Zai Lab Limited ($ZLAB)

Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to Christine Chiou, Senior Vice President of Investor Relations. Please go ahead, madam.

Thank you, operator. Hello, and welcome, everyone. Today's earnings call will be led by Dr. Samantha Du, Zai Lab's Founder, CEO and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer; Dr. Rafael Amado, President and Head of Global Research and Development; and Dr. Yajing Chen, Chief Financial Officer. Dr. Shan He, our Chief Business Officer, will also be available to answer questions during the Q&A portion of the call. As a reminder, during today's call, we will be making certain forward-looking statements based on our current expectations. These statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. We will also refer to adjusted loss from operations, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on May 7, 2026, for additional information on this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du.

Thank you, Christine. Good morning, and good evening, everyone. Thank you for joining us today. Zai Lab is at a pivotal moment. Since our founding, we have built a fully integrated R&D engine capable of taking assets from discovery through global registrational studies, with the ability to design and execute multiple central trials globally. The impact of this investment is beginning to emerge. Our pipeline is expanding, our global assets are generating meaningful data, and our lead asset is in the global pivotal stage. We are also leveraging AI and data-driven approaches across the organization to enhance speed, precision and efficiency, strengthening overall execution and corporate productivity, which we expect will drive further results. Last month at AACR, we presented new data for Zoci that reinforced our conviction, including strong efficacy both systemically and in the brain in patients with small cell lung cancer, alongside a best-in-class safety profile. We also announced global collaborations with Amgen and Boehringer Ingelheim to explore Zoci as a potential backbone therapy in small cell lung cancer and neuroendocrine carcinomas, two cancer types with significant unmet medical need. In late 2027, we expect to submit our first global BLA to the FDA, a defining milestone that marks our successful transformation to a global biotech company. Beyond Zoci, we're building a growing portfolio of global clinical programs, including ZL-1503 for atopic dermatitis, now in a Phase I/Ib study. This reflects the strength of our R&D engine, which combines rigorous science with operational speed and efficiency to advance differentiated assets into global development. Our reasonable business remains commercially profitable with a strong balance sheet. We are focused on strengthening our commercial capabilities and execution, and I'm pleased to welcome Dr. Yizhe Wang as an operating partner to work with me to drive commercial performance and readiness ahead of upcoming launches. The recent policy developments in the region, including the State Council directive, signal meaningful government support for innovative medicines, and we believe Zai Lab is well positioned to benefit over the medium to long term, given our first- and best-in-class portfolio. We're confident in Zai's future, which will be defined by our growing global and regional pipeline of differentiated assets. With that, I'll now turn the call over to Rafael.

Thank you, Samantha. Over the past years, we have built a globally integrated R&D engine that spans from discovery through global registrational development while also delivering on regional development across therapy areas. Our ability to design and execute high-quality global studies with speed and discipline is a core strength that positions us well for development across regulatory geographies. We are embedding AI in R&D, including drug discovery and clinical trial design, to enhance the quality of our decisions and to more efficiently advance our pipeline. The data we presented at AACR last month highlights the output of this engine across our global pipeline that included both externally sourced and internally discovered products. Let me start with Zoci. In extensive-stage small cell lung cancer, at the go-forward dose of 1.6 milligrams per kilogram, Zoci demonstrated a confirmed intracranial overall response rate of 62.5% and a best overall intracranial response rate approaching 69%, including four complete responses. Grade 3 or higher treatment-related adverse events were approximately 16%. Responses of this magnitude inside the brain in one of the most treatment-resistant tumor types in oncology are meaningful signals of differentiation. The safety data reinforced what we have consistently observed. This is a best-in-class profile. Our registrational Phase III DLLEVATE study is enrolling well and is on track to complete enrollment in the first half of 2027, positioning us for an interim analysis and potential accelerated approval submission next year. In extrapulmonary neuroendocrine carcinoma, a setting where there is no established standard of care in the second line and beyond, Zoci demonstrated a confirmed ORR of 38.2%. This compares favorably to currently used regimens, which typically show response rates of approximately 18% with limited durability. We are actively engaging with regulators on a potential registrational path and are well underway recruiting into an extension single-arm study. Depending on the outcomes of regulatory discussions, we could initiate a registrational or confirmatory study by year-end. Now on the collaborations with Amgen and Boehringer Ingelheim exploring Zoci in combination with T-cell engagers. The scientific rationale is straightforward. Zoci delivers rapid tumor debulking through targeted cytotoxicity, while T-cell engagers drive antigen-dependent immune-mediated killing. The mechanisms are complementary, the toxicity profiles are expected to have limited overlap, and together, they have the potential to deepen and extend responses in ways neither mechanistic approach achieves alone. The Phase I with Amgen, which includes a cohort of untreated patients with triple combination of Zoci, IMDELLTRA and Imfinzi is already enrolling and the BI study is expected to follow in the coming months. We're also evaluating Zoci in combination with PD-L1 with or without chemotherapy in a Phase I study in first-line small cell lung cancer with data expected later this year. The chemo-sparing approach may allow for extended treatment duration compared to chemotherapy alone, where patients typically discontinue after four cycles. This is the basis of our Phase III strategy with IO, which we are actively discussing with regulators. Beyond Zoci, our global oncology pipeline continues to advance. ZL-6201, our LRRC15 ADC is already in the clinic. ZL-1311, our wholly owned MUC17 targeting T-cell engager is expected to enter the clinic by year-end. We will provide updates as data mature. On the regional oncology side, we submitted a marketing authorization application for Tumor Treating Fields in locally advanced pancreatic cancer and expect an approval for this indication by year-end and for Tivdak for cervical cancer in the coming months. Turning to immunology. We recently presented preclinical data for ZL-1503, our IL-13/IL-31 receptor alpha bispecific at Immunology 2026. The data showed rapid and durable inhibition of both IL-13-driven inflammation and IL-31-mediated pruritus across disease models in nonhuman primates with sustained effect following single dose. We believe this data supports the potential for differentiated efficacy, less frequent dosing and broad application across multiple atopic diseases, including asthma, rhinitis and conjunctivitis. Initial Phase I data in healthy volunteers and atopic dermatitis patients are expected in the second half of this year. Finally, in our regional immunology portfolio, our partner, Vertex, reported positive Phase III interim results from the RAINIER study of povetacicept in IgA nephropathy achieving approximately a 50% reduction in proteinuria versus placebo and meeting both the primary and all secondary endpoints. I want to close with a broader point. The progress I've described today reflects a pipeline strategy built on biological rationale, clinical differentiation and execution and an organization that now has the infrastructure to advance multiple program simultaneously at speed and across geographies. We have significant data emerging throughout the year, and I look forward to providing those updates. And with that, I'll hand it over to Josh.

Thank you, Rafael, and hello, everyone. Let me start with our first quarter performance, which reflected Chinese New Year seasonality as well as near-term product-specific dynamics. Starting with ZEJULA. Performance in the quarter was impacted by a shift in hospital utilization patterns following volume-based procurement for generic olaparib and some incremental competitive pressure in the PARP inhibitor class. Our first-line positioning remains intact, supported by our label advantage, and we are working hard on stabilizing and driving demand. On VYVGART, physician confidence remains strong and our share within biologics is stable. We delivered double-digit volume growth year-on-year in the quarter, offset by a 12% price discount related to NRDL renewal. On a full year basis, we expect a similar level of volume growth as we continue to shape gMG treatment dynamics. The long-term opportunity stays significant. Biologic penetration in the gMG maintenance setting remains around 15%, suggesting a runway for growth, plus upcoming Phase III readouts in new indications such as IIM and Sjögren's add potential upside. For XACDURO, patient demand was strong and hospital adoption continued to expand. Performance was constrained by supply, and we expect those constraints may persist through the remainder of the year. That said, the underlying demand is encouraging and local manufacturing expected in 2027 should alleviate supply pressure and support meaningful growth and margin expansion over time. Looking ahead, we see a strong set of commercial catalysts. KarXT launches in the second quarter and represents the first novel mechanism for schizophrenia in decades, a significant moment for the approximately 8 million patients living with this disease in China. KarXT's inclusion in national treatment guidelines ahead of launch reflects strong clinical confidence in this therapy. Our focus this year is on physician education and market development, building a strong foundation for the brand. We also anticipate potential regulatory approval for Tivdak this year and intend to leverage our existing ZEJULA infrastructure to drive commercial synergies and accelerate uptake. More broadly, our late-stage pipeline provides multiple additional growth opportunities in the region. Recent positive Phase III readouts for povetacicept in IgAN and Elegrobart in thyroid eye disease add further depth to our long-term growth profile, and we see both as meaningful future contributors. Lastly, we are applying AI to sharpen commercial execution from physician targeting and field force optimization to real-time competitive insights, enabling more agile and informed go-to-market decisions. 2026 is about execution, delivering on key launches, stabilizing the portfolio and building momentum. And with that, I will now pass the call over to Yajing to take us through our financial results. Yajing?

Thank you, Josh. Our quarter 1 results reflect the near-term dynamics just described. First quarter total product revenue declined 6% year-over-year to $99.6 million, driven by lower ZEJULA sales, partially offset by continued growth from XACDURO and NUZYRA. While we expect total product revenue to improve sequentially over the next nine months as underlying demand continues to build, we anticipate near-term pressure for 2026 full year total product revenues with a return to growth in 2027. Turning now to our expenses. Our commitment to financial discipline is reflected in continued execution against our R&D and commercial priorities, and we will expand AI utilization from process automation to agentic execution to further improve cost efficiencies. R&D expenses for the first quarter increased 8% year-over-year, driven by increased license fees and clinical trial-related expenses, partially offset by lower personnel compensation expenses due to resource prioritization and efficiency efforts. SG&A expenses increased slightly year-over-year, mainly due to higher general selling expenses. As a result, loss from operations increased by 23% for the quarter to $69.4 million. We ended the quarter with a cash position of $761.3 million. Our regional business is commercially profitable. Our global pipeline continues to progress steadily. Our focus this year remains on the strengthening the regional business, executing across global pipeline and deploying capital thoughtfully to support both near-term launches and long-term growth drivers. With a strong balance sheet, we are well positioned to execute against these priorities. Operator, please open up the line for questions.

[Operator Instructions] The question comes from the line of Jonathan Chang from Leerink Partners.

First question, on the Zoci collaborations evaluating the combinations with DLL3 T cell engagers. How do these facilitate your longer-term strategy? And are there other combinations and collaborations that make sense to explore? And then second question on the commercial business in China, can you give us a sense for how to think about revenues over the course of the year?

Jonathan, it's Josh. Thank you. I'll ask Rafael to take the first one, and then Yajing can take the second.

Yes. Thanks for the questions. This combination, I spoke about the rationale of it during the prepared remarks. And the expectation is that we would get better efficacy in terms of responses, durability and eventually better survival than with each agent alone. We're testing it in second line in tarlatamab-naive patients, tarlatamab experienced patients, but importantly, also in first line. Our first-line study will not include tarlatamab as the pivotal trial to begin with until we get more data. But if the data are positive, we may consider progressing this and developing it as a best-in-class regimen. So, it's really improving the baseline treatment of this disease with two really very active mechanisms.

Thanks, Rafael. Yajing?

Yes. Hi, Jonathan. As I mentioned before, our revenue in the next nine months, you're going to expect to see some sequential growth. But for the full year revenue, we are going to continue to experience some short-term pressure. So we are seeing the return to growth in 2027.

And the next question comes from the line of Michael Yee from UBS.

This is Kyle Yang for Michael Yee from UBS. Two for us. So the first question is, for your upcoming data readout for IL-13 and IL-31, what is the expectation for data? And how do you expect the data set in healthy volunteers to derisk the asset? And when do we expect data from moderate to severe atopic dermatitis patients? The second question is that for your data set in frontline small cell lung cancer in the second half, what is the expectation for that? And also what's the data? How do you pick the go-forward regimen in terms of doublet versus triplet?

Thanks, Kyle. Go ahead, Rafael.

Yes. So with the first question in terms of expectations for ZL-1503, the healthy volunteers data, I think, is going to be very useful. We actually have progressed the study quickly with those cohorts. And we would be looking at safety, obviously, pharmacokinetics to evaluate dosing interval, which we expect to be prolonged dosing. Pharmacodynamics such as phospho-STAT and others and antidrug antibody. So, all of this, I think, will inform the basic parameters that will allow us to continue the development of the product. And with regards to what to expect, obviously, it depends on how much data we have on atopic dermatitis, but we should have data on healthy volunteers by the end of the year and at least some of the cohorts with atopic dermatitis. So, our expectation is that we may publish this data before the end of the year. And then with regards to first line we -- the question was what do we consider as go forward. Well, you know that the chemotherapy plus checkpoint inhibitor, which would be the control of our study has a PFS of about five months or so. Our response rate in second line with 1.6 milligrams per kilogram is in the order of 68%. So obviously, there's still room for improvement there. So, we will be looking for higher response rates and also longer PFS than that, that we believe is clinically significant. And we plan to present this data towards the fall or so. And by then, we should have sufficient follow-up to really be able to evaluate that. But we're currently planning to proceed with this study before the end of the year and in discussions with regulators.

Now we're going to take our next question, and it comes from the line of Anupam Rama from JPMorgan.

Just with the recent positive data for povetacicept in IgAN, what are the plans to submit in regional China? And just remind us, is there going to be any bridging work required?

Thanks, Anupam. Okay, Rafael.

Yes. We were very pleased to see the results of the RAINIER study. They're really a good advance for IgAN. The filing of our partner has taken place, and we will discuss with CDE what the regulatory requirements for filing, but we expect that we would be able to proceed because we did include patients from China in the study and the bridging study is not expected to be required. So as our partner, we would discuss with CDE our approach to an accelerated approval with this product.

Now we're going to take our next question. And the question comes from the line of Li Watsek from Cantor.

This is Vin on for Li. So a question about ZL-1503, the bispecific antibody. So it seems like data is going to come in the second half of this year. But there's a lot of bispecific antibody out there in AD. So I would like to know what's your base assumption on the market differentiation for this drug and -- also your -- strategy there. Are you planning to run a Phase II trial or are you potentially going to [form a result]?

Rafael, why don't you address that, and I can make a couple of commercial comments.

Sure. Yes, in terms of differentiation, as I mentioned, I think long-term dosing is important, and we still have to evaluate how often that would be, but we expect that, that would be the case for ZL-1503. And in terms of activity, the key activity is obviously decreasing pruritus because our product inhibits the IL-31 receptor. And so we expect using the rating scale that we would have a meaningful decrease in pruritus that's also occurring early on in the treatment because I think that's really important and differentiating from other products. The same for skin pain, which is something that affects the quality of life of patients. And of course, the main endpoint, which tends to be EASI-75, which you know what the benchmark out there is in the 40% range. So surpassing these numbers would be together with the extended dosing is something that we would consider very positive for us to move forward with Phase II. And as of the question of whether or not we plan to do that, the answer is yes. We plan to do our Phase II study and evaluate these parameters, as I mentioned before.

Yes. And I think just to comment, it's Josh. Obviously, it's a competitive class, but there's lots of room for differentiation, still very undertreated. So I think as Rafael said, what we know about patients is dosing convenience makes a difference, relief on itch and speed of onset are all important things, things that will elucidate over the course of the clinical development program. So we're quite excited about the opportunity here.

[Operator Instructions] And now we're going to take our next question. And the question comes to line of Ziyi Chen from Goldman Sachs.

I got two questions. The first one is on Zoci. We noticed that Amgen has initiated Phase I study for tarlatamab plus Zoci with and without PD-L1 in small cell lung cancer. So could you share a bit more about your thoughts on potential dose levels you're going to explore, particularly considering for tarlatamab, FDA has -- actually has a black box in their label. And what are the potential dose levels you're going to be exploring for Zoci and also for tarlatamab? And also, have you considered to test a sequential use of those two drugs? Or instead, you're going to be more focusing on administrating those two drugs together to patients? And my second question is regarding efgartigimod in China. Could you please comment on the evolving landscape given that now RemeGen's Telitacicept has been also enrolled into NRDL, particularly in the first quarter. Have you seen any of the change to the market dynamics? Thank you.

Rafael, do you want to start on Zoci and then I'll comment on VYVGART?

Sure. Thanks for the question. Yes, the study is actually enrolling now. In terms of the dose levels, we wanted to have a Q3 weekly regimen with both drugs. And the dose of tarlatamab will be fixed. And we will do hopefully a rapid dose escalation with Zoci up to 1.6 mg per kg, which is the go-to dosing that we have for DLLEVATE, our Phase III study in second line. So as I mentioned before, this will be in various clinical settings, including the triplet combination with checkpoint inhibitors, as you mentioned, in frontline and treated patients. So in terms of whether it's sequential versus together -- given the mechanism of action, we want the rapid debulking to be present when the T cell engager is given. So they're given in fast sequence. We're not going to test alternating sequences or other schedules. So I hope that helps.

Thanks, Rafael. And on VYVGART, first, as we mentioned, we're seeing double-digit volume increases in Q1. That's a function of both of new patients continuing to come in and get started and extending duration of therapy. That being said, there's still only about 15% of patients that would qualify for a biologic therapy in gMG are getting it. So I think having additional competition is fine. We don't really see an impact from Teli to any measurable degree in Q1. And again, we would expect as we get through the year that continuing to emphasize getting patients with gMG on to biologic therapy and getting them the benefits of longer-term maintenance is going to help everybody. So -- that's what we're focused on.

[Operator Instructions] There are no further questions for today. I would now like to hand the conference over to your speaker, Samantha Du, for any closing remarks. Samantha? Please go ahead.

Thank you, operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support and look forward to updating you again after the second quarter of 2026. Operator, you may now disconnect this call. Thank you.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.