Zai Lab Limited (ZLAB) Earnings Call Transcript & Summary

Thanks, everyone. Welcome to Tuesday morning of the 41st Annual JPMorgan Healthcare Conference. My name is Anupam Rama. I'm one of the senior biotech analysts here at JPMorgan. I'm joined by Malcolm Kuno, and Priyanka Grover from the team. Our next presenting company is Zai Lab and presenting on behalf of the company, we have the CEO, Samantha Du. Samantha?

Thank you, Anupam. Good morning, everyone. It's such a great pleasure to be with you here today. Slide #2 is the safe harbor slide. I'll skip to just Slide #3, please. Zai Lab was founded 14 years ago with ambition to bring first or best-in-class assets to patients first in China, than around the world. Over the last [ 3 ] years, we have a -- really the team worked very hard and to seize this once in the [ nutrition ] opportunity as a biopharma leader in China through dedication, hard work, OS, like R&D, BD commercial team. So I'm here to want to thank my team for what you have done for the last [ 3 ] years. And last -- and also last year, we continued with our momentum, so in the face of ongoing impact of COVID-19. This slide -- I want to use this slide to highlight 5 key drivers, which illustrate why Zai Lab is uniquely and [ differentiated positioned ] for future growth and to become a leading global pharma. Of course, pipeline is so important. Our #1, our -- I wouldn't say #1 in terms of importance of ranking, but I'd love to start with our deep and differentiated pipeline, which has not only near term but also medium and long term. We already have several product launch. We're expecting in the next 2 to 3 years long traditional [ aid ] products. 6 years ago, we started our in-house R&D in both U.S. and China combined with the business -- combined with the business development of open innovation model, the team has leveraged our deep understanding of patients' needs and also our successful track hunting expertise and track record. So we have established a fully -- we have established a fully integrated biopharma in China. And as a leader, we have had many products we launched to the market. And -- but we have not stopped there. We always mindful as we grow, climb the mountain as we reach the global chemicals. We want to continue to attract and also add top talents and optimize our team. So last year, we have several experienced team join us. Overall, we have a very strong global leadership team and Zai team across U.S. and China. Last, certainly not least, Zai Lab is very well capitalized and on the path to profitability to the end of 2025. As I mentioned, 2022 is a very challenging year for most of us, if not all. Having said so, the team has continued to show its resilience and dedication. We have several positive pivotal Phase III data readouts. We also achieved commercial excellence. We have key regulatory events and reached all our milestones. For example, for bevacizumab and also for Sulbactam -- for [ SUL-DUR bactam ]. We filed NDA. Both of them we filed NDA for China approval. [ KarXT and hema were also upturned ] CTA in China. [ It is added ] for operating study, which is going to be used at China registrational study or as part of global pivotal study. You may have heard, we formed a strategic partnership with Seagen. Seagen's higher study is extremely exciting for us, not only the tremendous medical needs in advanced cervical cancer in China. But also, this provides synergy to our oncology franchise, especially for women's cancer ZEJULA, for example. Our balance sheet, as I mentioned early on, by end of September 30, we still had $1.12 billion in cash position. We continue to drive our productivity and drive business without compromise in our top line growth. It's worth to note that we also engage a U.S. auditor KPMG to support our continued NASDAQ listing in line with HFCAA. Well, I'm very excited to see, and I'm sure so you have -- probably most of you have therapies about TTFields. And LUNAR study demonstrates -- TTFields has demonstrated a statistically significant and clinical meaningful improvement in overall survival over standard therapy alone combining 2 different cohorts. We are very excited not because TTFields has only -- is only -- currently is for the indication for OPTUNE, we are using in China. But also TTfields already approved in mesothelioma. It's also a solid tumor. And TTFields this positive trend and also the significant meaningful improvement in OS combined with other indications we have in ongoing pancreatic cancer, ovarian cancer, gastric cancer. We all have multiple trials ongoing. So combined I think TTFields can be a tremendous opportunity for -- its $1 billion product, I would say, $1 billion [ broadcaster ] drug minimum. And also TTFields, I talk about the slide later on. It has the opportunity to be -- into the NRDL inclusion. Our partner will present the full data in our upcoming important medical conference. And after our partners submit the premarket application with the U.S. FDA in the second half of this year, we will also submit our market authorization approval following the U.S. submission. Now let's come to this first aspect. I talk about the key drivers, which is highly visible and diversified pathway to successful growth driven by our deep and also differentiated pipeline. And I mentioned earlier, we already have 4 launch products. And what is most exciting is in the next 3 to -- 2 to 3 years, we have many -- more than 8 products to launch in China. And some of them, for example, I've got [ hema ], TTFields, I'm just naming a few and have tremendous market potential. And they -- we are going to -- doing first time ever to bring this important medicines or this kind of -- with this kind of innovation to China at a very short period of time. So this will really change Zai Lab perspective in the next 2 to 3 years. Of course, with our -- around 8 years of hard work, we now only have much deeper pipeline in medium and long term, both for China rights and for global rights. But also, we have not only monotherapy opportunity, but also combo opportunities. We're truly excited about our own pipeline. Now let's come back to in-house research, and we started our discovery engine in China and U.S., about 6 years ago. We always adopt a innovative, nimble and efficient approach. We -- our team have the -- as I mentioned, deep understanding of unmet medical needs and combined with our drug hunting capabilities, really enable us to generate the pipeline on the right side, which is our internal global pipeline. And some of them already passed POC, and we are for [ first 1102 ], we will start full Phase II, it's first half this year globally. We also have 3 either in the clinic or into -- coming to the clinics. And so we have many exciting programs ongoing. Of course, we will not stop business development effort. I wouldn't let Josh and Jonathan's team be free, right? So we'll continue to bring [ assets ]. Well, I think a lot of times, we -- our partners [ were timely ] to comment our regulatory, our speed and our quality. But I think what really comes down to is our -- I put it in 2 categories. One is, I use a few examples to show how our teams not only has the expertise, right. And in, not only just joining the global trials, but independently leading and designing global trails and China individual registrational trials. So the teams, when we work with our partners and that we very often provide our trial design expertise and leading the trials. So well, to have an industry-leading execution reputation, we have -- we also hear a few statistics shows not only site initiation from patient repayment speed, but also our time to approval. But of course, this is because of teams dedication, strong fundamentals and our teams really are working with all kinds of -- all kinds of the agencies. But also we are very benefited by the first-in-class and best-in-class potential of our portfolio. Well, we have been credited as partner of choice for China, and this really benefited us to date, and we'll continue to do what we have been doing well. For example, in the last 3 years alone, we brought 9 platform assets or platforms. And we definitely continue to do what we're doing well, focus our BD efforts to further solidify regional commercial presence with late stage and also synergistic assets. But we're also going to focus our efforts on global business development opportunities both from technology platform and also from new modality introduction. So otherwise, Jonathan, what do you do, otherwise, right? Our commercial success and continues its momentum, and I do not let the labor here too much, because you know we have launched 4 products. I like -- what I like the first one, ZEJULA has already included for first-line and second-lines all-comer setting in the NRDL. The last 2, QINLOCK and NUZYRA, we are currently in the NRDL. We are currently seeking an ideal inclusion. Because of the unique first-in-class and best-in-class status, we're really very optimistic about our inclusion, but also -- but most important, but in these drugs, which is in need for patients in desperate need. So we'll further penetrate our existing pipeline -- existing on the market product growth. Everyone probably heard, if you do not heard, [ bevacizumab ] is truly a pipeline in the product opportunity and we have many trials ongoing. And our team Dr. -- under the leadership Dr. Harald Reinhart has done a lot of designs in the leading trials. We also understand there are tremendous medical needs in all areas of the trials recovered. So we expect a speedy launch for this year for this product. I'd like to use ZEJULA as a case to show profitable -- our profit business model in China. And first of all, I'd like to say ZEJULA is on track to become the leader in top sales in -- for ovarian cancer. By third quarter this last year, ZEJULA has already occupied 37% of the market sales in all types, [ e-regardless this path -- e-regardless ] this whether ovarian cancer or other indications. So we already have 37% market share in the hospital sales. There's also another thing is very meaningful is we have now obtained 28% of global share in ZEJULA. So you can see most -- you know China, most of companies and China revenue will not even go beyond [ 20-plus times ]. This shows a single program without synergy can reach this high [ penetration and patient identified ]. This is really benefited by our teams really hurt not only hard working, but also I think by this asset, it has a unique first in -- the only in class in the first-line of commerce setting with without gBRCA. And as we [ squeeze that ] revenue continue to grow and grow very well in '23. Of course, we have to pay royalty in milestones, but we're continually working hard on cost of goods. And with the synergistic assets and with also team discipline, we'll also continue to monitor our SG&A. We believe that our profit margin can be reached to 40% within the next 3 years. Well, since last September, there had some -- have been some concerns on ZEJULA, ovarian cancer labeling on recurring setting, which were around the back of FDA's decision. I want to say, U.S., MAA has a different -- did not agree with FDA's decision. Here, I want to clarify China's market situation. So first, you can walk away with just these 2 main points. #1, ZEJULA -- on the recurrent setting, full approval was really supported by this NORA study conducted independently in China. And we are -- we have already announced -- we already have announced in-term OS data at 2022 ESMO. And it looks very -- shows a very favorable OS trend. What's unique about this trial is also the -- we use an individualized dosing regimen based on the body weight. The whole OS analysis of this study will come out this year -- expected to come out this year. So overall, we have -- our second-line all-comer is a very -- labeling is still very strongly supported by the [ NMPA ], very much like the MAA approach. And I also want to highlight that first-line all-comer, we are also -- and as I mentioned, we are the only first and only all-comer status in ovarian cancer first-line setting and also included in NRDL. And we also have an independent study to further demonstrate the unique -- with a similar dose regimen approach shows the benefit -- have the benefit risk profile for Chinese patients and also to support our penetration of this product in China market. So just 2 points you need to mention over the last slide. Well, I mentioned our commercial, but -- and -- but also I'd like to touch upon a very important piece, because many people only turn about NHSA, which is NRDL inclusion, but they are also growing commercial and supplemental insurance. They play an important role in China's payers landscape. For example, commercial insurance will expect to reach $300 billion by the end of '25. The city supplemental insurance will expect to reach more than 200 to 300 million by the end of 2025 in terms of enrollees. We are very fortunate to be the beneficiary of this supplemental insurance. Our OPTUNE right now is -- our OPTUNE right now is a second top listed, only second to note to KEYTRUDA and listed in 72-part supplemental insurance plans nearly tripled from year ago. Well, as I mentioned earlier, Team is such an important feature for Zai Lab, if not the only important feature. But this year, we brought in 3 heavy heaters. And Mr. Josh Smiley, coming from -- more than 26 years of experience working in the [ modern International ] company from OS side of this business, coming as Chief Operation Officer; and Peter Huang, who has many years of experience from Pfizer, then became a Founding member, Head of Research, Head of Zentalis Pharma, coming in as Chief Scientific Officer. Last, [ certainly in our list ] is Dr. Amando. Just Amando, you like to read your end? Yes, and the -- Dr. Amando also have a long track record, leading multinational R&D in oncology, but also he has also start-up experience by being the funding head of research and the CMO at Allogene Therapeutics. So he joined us from Allogene Therapeutics, just last week. Well, this might -- will be my last slide, before I talk about '23 is, because I think it's worth to note and because of the COVID, there are a lot of -- lots of communications. I thought I can use this slide to give you a little bit flavor of China's regulatory environment. And over the last -- just 2022, China has updated many regulatory streamlined requirements. I just want to highlight 4 of them. One is the NHSA published a detailed renewable price adjustment mechanism, including indication expansion. And this is very relevant to us, but also NHSA first time ever initiate a national reimbursement plan for innovative devices, which can be as early as end of this year. And this will benefit our TTField tremendously. Of course, they are increasing -- there's a increasing support for rare disease and also for the antibiotic resistance, we all benefit from every single policy. Well, of course, I only listed the policies which have relevance to us. Well, [ 2023 ], I'm very excited about 2023. I think we are start seeing the light at the end of tunnel. And we will continue to accelerate our medicine to patients. Here I listed a few of the milestones for you to watch for. We continue to expand our differentiated pipeline with global rights. We are on the path to be our global leadership specified, biopharma leader position. We expect to commercially profitable in '23, paving the path for overall profitability by end of '25. We also demonstrate commercial excellence, creating near-term certainty and opportunity. Our in-house discovery engine combined with open innovation model and combined with our development, research and development, clinical research and development and also our business development efforts will bring us more assets for long-term business, but also prepare us well for being a leading global biopharma. As a good corporate citizen, we always deliver on our ESG commitments. By the way, my younger son 17 years old, is his school's ESC Officer. And this including those of reaching 1 million patients by '23. Last slide, I'd like to say it has been hard year for all -- most of us 2022, if not all. And -- but I see the -- and as I said, '23 will be a trending year for us. We will strengthen if we will have many things to grow the company, and I believe we have also -- we're going to reach to a taller mountain. Thank you for your attention.

Thanks, Samantha.

[ Me too, thanks, Anupam ].

So just as a reminder, there's a few ways to ask a question right there. You can use, ask a question feature in the portal, and I will look at it here on this iPad, you can e-mail me, or you can raise your hand, and we're happy to get your question answered. Maybe I'll -- I can ask the first question here, which is on back of the LUNAR results for OPTUNE, one of the questions that I think is, how does that opportunity shape up in China, because that's a predominantly self-pay market right now. You guys talked about supplemental insurance. I wasn't sure, but I thought that Samantha might have said, there might be an NRDL mechanism. So maybe you could expand on that.

Sure [indiscernible]. So, Anupam, thanks for the question. You're right. So what Samantha mentioned was last August that there was a policy update with a path to a potential national reimbursement for innovative medical device. So we believe there is a possibility that the policy will be finalized as early as this year, which we implemented thereafter. So kind of timing-wise, it converges nicely. If we were fortunate enough to have after the comprehensive data update on LUNAR, after the successful submission, potential submission later this year in the U.S. followed by China. It kind of converges nicely, right, where now we have tumor treating fields as kind of a specialized product for GBM, because not they ever work in GBM before. But now you're talking about lung and nothing actually works really well on second-line either. But it goes from sort of a specialized product to a potential mass market opportunity that can -- we can treat many more patients. So it's quite exciting.

Anything to add? No, that's [indiscernible] One of the other...

If I'm add -- sorry, one more because you can tell where -- to use cautious word, we were cautiously optimistic on LUNAR, but we are now dropping the word cautiously. So we are optimistic on tumor treating fields and making a real big impact. But I'd just like to say the success of LUNAR means that there is a better read-through for not only first-line lung, but ovarian cancer is reading out later this year is expected, pancreatic will follow and as you know nothing worse on pancreatic either. So we're -- this is a potential rule game-changer. But again, we'll have to wait for the comprehensive data like everybody else. We're helping work with [ Novacare disease ] their jurisdiction, but they're very busy with their applications. And I think you can pretty much guess where -- the conference presentation will be made this year. So we'll leave it at that.

The -- one other question that we get a lot is how has the size and scope of your sales force changed over the last couple of years? How do you expect it to change based on approvals over the next couple of years. I think the question really involves, like given the size of the market, like how do you -- when should you think -- start thinking about profitability of some of these products as individual products? So I'll quickly try to [indiscernible]

Since Billy is wearing a tie, we're going to let him answer all the hard questions.

Great. I also match with Samantha amazingly. So right now, we've invested over the years for -- to be a commercial based company, which we are right now. We have about 1,000 people in the commercial organization, 70% of whom are on the field. And of course, we're covering 4 commercial products, mainly 3 and we're working with partner on one. So that investment start to bear fruit. And Samantha, as you saw in her presentation, said that we'll be commercially profitable. We target to be commercially profitable this year in 2023. As a matter of fact, ZEJULA is already commercially profitable last year. So that's quite an inflection point for us. And what's going to be happening from the year here on out, because we have about 8 or even more potential approvals and launches coming in the next 2, 3 years. You're going to start to see what we call operating leverage and synergies. So as a case in point, we have a team for OPTUNE, right, for tumor treating fields. So that team will be able to handle not only GBM, but across indication tumor treating fields. Working with also other a TA-focused sales team that's going to happen. So let's say lung, let's walk this through. Lung, it's going to have in the next 2, 3 years, not only potentially tumor treating fields, but also potentially aggressive, potentially repotrectinib and so on and so forth. So this is kind of happening. We're at that inflection point this year and it's going to position us very well from here now.

Questions from the audience.

Just to finish on LUNAR. You guys did have some Chinese sites, I believe in the LUNAR study. What percentage of the patients come from China relative to elsewhere?