Zai Lab Limited (ZLAB) Earnings Call Transcript & Summary

Thank you, everyone, for joining the presentation today. I'm Yang Huang, Bank of America China health care analyst, covering Zai Lab. And today, we are glad that we invited Tao Fu, President and the CEO of Zai Lab, to give us a presentation to introduce recent business and the pipeline updates. Hi, Tao.

Hi, Yang. Thank you very much. First and foremost, I hope everyone is safe and healthy during the coronavirus pandemic. I would like to thank Yang and the Bank of America team for having Zai Lab at the conference. So if you can go to the slide presentation. Slide 2 is our disclaimer. Moving on to Slide 3. The last 6 months has been a truly transformational period for Zai Lab as we achieved regulatory approval in Mainland China for our lead product, ZEJULA, for second-line ovarian cancer. ZEJULA approval transformed Zai Lab to a commercial-stage company in Mainland China and we're in full launch mode in 2020. ZEJULA is the first and only category 1 PARP inhibitor approved in China. We're very proud of the fact that ZEJULA achieved the fastest regulatory approval time for locally manufactured oncology category-1 drug. Importantly, NMPA recently accepted our sNDA for first-line maintenance monotherapy of ovarian cancer for ZEJULA and granted ZEJULA priority review status. We're very excited about the commercial opportunity in ovarian cancer. It's a large tumor type in China with over 50,000 newly diagnosed patients every year and our launch is off to a good start. Moving to next slide, Slide 4. Since our founding in 2014, Zai Lab has undergone significant transformation. Fast forward to 2020, we're a fully integrated biopharmaceutical company with product launches in Hong Kong and Mainland China, significant commercial footprint and a broad pipeline of late-stage in-licensed programs as well as in-house R&D pipeline we own global rights. We aspire to build a leading global biopharmaceutical company in 2023, with steady screens of approvals and launches in China across multiple therapeutic areas, transformative partnerships and advancing our global pipeline to pivotal states. Next slide. This slide speaks of -- speaks to our business model. Since our IPO in 2017, Zai Lab has scaled quickly to become a fully integrated biopharmaceutical leader in China, focusing exclusively on innovative medicines with a growing operations in the U.S. Our team pioneered the business model of partnering with our U.S. and European biotech peers, license their late-stage clinically derisked assets and develop and commercialize these products in Greater China. Through these partnerships, we're able to build a robust late-stage portfolio in oncology and infection disease, the 2 largest therapeutic areas in China. We have launched 2 products, 2 additional NDAs under review and 9 late-stage programs. Four products in our portfolio are FDA-approved. We established ourselves as the gateway to China and the part of choice for our U.S. biotech counterparts for innovative assets and we have completed 7 in-licensing deals since 2018. We will continue to aggressively pursue business development opportunities and believe this strategy offers investors a low-risk, high-return investment thesis. As the third growth pillar, we had an internal discovery engine to build a pipeline we own global rights, and our goal is to have 1 to 2 global INDs per year. For 2020, we're ready to file 2 global INDs. These growth pillars are enabled by the leading China-based clinical development and commercial platforms, which I will talk about in the next slide. Slide 6. We're rapidly expanding our geographic footprint in our R&D and commercial platforms. We have R&D centers in both Shanghai and San Francisco, sales office in 15 major Chinese cities and a manufacturing plant in Suzhou, near China. We currently have over 700 employees, over 250 in our in-house clinical development and operations team, running over 25 ongoing and planned clinical trials. We're building an industry-leading oncology commercial team, over 300 people and growing. These platforms will support development and commercialization of our rapidly advancing portfolio. Moving on to the next slide, our pipeline. We believe we have the most robust late-stage innovative oncology pipeline among Chinese biotechs with each of our assets being either global first-in-class or global best-in-class with limited competition, targeting large tumor types in China. Importantly, each of these assets offers a pipeline in the product opportunity, where we are expanding the indications aggressively. ZEJULA is our lead asset, which we believe is the best-in-class PARP inhibitor. Our launch for second-line ovarian cancer is off to a good start. I would like to point out the big differentiation for ZEJULA in the first-line of ovarian cancer indication. The FDA approval of ZEJULA by GSK in the first-line comes with an all-comer label, supported by the PRIMA study. This compares to Lynparza monotherapy will only have a gBRCA mutant label, only about 15% of total patients. This will make a huge difference in the largest ovarian cancer indication. As for tumor treating field, we're confident that we will gain China approval for Optune in GBM in the near future, which we believe will revolutionize the treatment of this devastating disease. And we have a pipeline of indications coming behind for tumor treating field. Behind Optune, I would like to highlight 2 additional oncology assets in our pipeline: ripretinib and Regeneron 1979. Ripretinib is a broad-spectrum KIT inhibitor we licensed from our partner, Deciphera, for the treatment of GIST. In February, FDA accepted ripretinib NDA for the fourth-line GIST indication under priority review. And based on the compelling data from the Phase III INVICTUS trials, we plan to submit our NDA in China for the same indication this year. REGN1979 is a new addition to our portfolio, developed by our partner, Regeneron, for non-Hodgkin lymphoma. We believe 1979 is a potentially best-in-class and first-in-class anti-CD3, anti-CD20 bispecific and an ideal asset as we enter into the new area of hematological cancers. We will participate in Regeneron's ongoing global studies with registration intent and rapidly advance this program in China. Not to be forgotten, we have an infectious disease portfolio, targeting one of the largest therapeutic areas from a commercial value perspective in China, normal antibiotics. Our lead asset, omadacycline, is FDA-approved for both acute skin infections and the community-acquired pneumonia. Our NDA filing in China for omadacycline has received priority review by the NMPA. Over the next several slides, I will give you some highlights of our key pipeline products. If we move to Slide 8. As I mentioned earlier, for niraparib, the PRIMA study is a game changer for first-line ovarian cancer and could potentially establish niraparib as the standard of care for first-line maintenance treatment of ovarian cancer patients regardless of biomarker status. Compared to Lynparza or olaparib and other competitors, niraparib is the only PARP inhibitor that has demonstrated clinically meaningful and statistically significant benefits in both HRD-positive and HRD-negative patients. Importantly, olaparib failed to demonstrate benefit in the HRD-negative subgroup in their clinical trial, even when combined with Avastin. Based on these compelling clinical data, U.S. FDA approved GSK's sNDA for first-line in April and NNPA accepted our sNDA with a priority review in China. We look forward to the potential approval as this -- of this important indication for ZEJULA, hopefully, in the near future. Moving on to tumor treating fields or Optune. We're eagerly awaiting for Optune approval by NMPA in China and look forward to our commercial launch this year. Optune represents a true advance for GBM patients, a devastating disease with very poor prognosis. It was the first novel treatment for GBM approved in the U.S. over the last 15 years. And in the EF-15 -- EF-14 pivotal trial, Optune doubles the 5-year overall survival compared to chemotherapy alone in newly diagnosed GBM patients. Because of this compelling clinical data, it is being recommended with level 1 evidence in China already, in China's glioma treatment guidelines. We're also very excited about FDA approval of tumor treating field in mesothelioma by our partner of Novocure in 2019. This approval not only added about 10,000 new patients for potential market for us, but importantly, a validated tumor treating field can work in tumors outside the brain. We believe TTF is truly a pipeline in a product kind of opportunity. If we add all the indications that it has demonstrated some clinical signal, this treatment could potentially impact up to 1 million new patients in China. This is a great opportunity for Zai Lab. Next slide, Slide 10. Moving on to ripretinib. I would like to highlight the compelling clinical data on the placebo-controlled INVICTUS trials in fourth-line GIST patients. This study met the primary endpoint of significantly improved median progression-free survival of 6.3 months in the ripretinib arm compared to 1.0 month in the placebo arm, with an impressive hazard ratio of 0.15. In the exploratory analysis, ripretinib also prolonged overall survival to 15.1 months versus 6.6 months for placebo. It is worthwhile to note that Blueprint's avapritinib failed to meet primary endpoint in the later-line GIST VOYAGER trial recently. So this indication is wide open for ripretinib. Zai Lab will seek potential accelerated approval pathway in China ahead of our original schedules. Next slide on Slide 11. In March, we announced an important strategic partnership with Regeneron to develop REGN1979, their first-in-class CD20, CD3 bispecific in Greater China for non-Hodgkin's lymphoma. This is an important asset for Zai Lab to build a hematological cancer franchise in China. Early clinical data is very encouraging as published in the last year's ASH conference in December. In heavily treated follicular lymphoma patients, the ORR and CR were 95% and 77%, respectively, in doses greater than or equal to 5 milligram. In heavily treated DLBCL patients, efficacy was also quite impressive. In CAR-T navi patients, ORR is 71%, they are all complete responses. This is particular promising for Chinese patients, given there is currently no approved CAR-T therapy in China. Even in the post-CAR-T setting, the ORR is 50% with a complete response rate of 25%. We believe these data support the potential best-in-class profiles in China and globally. Non-Hodgkin's lymphoma is a large market opportunity in China with 88,000 annual new incidents and 450,000 prevalence. We will contribute to Regeneron's ongoing potential pivotal trials and seek accelerated approval pathway in China. Next slide, Slide 12. Moving on to margetuximab, the Fc domain enhanced HER2 monoclonal antibody we licensed from our partner, MacroGenics. In addition to opportunity in HER2 advanced metastatic breast cancer, we're particularly excited about opportunity for marge in gastric cancer, which is a huge tumor type in China with 700,000 newly diagnosed patients every year, almost 25x of the U.S. number. In this setting, marge demonstrated encouraging clinical activity in combination with pembro in second-line with prolonged progression fee survival compared to historical control. This data gives us confidence in the first-line MAHOGANY gastric cancer trial, which we will participate in China in collaboration with MacroGenics. You may also recently noted that MacroGenics released some interesting data in their LAG-3 PD-L1 bispecific, which we also have Greater China right. And we also look forward to exploring combination opportunities between marge and MGD013. Next slide. This slide talks about our discovery pipeline. We have indicated building a proprietary discovery pipeline where we own global rights is the third pillar of our growth strategy, taking advantage of the drug discovery experience from our leadership team and the synergy with our clinical portfolio. We have made steady progress in our discovery pipeline to support our stated goal of generating 1 to 2 global INDs per year. In addition, we have established our research center in San Francisco to strengthen our discovery effort, and we believe this pipeline will provide investors with additional upside. Next slide. Slide 14. This slide highlights our oncology pipeline strategy. We focus on 5 common tumor types that are highly prevalent in China in our oncology franchise, we call them disease area strongholds. And we plan to develop multiple synergistic assets within each area. These areas are women's cancer, GI, brain, lung and hematological cancers. We believe this strategy will provide great synergies in both clinical development and commercialization. Take gastric cancer, for example, we see synergies from a clinical operations perspective when we're running multiple clinical trials with different lines and biomarkers. On the commercial side, our sales reps can talk to the same specialists about multiple products and they can build a stronger relationship with key opinion leaders. This model will allow us to scale up our business quickly and build the deepest innovative oncology pipeline in China to support our growth objective. Moving to Slide 15. We're building an elite commercial and medical affairs team to launch our 2 lead oncology products in Mainland China, ZEJULA and Optune. Our team was led by Chief Commercial Officer, William Liang. William is a trained medical doctor and one of the well-recognized commercial leaders in China. Before he joins Zai Lab, he was the Head of Oncology Business Unit for AstraZeneca, one of the best-performing oncology commercial organizations in China. William, collectively with its key commercial leaderships, led the launch and commercialization of 8 of the top 10 innovative oncology products in China. The hiring of our launch team is complete and 100% of our sales reps, sales managers and MSLs have over 5 to 10 years of oncology experience with leading multinational companies. We have high confidence due to their proven track record, our team can deliver superior commercial performance. Moving to Slide 16. Just give you a quick update on our launch progress. Our team's success was demonstrated in the Hong Kong launches of ZEJULA and Optune in 2019. According to IQVIA, ZEJULA was the leading PARP inhibitor in Hong Kong with market share of 71% last year. It also ranked among the top 5 oncology drugs ever launched in Hong Kong as measured by first full year revenue. We also understand from our partner, Novocure last year that Optune launch in Hong Kong represent one of the most successful launches for Optune globally. These results speak volumes to the compelling product profiles we're marketing, but also the execution capabilities of our commercial team. We're also off to a good start with ZEJULA launch in Mainland China. We launched the product 23 days after NDA approval, which was the fastest time among drugs approved by NMPA in December. In response to challenges caused by the coronavirus outbreak, we took immediate measures such as creating online physician education platforms. With China gradually back to normalcy, our team has resumed full field activities. We also have successfully -- very successful reimbursement momentum getting ZEJULA on reimbursement list at provisional and city levels as well as commercial insurance. We look forward to updating you on launch progress in the second half of this year. Slide #17, a financial overview of the company. We have a very strong balance sheet and the company is a great -- is in great financial position to execute our strategic objectives. We ended 2019 with $276 million in cash. And recently completed a very successful follow on, raising an additional $281 million. We have been quite capital-efficient and just spent about $400 million since our inception to create a $5 billion market cap company. We're committed to capital efficiency to generate significant shareholder value. Slide 18. This really highlight some of the key milestones and catalysts for the second half of 2020 for Zai Lab. We're really poised for further growth with these major milestones and catalysts. We're still in the second quarter, but we already hit several significant milestones, including innovative medical device designation for Optune, niraparib first-line ovarian sNDA submission and priority review, the Regeneron collaboration and omadacycline NDA priority review. Going to the second half of the year, we expect major development and regulatory milestones, including Optune approval, ripretinib NDA submission, tumor treating field, mesothelioma submission. We will continue to aggressively pursue transformational BD opportunities and advance our discovery pipeline. Zai Lab is gaining momentum to fully capitalize on the significant growth opportunities in front of us. Thank you very much for your attention. Yang, I'm going to hand it back to you.

Okay. Thanks a lot for that excellent presentation. And I think we will end our presentation here. And if any investors have any questions, I think Zai Lab will have one-on-one meetings later on, so that investors can ask questions later. And also, you can e-mail me if you have any questions. Thank you again for, Tao.

Thanks a lot, Yang.

Bye-bye.

Yes. Bye-bye.