Zai Lab Limited (ZLAB) Earnings Call Transcript & Summary

All right. Welcome, everybody, to the JPMorgan Healthcare Conference. My name is Anupam Rama. I'm one of the senior biotech analysts here at JPMorgan. I'm joined by my squad, Priyanka Grover, Malcolm Kuno and [ Rate Pinhe ]. Our next presenting company is Zai Lab and presenting on behalf of the company, we have CEO, Samantha Du. Samantha?

Good afternoon, everyone, and I'm really pleased to be here today with all of you. And for the next 20 minutes, I'll update you about Zai Lab. Oh yes, I'm Samantha Du, Founder, CEO and Chairperson of Zai Lab. Next one, please. Maybe I'll do it myself. Yes, this is safe harbor slide. So now for the next -- this one, forward -- focusing on our major milestones achieved for Zai Lab in 2024. I think this is a truly exciting year. Last year, Zai Lab has delivered very strong regional business from regulatory to commercial. And we also have an exciting lead global pipeline. The first one entering phase -- already completed Phase I data readout. And in addition, we advanced 3 other global pipeline into later stage preclinical pipe -- into later stage preclinical. 2 of them are ADCs and 1 is bispecific. As you know, in 2023, we have already achieved commercial profitability. And we are going to have [indiscernible] this by this year's financial revenue with 48% year-over-year growth, and we also narrowed the loss by 40% year-over-year. We are very well positioned to achieve our commercial -- our overall corporate profitability by fourth quarter this year 2025. We currently still have $330 million cash. This is also well positions for supporting our ongoing programs and the commercial launches. Well, as you see, in the near term and midterm, Zai Lab will enjoy tremendous growth. And we have now already, as I mentioned, in '24 launched our first blockbuster drug. And we already have 8 approved products in our commercial stage but from '25 to '26, in the next 12 to 24 months, we have 3 new product launches. We also will see substantial growth with VYVGART just for GMT and CIDP, 2 indications alone. Our lead global asset, 1310, is already in pivotal stage with the potential to submit an NDA to FDA in 2026. On top of that, we have multiple in-house global assets will reach POC data point. Looking forward, 2027 to 2028, we not only have the first global asset ZL-10 (sic) [ ZL-1310 ] in commercial stage in the U.S. as a potential first and best-in-class DLL3 ADC, we will also have more than 15 launched products with $2 billion revenue expected in 2028. Other in-house global assets will also reach pivotal data points. So 2029 beyond, we are really well positioned for growth through internal discovery effort and also through business development. We will also -- our project patent protection will last us way beyond 2035. For the next 2 slides, I'll elaborate further on our first global asset ZL-1310. ZL-1310 has the potential to be the global first and best-in-class ADC targeting DLL3. In last quarter, in a major medical conference, we presented compelling efficacy and safety data on our antitumor activities across all those levels with significant reduction to reduce tumor burden in second-line plus small cell lung cancer. We were also very pleased to see we not only -- based on the patient enrollment, we achieved unconfirmed ORR of 74%, but as they were maturing, we're expecting consistent confirmed ORR. We have also and shown not only the patients have seen activities in second line plus small cell lung cancer, but also we have seen patients showing activities -- efficacies in patients with brain metastasis and also in patients with prior DLL3 [ ADC ]. The drug is very well tolerated at therapeutic dose levels. The longest patient in the lowest dose cohort has already been on study for more than 9 months. Of course, we plan to provide updates in this quarter as with the data are more mature. Further touch upon the time line of DLL3 and ADC. As you've seen from this slide, we are currently in second line plus small cell lung cancer, we have already, in dose optimization, will initiate a pivotal trial midyear 2025. On the first-line small cell lung cancer, we are in dose escalation stage, and we plan to start a pivotal trial after we receive positive data. We also started a basket trial for DL3 in other tumor types and especially in other neuroendocrine tumors in the Phase I basket trial. Of course, we will provide meaningful updates throughout the year as the data came out. Well, we also -- as I mentioned at the beginning of the slide, we have built a globally differentiated pipeline with 3 IND submissions this year. They are ZL-6301 is ROR1 ADC and ZL-6201 IS LRRC 15 ADC and IL31x13 bispecifics. All 3 will be filed IND and, again, with data coming up, we will present -- we'll update you. Well, now let's touch upon our regional business. This last year was the first full year we launched our first blockbuster drug. We're off to an excellent start. With the first 9 months, we already treated 10,000 patients. But they're still at the tip of the iceberg because overall that even in TMTT and CIDP alone, there are more than 20,000 patients with this need to be treated, so we have plenty of room to expand this year and beyond. And another thing is about the duration of treatment. We have already seen the patient return rate increase from 10% to 30% from second quarter to third quarter. Continuously, this year, we'll see more higher patient return rates. This can be done by many initiatives. I listed a few here, but nevertheless, we are fully committed to make this product to realize this blockbuster potential. Efgartigimod, on top it's a strong syndication in TMT and CIDP, which are approved. There are also many other indications can be potentially approved. We are working with our partner, argenx, to join multiple trials, especially trials where there are also -- if you look at the market opportunities, they are tremendous. Many of them, patients suffer. There are millions of patients suffering renal disease and also suffering other disease listed here. So as time goes by, we'll provide updates on all of this. Again, this is truly a pipeline and a product opportunity with blockbuster potential. We recently announced a collaboration with Vertex on the project called pove and this is a Phase III asset with the potential to give a transformative approach to IgAN with best-in-class and pipeline product potential. There is one -- there are many reasons for us. Of course, we love this asset. We love the data. We love the patients with unmet medical needs, but also this one can leverage like existing R&D and commercial capabilities. And thirdly, will provide a synergy with Zai's VYVGART franchise. And I also want to mention that in China, we have already joined global Phase III pivotal trial. So we can -- we are very close to bringing this product to the market in China. As you know, there are 3 million to 5 million prevalence in IgAN alone in China and also no approved therapies targeting the underlying cause of IgAN. Of course, I'm sure you know more than us about all the data in this product already I'm sure explained by our partner, Vertex, but this is another actually. What I want to highlight is this one further demonstrates Zai Lab's capacity and capability and also partner of choice that is recognized by partners in U.S. and not only in biotech community, but also in M&C and biopharma community. Because over the years, we have done many global multiple center trials together with our partners. We also demonstrated our commercial capability to successfully launch this product to reach their maximum potential in China. Well, we also in China, in regional business, we'll launch traditional 3 blockbuster drugs in 2025 to '26. I mentioned efgartigimod, but also we have bemarituzumab. This has the potential to be the first-in-class FGFR2b targeted therapy for gastric cancer patients. The overall PFS for this drug is more than 30 months already, and we have high incidents. In China alone, we have more than 359,000 paid annual incidents. And of those, 30% have FGFR2b overexpression. So we are working with our partner to complete on our phase pivotal trial with the potential to file NDA to China and U.S. this year. Another one I would like to highlight is COBENFY is a new commercial name. I used to call this KarXT AND this also, as you know, has been approved by FDA with the first new MOA in decades for schizophrenia; demonstrated not only safety but also -- not only efficacy but also no black box warning on this product. In China alone, there are 8 million patients need to be treated. And we already completed a Phase III study last year. We filed NDA in December '24. Last, certainly not the least, right, the Bill. Our partners, Executive Chairman Bill is here. And we have seen the potential 10 tumor treatment options for TD fields addressing multiple tumor types and especially the difficult to treat. The first Phase III study to show significant OS benefit in locally advanced pancreatic cancer, data has already been published by our partner, and we're very glad to see this benefit to patients. And also this, as you know, for second line plus non-small cell lung cancer, this drug has already been approved. Well, you can call it drug or this therapy has already been approved by FDA with no added systematic toxicity. Other people would say, well, we have many treatment options for second-line non-small cell lung cancer. What is the benefit? Yes, you do. You have many options. But to add the therapy with non-systemic toxicity is really impressive. And the prevalence is very high for pancreatic cancer, more than [ 234,000 ] patients; of course, for non-small cell lung cancer, close to 1 million in China alone. So we are planning to submit both indications in China this year. Well, when I mentioned the last 3 blockbusters, I also want to show our -- even though we have the best products, we have blockbuster products, we're still working continuously on improving our profitability, both through -- individually through top line growth and operational efficiency. We will continuously for example, for ZEJULA, when we first launched, in the third quarter 2022, we had less than 10% margin. Now in '24, third quarter, we already had 37% margin. With the addition of a synergistic product, [ TTET ], we believe we definitely will be -- the market will further improve, significantly improve. In the meantime, we also are mindful of cost of goods. We're mindful of -- we also have done -- our head of R&D and Dr. Rafael Amado has done a lot of great work by prioritizing our high-value programs and continuously Rod, Josh and all of us have been working on managing SG&A cost, managing the expenses. So all of this give us -- you can see the reduced SG&A expenses from year-over-year and also -- and while keep a very high productivity in R&D, we're also managing to support all programs, development, discovery and launches. So as I mentioned earlier, in 2023, we already achieved commercial profitability. But by end of this year, fourth quarter this year, we would like -- we have seen a clear path to achieve overall corporate profitability, and we see a very clear path through all the efforts and again, through the synergistic products we have brought in. 2025 is really an exciting year. I think this is a transforming year for Zai Lab with multiple major catalysts, not only from data through readouts. These are -- I'm mentioning data readouts about global trials, regional trials, but also from regulatory approval, we had multiple NDA approvals. We had multiple submissions. We had multiple global trial and submissions as well. And all of this shows first of all, we are also in the states, we pave the road the role to launch our blockbuster -- additional blockbuster drugs. Our commercial team are ready and already demonstrated through last few years, excellence, commercial excellence and of course, we'll leverage our existing infrastructure for ZEJULA to launch with [indiscernible]. I'm sorry, for my language. And additionally, we will work more on business development. So not only Johnson will do in-licensing. But also, you're going to deliver out-licensing as well, right? You promised. Again, we are in a very good cash position. To reach cash profitability Q4 this year. Well, you've always asked why invest in Zai Lab. What is your investment thesis? I think Zai Lab since inception, we have now reached a major value inflection points, not only by growing our global pipeline of potential first-in-class and best-in-class assets with the first one to be approved in 2027, but also, we have multiple projects on an [indiscernible] enabling stage, they will reach pivotal data readouts in '27 to '28. We've also seen -- we've already seen a commercial profitable China business, but there are tremendous growth opportunities with addition of all this blockbuster -- additional blockbuster drugs to launch throughout 2025 and 2026. Not even mentioning VYVGART, we will continue to shift the treatment landscape in TMT and CIDP alone. And of course, all of this will provide significant margin improvement driven by highly synergistic product launches. And a strong cash position will lead us to many achievements again from discovery, clinical, BD and commercialization. So this this one really Zai Lab, I would say, is we have multiple drugs on the go. We are very uniquely positioned as a leading biopharma with multiple drugs on the goal. Our risk is manageable and our [ opposite ] is unlimited. Now I'd like to -- I always like to climb mountains. Of course, I'd like to climb mountains with my colleagues and partners. So now let's do the Q&A. Am I okay with timing?

[indiscernible]

Okay. Thank you.

[Operator Instructions] So we do actually have an e-mail question. With a little bit of administration change here politically in the United States and a view that perhaps the administration is less China friendly, how do you think that was going to impact as you started to become more global, especially on the R&D side, right, with DLL3 and other products?

Yes. Well, first of all, I think we are in a business to address the unmet medical needs for patients. And we're not in a business related to military operations, related to genes, getting people genomic data, right? And I think like multinational, all this year throughout cold wars, throughout all these wars, medicine's always needed. Innovative medicines to address unmet medical need needed more than any time in history. So I don't see -- personally, I'm optimistic. I don't -- I wouldn't -- I won't see why any administration want to stop the path to address the patients with unmet medical needs that are out there.

Josh, anything to add?

I think that's good.

I wanted to ask a quick question of -- you talked about that $2 billion of revenues by 2028. As you look out now, you've outlined the VYVGART growth, some products which will be coming online in the next couple of years. How do we think about the key contributors to getting to that $2 billion number?

Sure. I'll go. It starts with VYVGART in terms of growth. I think the full year results for VYVGART are going to be among the best immunology launches in China history, and we expect that momentum to continue in GMG through the next number of years. We're just at the tip of the iceberg as Samantha mentioned in terms of the number of patients who have benefited from VYVGART in China. Remember, there are about 170,000 we will have treated, somewhere in the range of 10,000 to 12,000 or so this year. So there's a lot to go there. We have an approval for CIDP, a huge unmet need in China. Really patients who don't have good treatment options and they'll now have an option with VYVGART, and we have more indications to come as Samantha illustrated on the chart. So we need to continue to do well with this product, but the opportunity to impact patients and to realize sales as a result is really significant. The second big driver, Anupam, is KarXT, as was highlighted in the presentation. We submitted at the end of the year. So we'd expect an approval in the near future. 8 million patients with schizophrenia in China. Current standard of care is atypical antipsychotics. This is the first new mechanism in 30-plus years. I think a lot of interest in China in this opportunity. So there's no reason this product shouldn't be in schizophrenia, have the opportunity to be a huge growth driver and $1 billion in annual sales. We're also participating in the psychosis associated with Alzheimer's trial and are looking forward to that readout later this year. Third big driver is bemarituzumab in gastric cancer and gastric cancer is a significant -- overrepresented tumor in Asian and Chinese patients. We expect data in the first of 2 first-line trials early this year, and we'll look to convert, hopefully, positive results in both that trial and the second trial later this year into a submission and into a launch in that time period. So those 3 products alone, I think have the potential to contribute more than $2 billion on an annual basis over their lifetime. We have a series of other products that will help to supplement that as well, including launches like TIVDAK that we expect in the near term here as well.

Yes. As I mentioned -- I probably didn't touch upon, 2 other launch we have done last year, and we just launched [ Ripple ]. We launched [ sodor ]. We, of course, have TTFields to launch with a tremendous unmet medical need in pancreatic and also small cell -- non-small cell lung cancer. So many blockbuster launches. And even when we talked, we haven't included actually the ZL-1310, that's a global launch in 2027.

Right. Questions from the audience, feel free to raise your hand. I wanted to dig in a little bit on the Vertex transaction for pove. There are a range of B-cell modulators out there that you could have gotten your hands on, some with maybe even later-stage GFR data and some maybe even similar stages pove, right? So why? What differentiation do you see with pove that make you excited?

Well, first, I think we've followed this asset for quite some time even when it was in Alpine's hands and they've been interested in this therapeutic area for quite some time as Samantha mentioned, 3 million to 5 million patients with IgAN in China alone. I think when we look at pove, certainly, the opportunity to be disease modifying, I think it is in the lead in terms of the mechanism and opportunity in China. I think we can also look to our partner, Vertex, who I think has been very clear that this is an area that they're interested in, and they had looked at the landscape and put their money where their mouth is with a close to $5 billion acquisition of Alpine earlier this year. So I think we're really excited, Anupam, about the size of the opportunity, the ability to impact the disease progression and the synergies that this will have with our immunology and VYVGART franchise.

And my understanding is Vertex has also talked about pove is the pipeline in a drug, right? So totally understand IgAN and the Asian prevalent and why that's hugely synergistic with VYVGART. Are there that next level of indications that could also be very relevant to the region?

Yes. I think there are. I think we see with, for example, going back to our VYVGART and Argenx partnership, I think when we look at many of the immunology diseases and look at them on an epigenetic basis and otherwise, we tend to see very similar types of dynamics in Asian patients. In other words, take the U.S. numbers multiplied by 3 or 4, I think we see similar types of dynamics here with the opportunity with APRIL and BAFF to treat many of the diseases. So I think we're, at least from the starting point here, very interested and aligned with how Vertex is thinking about the next generation of indications. So we definitely see this as a pipeline and a product type of opportunity.

Questions from the audience? Yes.

Without the need to get into any detail, can you just talk about your DLL3 ADC data update this quarter, just sort of the level of updates we usually expect to see?