global clinical devolvement. Zai look forward to contributing significantly to the success of 1979 with our regulatory and clinical expertise and commercial footprint in this business. And we certainly look forward to strengthening our strategic relationships over time with our new customers and colleagues at Regeneron. I will now turn the call over to Jonathan to explain why this collaboration is so exciting to us at Zai Lab. Jonathan?

Thank you, Samantha, and good morning, everyone. Before getting into the details, I would first like to provide an overview of topics I plan on addressing today. First, I'll go over the terms of the deal with Regeneron for 1979 as well as the strategic rationale for this transaction. Then I'll describe the product profile of 1979, followed by development plans and the market opportunity for the product in our region of Mainland China, Hong Kong, Taiwan and Macau. At the end of that, we'll open the call for your questions. On this Slide #4, as Samantha mentioned, 1979 is an investigational bispecific antibody, targeting CD20 and CD3. It is currently being evaluated in a potentially registrational Phase II study in B-cell NHL, and Zai Lab plans to join multiple cohorts of this ongoing global Phase II study. We believe 1979 has the potential to be a first-in-class CD20, CD3 bispecific in China and best-in-class globally. Under the terms of our agreement, Regeneron will receive USD 30 million in upfront payments and also eligible to receive up to $160 million in potential regulatory and commercial milestones. Zai Lab will receive the right to develop and to exclusively commercialize REGN1979 in oncology, in Mainland China, Hong Kong, Taiwan and Macau. Upon commercialization, Zai Lab will book revenue and Regeneron will supply the product to Zai at a range of purchase prices, depending on net sales tiers. Although structured differently, the deal terms closely align with some of our other collaborations. On Slide #5 here, REGN1979 is essentially an IgG4 bispecific antibody designed to trigger tumor killing by binding to both a B-cell tumor protein, in this case, CD20; and then immune system T cell receptor, CD3. 1979 has been evaluated in a Phase I study across patients with different B-cell NHL to evaluate its safety and also demonstrated initial signs of efficacy. Over the next 2 slides, we showed data here, presented by Regeneron, at last year's ASH, from the 110-patient Phase I study in patients across different B-cell NHL. You can also find the entire ASH presentation on Regeneron's corporate website. Regeneron here, on Slide #6, reported on efficacy, demonstrating a very impressive response rate that was seen across indications. Especially here in patients with heavily pretreated follicular lymphoma, the overall response rate and the complete response rate were 95% and 77%, respectively, in patients that were treated with a dose of 1979 greater than or equal to 5 milligrams. Over on the next slide, additionally here, efficacy was also demonstrated in patients that are heavily pretreated DLBCL at greater than or equal to 80-milligram dose. Overall response rate and complete response rate in the overall patient population were 58% and 42%, respectively. Patients without prior CAR-T therapy, achieved ORR and CR rate of 71%. This is particularly promising for the Chinese patients, given there is currently no approved CAR-T therapy in addition to the safety and convenience benefits of an off-the-shelf biologic product, like 1979. Additionally, for patients that have progressed on CAR-T treatment, 1979 also demonstrated early promising results with an ORR and a CR of 50% and 25%, respectively. Taken in totality, we believe these clinical data support the compelling profile of 1979 and represent a potential first-in-class and best-in-class opportunity in China and globally. On Slide #8, here, we show the incidence and the prevalence rate of B-cell NHL in China. The need for new B-cell NHL therapies in China is significant and growing rapidly. With an annual incidence expected to be 100,000 patients by 2023 and the prevalence projected to be nearly 600,000 patients by 2023 as well, DLBCL accounts for nearly half of the incidents in China, which is actually double of what is seen in the United States. Most patients will relapse after first-line treatment and effective treatment options are limited in late lines in patients heavily relying on rituximab and chemos and CAR-T, as mentioned earlier, not being available in China, due to both affordability and infrastructure issues. So there is a huge unmet medical need and with the limited treatment options available for the relapse and refractory NHL setting in China, and no CD3/CD20 bispecific development program started yet in China, we believe 1979 really has the potential to become the standard of care for patients with relapse and refractory NHL. On Slide #9 here, last year, Regeneron started a global Phase II and potentially a registrational study with 5 different cohorts. Zai plans to join this ongoing study as quickly as possible. We will try to add more horsepower into Regeneron's global patient recruitment and thereby potentially accelerate the global time line. Upon a positive trial, we would expect to leverage both China-generated and global clinical data to seek an accelerated regulatory pathway with the Chinese NMPA. On this last Slide #10, in summary, we believe 1979 is a highly differentiated and potentially first-in-class asset, serving a large unmet medical need in the Chinese market. 1979 represents a very important asset in Zai's newly established hem-onc disease area, where we expect to build another disease stronghold. We are grateful to Regeneron for their partnership and looking forward to creating value together for patients around the world. With that I'd now like to turn the call back over to the operator so we can go ahead and take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Yigal from Citigroup.

Congrats on this new collaboration with Regeneron. I basically have 2 questions. The first is, obviously, this is not the only CD3/CD20 out there. As you know, there's another one from Roche. And actually, there's a third -- Roche's the mosunetuzumab, and there's actually a third one from Xencor, XmAb13676. It looks like Regeneron 1979 is better on efficacy, but it may have a slightly worse safety profile in terms of tumor lysis syndrome and cytokine release syndrome relative to the Roche antibody. So I'm just wondering if you could talk a little bit more about your decision process in selecting the Regeneron asset as opposed to the Roche one or the Xencor CD3/CD20.

Well, Yigal, Thanks for dialing in. And we actually did a lot of due diligence, of course, all along with our CD approach. And we cannot speak on behalf of the other parties. But from what our due diligence -- the outcome of our due diligence and also from the latest data shown on ASH 2019, REGN1979 shows impressive ORR and CR for the most common types of NHL. And I think at this stage, it's still early to commenting on the safety profile. And also for us, speed to market is crucial. And Zai Lab's existing commercial team has abundant experience and expertise in hem-onc. So we believe this is a good fit for us. And we will leave the, Roche and the Xencor's questions to them to answer.

Okay. Sure. That sounds good. And then my second question was what's the potential to expand this collaboration with Regeneron to other bispecifics? For example, they also have a BCMA/CD3 Regeneron 5458, which looked interesting. Is that something that is on your radar screen? And could you expand this collaboration with Regeneron down the road?

This collaboration is really highlighted on the most advanced assets CD20 and CD3 bispecific. For future discussions and the future assets, and I think, we will see when is the right time.

Our next question comes from the line of Anupam Rama from JP Morgan.

Congratulations on the deal. I had 2 quick clarification questions. The first is the $160 million in additional regulatory and sales milestones that are owed. Any color on how these milestones sort of break down? And then a second question, another clarification question. Jonathan, in your opening comments, you noted participating in multiple cohorts. Does that imply you will not be participating in all cohorts of the study? And is there a rationale for participating in some cohorts and not the others? Or maybe I'm just overthinking it. But any clarification would be great.

Okay. Thanks, Anupam, and I really appreciate your time. And I would defer this question to Jonathan.

Anupam, thank you for the question. I think to your first question, on the $160 million for regulatory and commercial milestones, unfortunately, we won't be able to give any further breakdown based on what we released in the press release. But I think the overall message, I think, is that's consistent with many of our other deals, usually commercial milestones are probably a bit more than regulatory approval milestones. I think your second question, look, I think, we just didn't go into more details about which cohorts, which trials we'll participate. So I think the intention is really where possible, we want to add more horsepower. We want to support our partners to get Chinese patients into these global trials so that we can potentially get accelerated approval in both China as well to accelerate their timeline globally as well.

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

Congrats on the deal. First question, how are you thinking about the development and commercial plans for 1979? How do you see this program being positioned, especially as it pertains to combination therapy in the various potential hematologic cancers?

Thank you, Jonathan, for the question. Tao, you want to pick up that question?

Yes. Thanks, Jonathan, for your question. From a development standpoint, as Samantha and Jonathan already alluded to, we really plan to participate in a lot of the global trials Regeneron is doing. We will try to get those indications approved in China, but also help our partner accelerate their global plan. So we have the entire field of oncology we can explore for this compound in China. From a commercial standpoint, as you know, we already have a very strong commercial infrastructure in China, launching ZEJULA right now and possible other agents in the next couple of years. We intend to leverage that infrastructure, but we will also build a dedicated team for the hem-onc. As we indicated, we see hem-onc as our next horizontal franchise, we want to establish a leadership position in China. And I think you also asked about combinations. So we certainly would work with our partners and explore the different kind of combinations globally. And certainly, we potentially have unique opportunities in China as well.

Got it. Second question. Can you talk about your overall view on bispecific antibodies as an approach in cancer? This isn't your first bispecific deal. What are your thoughts on how the different platforms compare to each other?

Well, this is a very broad question. Of course, we do believe bispecific antibodies has its very unique and -- efficacy in 50, full class. We also have in-house another bispecific. It's a PD-1 and the LAG-3. And so overall, we think, this is an area where we'd like to put more efforts in where we see a good future.

Got it. And just following up on that. Any thoughts on how the different platforms compare to each other.

You mean -- again, you mean the -- specific to CD20 and CD3, right?

Yes.

Being different companies that, of course, has different CD20 and CD3. As Yigal mentioned, there are currently 3 on the market. But what we can comment on is we did a lot of DD on Regeneron for CD20 and CD3. And also you can see from the ASH data published in 2019, it was very impressive from efficacy perspective. And we also didn't see a showstopper from 50, of course, it's still very early to -- at this early stage to think about 50.

Our next question comes from the line of Maury Raycroft from Jefferies.

Congrats on the progress and the update today. I guess the first question is just along the lines of the commercial landscape. You mentioned CAR-Ts are not currently approved in China. I'm just wondering how far away are CAR-Ts from being on the market there? And how will CAR-Ts versus a bispecific option like 1979 be viewed in China?

Thank you, Maurice, for the question, Jonathan, do you want to take this one?

Yes, sure. Thanks, Maurice, for the question. The competitive landscape is quite different in China for the relapsed/refractory NHL setting. I think a lot of -- in addition to CAR-T, let me first say that a lot of the other innovative therapies that have been approved in more recent times in United States are currently not approved in China. This includes polatuzumab, this includes Cozeva, the PI3Ks. And specifically with the CAR-T, there are various in developments, are none are approved yet. Also, we believe, in China, because of affordability and infrastructure issues, it may not be so convenient and easy to commercialize. So consequently, we see a very significant opportunity for a product like 1979. Also want to add that within the class, the other products have not yet started trials or entered the Chinese markets or development based on, at least, official records.

Got it. And just kind of another follow-up on some of the prior questions about the differentiation versus the others. I'm just wondering, for 1979, it's mentioned on the slides that the format is an IgG3. Just wondering if you could talk more about the rationale there and any more specifics on where you can see differentiation versus the other CD20/CD3s, including, their potential CD3 binding affinity. I don't know if you could talk more about that for 1979.

Yes, Maury, that's a good question. But we really feel that's not our position to comment on the other 2 company's assets. Again, as I said, we spent tons of DD on Regeneron for 1979. We have a lot of confidence in this program. So that's all I can say.

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

First, I want to congratulate on the deal. It sounds very exciting. And I have 2 questions. The first one is about the development time line in China. To my understanding, Regeneron plan to submit a BLA in the U.S. in 2021 or 2022. So I assume it's going to be the similar time line in China. So we also plan to submit new job application in China in 2021, 2022, using the global Phase II data.

Yes, Yang. Thank you first for joining the call and for the question. So certainly, we will be -- the reason -- one of the reasons we joined the global Phase II study, potentially a pivotal study with the Regeneron, is to accelerate the time of approval time, of course, also benefits the early -- the faster recruitment for global patients. So as -- currently, as we understand from the time -- these regulatory policies, we think it's very likely. We cannot submit the application soon after. Having said so, it's very dynamic in NMPA. So I wouldn't give any projections on that yet.

Okay. Yes, I understand. So my next question is kind of a follow-up with the previous question. So we understand in Phase I, so Regeneron, I think, has optimized premedication scheme to reduce -- especially in CRS. And is that possible you can remind us what's the premedication kind of scheme in the ongoing Phase II? And what is the dosing for our Phase II study?

Thank you, Yang. And well, Jonathan alluded some in the slides, I'll give it to Jonathan to see if he can disclose further.

Yes. So thanks, Yang, for the question. Unfortunately, I don't think Regeneron has disclosed very precisely their sort of exact Phase II design yet. But I think what we can comment is that the step-up dosing that they used definitely helped to control some of these CRS events, which, by the way, the CRS events are definitely significantly less compared to the CAR-T therapies already. So -- and to your point, the pretreatment to dampen the immune response also seems to be effective as well. So I think the safety profile is certainly manageable and looks very promising, especially compared to the CAR-T therapies.

Okay. Can you remind us what is Phase II dosing?

Yes. So I think, we probably won't be in a position to comment on that because I don't think they disclosed that at this stage. But I think what I can also say, based on their ASH presentation, there were no DLTs, and the MTV was actually not reached.

Right, right. Yes. Because in, ASH, I think, the highest dosing is 320 milligrams. Yes. So I just want to understand if they are going to go to the highest dosing or to the middle ground? But they haven't disclosed anything yet, right?

Yes. They haven't disclosed and what's interesting is this drug is certainly very effective because you see, in particular, in the indolent lymphomas, in FL, even at the very low doses, the response rate is very, very high. So it's certainly a very effective drug.

I see. Yes. Maybe a quick follow-up. So do we have any plan in China to go to early lines instead kind of the last line?

Yes. So look, I think, based on the current plan, our intention is to work very closely with Regeneron. What we have disclosed together is we will work and we'll contribute to their various global trials. So that will be a starting point. I think we will reevaluate and certainly, especially if Regeneron starts new global trials, the intention would probably be to try to join as many as we can.

Our next question comes from the line of Fei Zheng from Crédit Suisse.

First, my question is a clarification question. So in the press release, I noticed that Zai Lab will contribute to global development costs. So is that in addition to the milestone and upfront payment? And if so, how much that would be?

Thank you, Fei, for the question. And we do share some of the costs. But as we have -- as we work with other companies -- other programs, when we join global trials, we will contribute patients. And in some cases, perhaps the other party want to pick up the cost. In this case, we will share the portion with -- or patients we recruited.

Okay. So my next question is actually a follow-on question. So I think in Phase II trials, they target to do the trial in around 135 across different regions. Samantha, how many sites will be from the Great China region? Is there -- can we have an idea how much we're going to contribute to this study?

At this stage, we haven't -- we just signed a collaboration. We haven't signed -- submitted a CTA. Of course, we also haven't gone through the asset committees. So we'll see. We'll work with the partner once -- today will be start -- will be the beginning of our collaboration. We'll get into those discussions and we'll, at due time, report that.

Okay. Congratulations again.

Thank you.

Our next question comes from Seamus Fernandez from Guggenheim Securities.

There are a number of B-cell targeted therapies in development for both hematologic and immunologic disorders. Do you see opportunities to probably go simultaneously going forward?

Good question. And again, since -- I'd just let Jonathan to keep elaborating from his slide.

Yes. Sorry, I may not have heard that question fully, but I think the response is really -- the competitive landscape is quite different in China. As mentioned, many of these more recently approved U.S. products are not yet approved in China. So I think the window of opportunity is wider and differentiated.

Thank you. There are no further questions at this time. I'll now turn the call back to Dr. Samantha Du for her closing remarks. Please go ahead.

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

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.