Zai Lab Limited (ZLAB) Earnings Call Transcript & Summary

All right. Let's go ahead -- go ahead and get started. Welcome, everyone, to the 42nd Annual JPMorgan Healthcare Conference. My name is Anupam Rama. I'm one of the senior biotech analysts here at JPMorgan. I am joined by my squad, [ Lorea Hall ], Priyanka Grover, Malcolm Kuno. Our next presenting company is Zai Lab. Presenting on behalf of the company, we have CEO, Samantha Du. Samantha?

Thank you, Anupam. Thank you for inviting me to this conference. And also good morning, everyone, and really look forward to spending the rest of 20 minutes or whatever, 40 minutes with you. I see a lot of familiar faces in the audience. Also, I see some faces new. So for those of you who are not familiar with Zai's story, I'll just give you a quick introduction. Zai Lab was founded -- oh, first of all, my name is Samantha Du, CEO and Founder of Zai Lab. The company was started 10 years ago. Our mission at the time, still now, is to form a innovative biopharma company starting from China then to the rest of the world. So I'll spend the next 20 minutes to share with you our company goals, company achievements and future growth. Thank you. So this is the safe harbor slide. I'm sure you all know this, right? Okay. So our vision, as I mentioned at the very beginning, our vision has never changed. So we want to be a global innovative biopharma leader. But by doing so, we really -- we realized back to 2014, there is a tremendous opportunity to build a company with a business -- different business model instead of everything coming from internal discovery lab, waiting for 12 years to see approval, right? We started with -- working with a lot of biotech modern companies in the U.S. with assets we believe has potential -- market potential to treat patients with unmet medical needs in Greater China. And I'm very pleased to let you know that over the last 10 years, we made a transformative change to the company. We have achieved such a big pipeline of not only first-in-class, majority of them are first-in-class, but best-in-class assets. We have 5 in commercial states. We have potentially much more in the later stage. I'll talk more later on. But of course, all of this supported by the huge unmet medical needs in China and the aging population. But of course to -- to be -- of course, not only commercial pipeline, we're continuously building our later-stage pipeline with the first and best-in-class to fuel our growth -- commercial growth near term and medium term. And we also -- we've got -- and of course, all of that also supported over the last few years, the policies, more and more and more towards innovation-driven and medical needs driven and -- from both NRDL and also NMPA. So we are a big benefiter of that policies. Of course, eventually, we would with our cumulated knowledge, cumulated expertise and our cumulated capabilities both in research, development and commercialization, we are going to achieve our global ambition. So I'll share with you in later slides. So let's go back to last year. Last year, we truly have a lot of achievements together by the team from all functions. From commercial, we have -- as you see, we have 5 products on the market. I won't go to details about each one of them for the sake of time, but I'll talk about VYVGART. Last year we got approval in June 30. Then we able to get -- we were able to launch and listed on NRDL and start from January 1 will be fully covered by NRDL. This is a very big unmet medical needs in China. And ZEJULA, even though we were not the first one to launch, but we right now is market leader in China in the [ pop ] class in ovarian cancer in China. I want to talk a little bit about Optune, not because it's -- the revenue is huge. It's only close to $50 million. But what I want to talk about, this is a very unique category 3 device, even though it's not covered by NRDL, but we are covered by the supplemental health care insurance provided by provincial and also citywide. We are so far the second most covered product only next to KEYTRUDA. On the right side, I'd like to talk about our exciting near-term pipeline and our near-term approval. This is what in 2023 we have done. We have already submitted 3 NDAs. All 3 has been accepted. Some of them already been put on the fast track approval. They are the subcut efgartigimod for gMG, [ subdural ] repotrectinib for lung cancer. Not only that, we have 4 pivotal data readouts, all very positive. One is for CIDP, for the subcut efgartigimod, KarXT for schizophrenia, TTFields and TIVDAK. The TIVDAK is for cervical cancer, has a very good synergy with our ovarian cancer. Of course, we also, over the last few years, tried to develop internal pipeline, internal research with global rights. I just listed here a few, 3 of them as a representative. This is 5 years projection for Zai Lab's growth. And what I want you to take away from this slide is not only start from VYVGART, this is truly a pipeline of product. And also, this is such a huge unmet medical need. We have a lot of confidence in this product. As you know, globally, first year whole global sales already reached USD 1 billion. But in China, we have very well accepted by the medical community, and we have a prepared team ready to do the launch after January 1 with NRDL coverage. We also have -- on the aisle, you also see several other blockbuster drugs, KarXT, Bemarituzumab for gastric cancer, KarXT for schizophrenia. Of course, we also have TIVDAK and others for the next 5 years to launch. Lots of people ask me this question. I want to first make a disclaimer. I'm not a government official, and I'm only just here from my personal observation. I feel like overall, over the last few years China has really more and more focused on life sciences. They realize -- especially innovative -- innovation life sciences because the huge aging population. And also based on the China's -- not only the pharma investment, but also from the government, they continue to come up with new funding to support fundamental research. From NMPA, which is equivalent to U.S. FDA, over the last year alone there are several policies. One is they talk about clinical-driven oriented development of oncology drugs. But also, they also give very clear guideline to accelerate drug approval for drugs with unmet medical needs. So much more transparent than a few years ago. I think -- over the last few years, the trend becomes more and more -- you see more and more clarity, more and more transparency. Even this year NHSA, which is the -- we call that also NRDL who is the one to define the drug price for reimbursement, national reimbursement. They also published several policies. One is to simplify the renewable process. And I -- if anybody interested, I'll elaborate later. But for the interest of time, I'm just passed by. But the next one, I think, is really very effective. Also, we can see immediate effect is to differentiate drugs, whether it's me-toos versus your unmet medical needs, efgartigimod is one very good example. We benefited from that. Well, I was talking about -- when I was talking about the 3 drivers, the field -- well, when we were talking about our long-term growth, these are the 3 drivers. Later on, I will elaborate. One is we definitely need to accelerate our top line growth. This is supported by our strong R&D and commercial execution. My two Presidents of R&D, Dr. Rafael and -- is here -- and Dr. Harold Reinhart is also here. I contribute a lot of our R&D success to both of them and many people working with them. So over the next 3 years, we have 7 new launches. Many of them are blockbuster potential. By 2028, we had more than 15 commercial products on the market. We will also maximize our potential with new indications, as we always call evergreening in my old fighter terms. Of course, it's important for companies to achieve profitability after 10 years. We definitely want to go through -- we're going to reach that by 2025. That's what is our goal -- end of 2025, by increasing productivity and top line growth, but also we will leverage across the organization through what we have built, the infrastructure, commercial, R&D and also our supporting functions. We'll continue our R&D prioritization and we'll continue to -- we -- also what I'm proud of is we have cash -- we have enough cash resources to expect to take us through profitability. Cash is key, right? And of course, ultimately for us, we are not -- we're not -- for us, we don't believe patients have borders. We believe medicines have no borders and science has no borders. So we will bring our internal discovery and also our proven track record of BD capabilities to build our global pipeline. I mentioned 3 of them already through our internal R&D. But in the next few years, we'll continue to build our global pipeline through both internal discovery and also through business development. We will file at least 1 global IND per year. So to achieve our top 3 priorities over the next few years, of course, here is talking about how we grow top line. On the left side is a historical slide, shows when we took ZEJULA to the market as a small biotech, and we were the second one enter to the market, our competitor is a very large multinational, very well known in China for oncology launches. But quickly, we are now #1 market share in the PARP ovarian cancer in China. Globally we -- actually, in China, we have 42% of market share versus the same product in other parts of the world, which shows our commercial team's strong execution and strong recognition by the medical community. I use Optune as example, not because it's our top product. But really, this is a product, as I mentioned earlier, is a category 3 device for tumor -- for brain tumor. But over -- even though it's not on the NRDL reimbursement, but we were able to get the coverage from local and provincial government and the most covered other than KEYTRUDA, second to KEYTRUDA. But going forward, what I'm trying to say is what we -- our demonstrated proven commercial capability will help us to launch alfa-fcab and beyond. So alfa-fcab -- so VYVGART, right? We already, as I mentioned, covered by NRDL and the price is USD 800 per vial. We also -- the medical need for gMG in China is huge, more than 17,000 patients, new occurrence patients. This is truly a pipeline of product opportunity. And NRDL price really reflects its high clinical value. Of course, this is one -- I don't want to spend too much time on this, but I just want to -- because I think a lot of investors ask VYVGART launch in '24. But I just give you on the left side, the historical perspective for the last 6 months, what we have achieved. We have already achieved -- so basically, we already achieved 100% of top 200 target hospitals reached in person by our sales reps. Remember, that's under the China's anticorruption period. And also, we have very strong KOL support. 90% of the top 100 physicians have already prescribed VYVGART over the last 6 months when we don't have any insurance coverage. But going forward, this will really pay our expansion. We expect to outreach to approximately 1,000 hospitals in 2024, and we also -- this accounts for more than 80% of total patient volume. We, of course, will leverage our existing commercial platform, and we have dedicated approximately 156 sales reps post NRDL. And we're going to leverage our -- as I said, our current commercial infrastructure. And also when [ CDE-6 ] got approved, this will also give us significant synergy overlap for physicians treating gMG in China. This is a slide shows, we not only have a VYVGART and our 6 products to launch, we also have a late-stage pipeline. Most of them, if you look at the patient population on the third column, you also look at them, they're best -- first-in-class and best-in-class, and a lot of them are only in class. So this shows our pipeline in the medium term has a tremendous upside. Of course, I talk about top line growth. Now I want to talk about how we're going to achieve profitability. Of course, always, you have to revenue top line growth supported by -- supported by 50% compounded annual growth for -- from '23 to '28. And also, we expect with the new product launches maximize our potential with indication -- with new indications. And from the cost of goods and SG&A, we'll continue to increase in scale, potential for more local manufacturing and also leverage the existing infrastructure to support new launches. We always have -- we're always an organization very careful about shareholders' money, how to be cost effective and how to be effectively spending our money. On the R&D front, we'll continue with our portfolio prioritization without compromise our future potential. So another way, of course, from commercial and even from development to reach the synergy to have a cost effectiveness is have a TA-focused organization, which can drive not only leadership in the field, but also leverage the existing platform, existing capabilities. For example, for women's health, we have ZEJULA for ovarian cancer, TIVDAK is cervical cancer. But of course, in GI, we have QINLOCK, we have BEMA, we have adagrasib, TTFields and many others. So this is very important to build synergy and to leverage our clinical organization and also our commercial organization to maximize their value proposition. I know my time is getting close.

It's all good.

Okay, great. So our next goal is -- and like I said, we want to achieve top line growth, profitability, but also global pipeline. And I want to talk about our discovery effort internal. On the left side, we have very focused discovery effort. And we focus on certain targets in oncology and autoimmune. And on the right side are the 3 internal discovery programs already under global clinical trials. Of course, and -- we not only focus internal R&D, internal research. We also believe the world is -- there are many expertise outside. We will work with partners, work with potential and -- who have the academic institutions. On the left side, what I want to say is this is our past track record. And our R&D team, our BD team, you look at this -- what our success rate, we have licensed most of the programs, for example, Five Prime, we licensed Bemarituzumab when we only have 6 patients. So now company 2, 3 -- I don't remember, 2 years ago, bought by Amgen. So a lot of our pipeline, we were very early [ entered ] that we demonstrate the team's drive hunger capability, our medical drug development insights and our team's execution capability. And these partners really work very well with us because we are not only able to register, develop in China, commercialize in China, but also we are contributing to global multiple centers. We are accelerating global development by shortening their time in the clinical states by long the patent lives. So we have very good partners working with us. So ongoing strategy, we'll continue to leverage our strong BD capabilities. So of course, lots of licensing rely on our R&D insights, knowledge, all of that. We'll continue to leverage our existing platform to develop global assets. Of course, if things have blockbuster potential in China, we would not give up on that. We'll continue to play our strength, and we're also optimistic about building strategic partners to create shareholder value. So let's talk about this year. I think a lot of people may say, okay, so that's your future. Tell me what they're going to deliver this year, right? Of course, #1, always commercial execution for VYVGART, right, plus ZEJULA and other products on the market already. And clinical development, we already have Bemarituzumab in 2 Phase III trials. The team are really working hard to recruit global patients. We have also KarXT finishing global finishing China bridging studies. We also have many others in development. I won't list for the sake of time. And for clinical data and regulatory actions, we have already filed and we already planned China submission 4 of them. Not only the subcut efgartigimod for CIDP, but also adagrasib, TIVDAK and TTFields. We also have already accepted and also potential China approval for 4 of our products, SUL-DUR, subcut efgartigimod, repotrectinib, TTFields. We also have 2 clinical data readouts this year. So now let's go back to when I started about Zai Lab's ambition. I think since day 1 to now 10 years, we have unwavering commitment, conviction, say we want to build a global pharma starting from China to the rest of the world. We truly believe patients should benefit from our discovery, our research and our drug development capabilities. So we'll accelerate our top line growth, achieve profitability and building global pipeline. I think this is my last slide, but I want to -- in conclusion, thanks, everyone, for being here today. Again, I know you can spend your time anywhere in this conference but being here today shows your support and interest. I also would love to really appreciate our patients who entrust their lives to our drugs and our investigators, our KOLs, our physicians and our partners, our investors for your unwavering support to Zai. But last, certainly not the least, is the team, we have such a strong team. We have one company, one dream, and we're going to achieve that. Thanks, everyone.

So many of you have been in presentations with me and know that I am going to -- what I'm going to say now. There are 3 ways to ask a question, yes. So there is the old school way, raise your hand and I'll call on you. There's the hip new way of doing it. You use the portal, submit a question. It will show up in this iPad. I'll ask on your behalf without disclosing your name. And if you want to go even more secretive, you can just e-mail me and I will ask the question on your behalf. But Samantha, you showed a really, really interesting slide on sort of the VYVGART initial progress and laying the foundation for growth. Maybe you can expand a little bit on what you think the key drivers are for 2024 and maybe talk about the NRDL pricing.

Maybe I'll give Samantha a chance to drink some water and take that one. And I am Josh Smiley, I'm the President and Chief Operating Officer for Zai. So I think, first, with VYVGART. We're really excited about the progress to date. As Samantha mentioned, it was approved at the end of June of last year. We had commercial product available in early September. And this was all pre-NRDL. We're thrilled to report that we've treated 1,000 patients already in China. So we're quite excited about the uptake that we see there. That was pre-NRDL, so all the challenges that come with that, both in terms of the anticorruption efforts, but also the affordability challenges. Now with NRDL listing, Samantha mentioned an $800 per year price. If you take that out in terms of the number of vials that are typically used, number of cycles, that equates to about a $32,000 annual price for treatment. We're quite excited about that opportunity and the ability to take that price now and launch to a much broader patient population. So Anupam, I think first, in terms of 2024, big driver will be continued success in execution with VYVGART in patients with gMG, and we think we have a really good opportunity in front of us there. We have 3 more launches that we'll look forward to in '24. One will be the subcutaneous version of efgartigimod or VYVGART. We'd expect an approval sometime this year, and we'll launch thereafter so to complement the IV formulation that's available today. Repotrectinib, which is -- should be approved and launched for lung cancer patients with ROS1 positive mutation. And then SUL-DUR our antibiotic for hospital-based infections. It's a significant challenge in China, and this is a really important medical advance. So we've got 3 launches that we look forward to there, followed then by in 2025, a couple more that I think will be important. CIDP, as Samantha mentioned, efgartigimod is really a pipeline and a product we'll get the next new indication approved in 2025, hopefully. Argenx has submitted that package in the U.S., and we'll look to leverage that submission and submit in China this year for approval in 2025. I think that's probably the most meaningful next launch opportunity. So I think when you look at those things together, that will drive significant sales growth and certainly put us on the path towards profitability in Q4 of 2025.

Questions from the audience? Yes, go ahead.

[indiscernible]

Just yell it out.

Okay. So [indiscernible] transitioning from new licensing late-phase state assets into both late phase and also homegrown home discovery assets in the early phase. So it's a shift of different type of data informed decision-making and also a different strategic decision-making on the profitabilities. So how would you envision this journey will take in Zai Lab?

Do you want me to take that?

If you want to make a couple of comments...

First -- yes. First of all, even when we did the in-licensing for Greater China rights, most of them are not really late phase, right? It's like I mentioned, Five Prime, we only had 6 patients. So the team has a very strong I think, scientific drug hunter capabilities understand from very early on and have a high probability of success. And of course, when the company was founded, that was 10 years ago, China just in the discussion joining ICH. So we saw that opportunity. And also, we realized if we take 12, 15 years, just do a discovery and maybe never make any profit for investors is not sustainable. So in that space, our goal is to make us take the advantage of life generation opportunity to have these assets and make us to profitability. But in the meantime, we never forget where our route, many of us are drug hunters, developers in our life, discovered and developed many drugs and still on the market. So we'll put money back to discovery, but we've always been very mindful of what we are -- not a big organization. We want to be focused. We want to focus on things we know the best, and we want to supplement that with our BD knowledge.

When you think about the revenue contributions to getting to corporate profitability next year or exiting next year, what are going to be the biggest contributors based on your commercial products, I guess, that could -- that are existing and could be coming?