Zai Lab Limited (ZLAB) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's Second Quarter 2026 Financial Results Conference Call. 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 the Investor Relations. Please go ahead, ma'am.

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 Dr. Rafael Amado, President and Head of Global Research and Development; and Dr. Yajing Chen, Chief Financial Officer. Dr. Shan Hu, our Chief Business Officer; and Dr. Yu Jo Wang, our operating partner, 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 August 6, 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.

Thanks, Christine. Good morning, and good evening, everyone. Thank you for joining us today. Zai Lab has reached an important inflection point in its evolution from a original business into a global biopharmaceutical company. We built this company by bringing first or best-in-class medicines to patients in China. Today, we are developing our own innovative medicines for patients worldwide with our first U.S. regulatory submission expected next year. The transformation reflects the R&D capabilities we have built. We're conducting global multiple center registrational oncology trials, advancing additional clinical programs across oncology and immunology and advancing our preclinical pipeline into INDs this year. our potential first and best-in-class DL3 ADC demonstrates what Zai Lab is capable of. We advanced it from IND to global pivotal trials in less than 2 years, reflecting the speed and efficiency of the integrated development organization we have built. By the end of this year, we expect to have 3 registrational programs in small cell lung cancer and neuroendocrine carcinoma. We're also evaluating Oi in combination with T cell engagers through collaborations with Amgen and Boehringer Ingelheim. Our second major global opportunity is ZL-1503, a potential first-in-class lung-icotin IL-13L-31 bispecific for atopic dermatitis. We believe it has the potential to bring together multiple attributes in a single asset, robust skin clearance, rapid and durable reduction and longer dosing interval. Later this year, we'll report the program's first human data. At the same time, we continue to strengthen our commercial business. This quarter, we sharpened our focus behind our highest priority brands. Night product revenue grew 11% versus previous quarter, and the business remained commercially profitable. We're setting a strong foundation and expect a return to meaningful year-on-year growth in 2027, followed by the potential for our first U.S. product launch in 2028. Zi Life's evolution into a global biopharmaceutical company is well underway with a growing portfolio of globally developed differentiated medicines and a profitable commercial business. We're confident in the path ahead and the long-term value we can create for shareholders and patients. With that, let me turn the call over to Rafael to further discuss our pipeline in greater detail. Thank you.

Thank you, Samantha. Let me walk you through the pipeline and what to expect this year. Starting with zoci, our DLL3 targeted ADC. Small cell lung cancer is one of the most difficult diseases in oncology, and zoci has demonstrated what we believe is a potential best-in-class ADC profile. In patients who have failed frontline multiple lines of treatment, we're seeing strong responses, including high responses and control of brain metastases. That efficacy with a favorable safety profile positions zoci as a backbone for future combination regimens across lines of therapy. This program is moving fast. Our global registration Phase III in second-line plus small cell lung cancer is expected to complete enrollment in the first half of 2027 with a U.S. accelerated approval submission expected to follow later that year and approval anticipated in 2028. At ESMO in October, we will present combination data evaluating ZOLxi plus PD-L1 with or without chemo in first-line small cell lung cancer or during maintenance. Today's standard of care of IO plus chemo delivers a 60% to 70% response rate, median PFS of about 5 months and grade 3 or higher treatment-related adverse events around 60%. NCCN guidelines recommend 4 cycles of platinum-based chemotherapy. A chemo-sparing regimen could offer better tolerability, allow longer treatment duration compared to systemic chemotherapy and improved control of brain metastases. This is the basis of our Phase III combination strategy with immunotherapy, which we have discussed with regulators. We anticipate initiating the trial in the coming months. And in extrapulmonary neuroendocrine carcinomas where there is no established standard of care in the second line and beyond, zoci demonstrated a confirmed ORR of 38.2%, which is well above the roughly 18% seen with currently used regimens. We're engaging with regulators on a potential approval pathway using extended single-arm data from our ongoing second-line trial with a subsequent approval pathway in first line. So 3 registrational programs underway by year-end. We're also collaborating with Amgen and Boehringer Ingelheim to combine zoci with T cell engagers. A global Phase Ib study with Amgen is already enrolling, including a cohort of untreated small cell lung cancer patients on a triple combination of zoci, IMDELTRA and Imfinzi. And the global Phase Ib/II study with Boehringer Ingelheim in neuroendocrine carcinoma is expected to initiate in the coming months. Beyond SOzi, our next wave of global assets is advancing quickly. ZL-1503 is a long-acting humanized IgG1 bispecific antibody targeting both interleukin-13 and interleukin-31 receptor alpha. It includes YTE amino acid modifications in the ST region that extend serum half-life and support less frequent dosing. Through blocking both pathways at once, ZL-1503 is designed to break the itch scratch inflammation cycle with rapid durable efficacy and less frequent dosing in moderate to severe atopic dermatitis. L-1503 is in the clinic now with first-in-human data in healthy volunteers to be presented in the second half of this year. This data set will include pharmacokinetic data following single dose administration and pharmacodynamic data, including inhibition of AD-related biomarkers such as PSTAT6, TART and CCL26, a cytokine that recruits eosinophils during type 2 inflammation. We will also have an initial read on safety and immunogenicity, including assessment of antidrug antibodies. We're also currently enrolling patients with AD in the multiple ascending dose portion of the trial, and we will share this data at a major medical conference next year. We believe CL-1503 with a potentially differentiated profile can address unmet medical needs in one of the largest markets in immunology globally, and we are moving this program forward rapidly. Beyond its lead indication ,ZL-1503 has the potential to expand into additional IL-13 and IL-31 mediated diseases, creating a broader development opportunity over time. We look forward to sharing updates as the program advances. I would highlight just 2 more programs, ZL-6201, our internally discovered LRRC15 targeting ADC. We are actively enrolling patients in the global Phase I study and expect to complete enrollment in the dose escalation portion with initial data expected in the first half of next year. By year-end, we expect to submit an IND for ZL-1311, a next-generation T-cell engager targeting musin17, a promising target for gastrointestinal cancers. In summary, we have the infrastructure and capacity to advance multiple global programs at different stages of development simultaneously at speed and efficiency and across geographies while also advancing our regional pipeline. We have significant data emerging throughout the year on our most advanced products, and I look forward to sharing it with you in the coming months. And with that, I'll hand it over to Yajing.

Thank you, Rafael. As Samantha and Rafael described, Zai Lab is entering the next phase of its evolution. From a financial perspective, our objective is straightforward, build on our commercially profitable business while investing with discipline behind the innovation that will drive our next stage of growth. In the second quarter, net product revenue grew 11% sequentially to $105.8 million, and the business remained commercially profitable. ZEJULA was steady. [ VIVA ] volumes grew double digits sequentially. ZEJULA demand remains strong despite supply constraints and CarXTs launch is off to an excellent start. In the second half of the year, we expect to further stabilize product sales while laying the foundation for a return to a meaningful growth in 2027. CarXT is expected to be a key driver of that growth as the first new mechanism of action for schizophrenia in decades with efficacy across positive and negative symptoms, no box warming and inclusion in national treatment guidelines, we believe CarXT is well positioned to address a significant unmet need. Early physician interest and positive patient experiences are encouraging, and we are building good momentum ahead of potential NRDL inclusion in 2027. For the VYVGART franchise, we intend to seek NRDL inclusion for VYVGART Hytrulo and are preparing for a gradual transition from IV to subcu. As a result, reported revenue in the second half may not fully reflect underlying demand due to timing of NRDL-related commercial dynamics. Looking ahead to 2027, we are confident in a return to meaningful growth, supported by new product launches, potential NRDL product inclusion and continued demand growth across our key brands. Beyond 2027, we expect our internally developed pipeline to become an increasingly important contributor to both revenue and margins. On expenses, we remain disciplined, prioritizing our highest value programs while improving productivity through streamlining the organization and the use of AI across clinical development, regulatory, commercial and corporate functions. As a result, we expect operating expenses to remain broadly stable through the remainder of the year. We ended the quarter with $717.5 million in cash, providing the financial flexibility to continue investing in the highest value opportunities. Pulling this together, we have a commercially profitable business, disciplined capital allocation and a global innovative pipeline that will increasingly shape the company's future growth and drive substantial value for patients and shareholders alike. With that, I will open it up for questions.

[Operator Instructions] We will now take our first question from the line of Anupam Rama from JPMorgan.

Just looking to ESMO, can you walk us through what you're looking for in the first-line small cell study of ZOSI plus IO plus or minus chemo? Like what's going to be the size and scope of that data set? And how are you defining a win scenario?

Thank you, Anupam. This is Christine. Rafael, could you take that question, please?

Sure. So at ESMO, we expect to present about 60 patients worth of data. This will include doublet and triplet, but most patients will be in the doublet with a checkpoint inhibitor at the highest dose of 1.6 milligrams per kilogram. We have been monitoring that data. We think we'll be fairly mature by the time of ESMO with a median follow-up between 8 or 9 months. So we will be able to report on a meaningful data set by then. In terms of what to look for, I think the benchmark with the checkpoint inhibitor studies have shown responses in the 60% to 70% with chemotherapy and median follow-up -- sorry, progression-free survival of about 5 months. So there's still room for improvement in the about 80% response rate or so and a 50% increase in median PFS would be, I think, clinically meaningful. So those are sort of the parameters that we're looking for. We're obviously at the same time that we're preparing this data set moving forward with operationalizing the study. And it's going to be a chemo-sparing study, not because we saw any DLTs with the triplet, but because we think it's more convenient, and we will be able to give higher dose intensity of Si than chemotherapy does.

And the next question comes from Michael Yee from UBS.

This is Kyle Yang for Michael. Two for us. The first one on the higher level, the company previously guided toward profitability by end of 2025. So how should we think about that? And at what point do you think investors can start to revisit the profitability goal? The second question is on IL-13, IL-31. The atopic dermatitis landscape is getting increasingly competitive. And we recently saw additional investor interest in the space, including a new IPO this week also has that also has an IL-13, IL-31. So how should we think about the differentiation of your asset versus your competitors?

Thank you, Kyle. Yajing, can you please take the one on profitability and Rafael, a question on the 1503 differentiation, please?

All right. Thanks for the question. So I'm really looking at the profitability through the lens of our capital allocation. So we already have a commercially profitable business today. Our local manufacturing is on track for, XACDURO and PXD that will continue to improve our profitability. However, at the same time, we have multiple global competitive programs that we believe have the potential to create substantially greater long-term value. So right now, our responsibility is to invest where the returns justify it. We do maintain a very high bar for every investment decision. So in summary, we are kind of growing revenue with our potential global approval in 2028, which will improve margin and drive operating efficiencies across the organization at the same time. So we believe those factors adding together will naturally lead to the profitability over time and continue to improve the profitability over time as well.

Yes. This is Rafael. I'll just make a few comments about 1503. So the drug, as you know, is designed to have 3 highly desirable attributes. The first one was robust skin clearance. And I think this is through Th2 suppression, but by breaking the cycle of it scratching and inflammation that we see. I think by inhibiting the receptor, the 31 receptor, we should see brisk reduction in pruritus. We also have a molecule that is YTE modified the extended dosing interval that's going to be tested in the current study that is ongoing, both in healthy volunteers and MAD, but we expect that it will be superior to the standards at the moment with every 1 month and dupi every 2 weeks. So we expect to go beyond that. And there are a few agents that actually have the 3 simultaneous attributes. Some of them are preclinical. Some of them are targeting the ligand, some of them are targeting the receptor. We believe that targeting IL-13 ligand and targeting 31 receptor, the YTE modification will result in both better reported outcomes with regards to pruritus, which is really morbid in these patients, but also improvement in inflammation. And also, this is an underpenetrated market where there isn't really a winner takes all, if you will. So I think any improvement in quality of life, dose extension and more importantly, inflammation and patient symptoms will allow for these drugs to have a role in atopic dermatitis. So -- we're also moving very fast with the Phase I study, and we expect to, as we've guided before, present healthy volunteers data this year and then next year, the MAD data in atopic dermatitis. So we are a bit ahead of some of the competitors.

We will now take our next question from Lee Watsek from Cantor.

I have one pipeline and one commercial question. For 1503, the bispecific antibody, just wondering what is the potential dosing profile that you're looking for? And how would the set data later this year inform you on the drug profile? Any early trends on ADA from the MAD cohort? And the second question is on the commercial side. Just at a high level, how do you envision the China business to evolve in the coming quarters? What are the metrics that are most important to you?

Thank you, Lee. Rafael, can you take the question on the dosing profile for 1503 and how the upcoming data will inform on the profile and on ADA. And then Drew, if you can address the commercial question.

Yes. So in the healthy volunteers data, it's a single IV injection, and we have 6 cohorts. We're testing 4 doses. The single injections and the patients are being followed long term. This will inform us mostly on tolerability and PK, including half-life and then the biomarkers that I mentioned in the prepared remarks, including immunogenicity of antidrug antibodies. The MAD has 2 cohorts with 2 doses, also IV, and it's a larger cohort. I think to hone into the dose, we will need to do a bit more experimentation. There's a b study that will compare the IV to the subcu and then we will do more dose experimentation with the subcutaneous dose. We expect that there will be a short induction course followed by a longer maintenance dosing, but it's premature to speculate on the actual dose. So -- and on the question about antibody drug conjugates, obviously, we're looking at this, and we will be reporting on this suffice it to say that the study continues.