Start Time: 08:00 January 1, 0000 8:48 AM ET Zai Lab Limited (NASDAQ:ZLAB) Q1 2022 Earnings Conference Call May 11, 2022, 08:00 AM ET Company Participants Samantha Du - Founder, Chairperson and CEO Billy Cho - CFO Alan Sandler - President, Head of Global Development, Oncology Harald Reinhart - President, Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases Jonathan Wang - Chief Business Development Conference Call Participants Michael Yee - Jefferies Yigal Nochomovitz - Citigroup Anu ...

Financial Performance - Total revenue for Q1 2022 was $46.7 million, up from $20.1 million in Q1 2021, with key product sales including $29.6 million from Zejula, $12.8 million from Epoetin, $3 million from Qianglian, and $700,000 from Nuplazid[28]. - Total revenue for the three months ended March 31, 2022, was $46.724 million, compared to $20.103 million for the same period in 2021, representing a 132.5% increase[38]. - Product revenue for the three months ended March 31, 2022, was $46.095 million, while collaboration revenue was $629,000[38]. - Net loss for Q1 2022 was $82.4 million, reduced from a net loss of $232.9 million in Q1 2021, with a net loss per share of $0.09 compared to $0.26 in the prior year[29]. - Operating loss for the three months ended March 31, 2022, was $79.764 million, compared to an operating loss of $227.092 million for the same period in 2021, showing a significant improvement[38]. - The net loss for the three months ended March 31, 2022, was $82,394 thousand, a significant improvement from a net loss of $232,910 thousand for the same period in 2021[39]. - The total comprehensive loss for the same period was $84,587 thousand, compared to $230,010 thousand in the prior year, indicating a reduction in overall losses[39]. Clinical Development - Zai Lab reported a solid performance in Q1 2022, with a focus on advancing its proprietary pipeline of 11 global rights candidates[2]. - The company plans to submit a new drug application for efgartigimod in mainland China by mid-2022 and initiate a registrational study for bemarituzumab in first-line gastric cancer in the Greater China region[2]. - The company is committed to advancing its clinical pipeline and expects multiple key clinical study results in 2022, enhancing its late-stage collaboration pipeline[2]. - The company plans to initiate a pivotal study for bemarituzumab in late-stage gastric cancer and GEJ cancer in Q4 2022[10]. - The company is collaborating with Amgen on a phase 1b study of bemarituzumab combined with chemotherapy for FGFR2b overexpressing gastric cancer[9]. - The company aims to start a pivotal clinical study for CLN-081 after completing food effect pharmacokinetics research in the second half of 2022[15]. - The company has initiated a phase 1 clinical study of elzovantinib in Greater China, with the first patient enrolled[16]. - Retifanlimab clinical study for MSI-H/dMMR endometrial cancer patient enrollment in Greater China has been completed and closed[17]. - The company plans to submit a new drug application for gMG to the National Medical Products Administration in mid-2022[23]. - ZL-1102, a novel fully human VH antibody fragment targeting IL-17A, is set to initiate a global Phase 2 study for chronic plaque psoriasis in the second half of 2022[23]. - The company plans to submit a new drug application for SUL-DUR to the NMPA in Q4 2022[26]. - The company is in communication with the NMPA regarding the registration of KarXT for schizophrenia in China in mid-2022[25]. Research and Development - R&D expenses for Q1 2022 were $53.9 million, a decrease from $203.9 million in Q1 2021, primarily due to the absence of new licensing upfront payments[28]. - The company expects to provide clinical data updates for the SHIELD-1 study in the second half of 2022[16]. - The company will announce preliminary clinical data from the dose escalation cohort of BLU-945 combined with osimertinib in the SYMPHONY trial in the second half of 2022[18]. - BLU-945 showed early evidence of safety and clinical activity in the SYMPHONY trial for EGFR-driven advanced NSCLC, consistent with preclinical data[18]. - In the SYMPHONY trial, a cohort has been initiated to evaluate BLU-945 in combination with osimertinib for second-line or later treatment of EGFR mutation NSCLC patients[18]. - Efgartigimod demonstrated a higher sustained response rate in ITP patients (21.8%) compared to placebo (5%) in the ADVANCE study, achieving statistical significance (p = 0.0316)[22]. - Efgartigimod's subcutaneous formulation showed non-inferiority to the intravenous formulation in gMG patients, with total IgG levels decreasing from baseline[23]. - The company aims to include Nuplazid's CABP and ABSSSI indications in the national medical insurance catalog in 2022[24]. Market and Commercialization - Zai Lab's commercial team continues to drive significant growth for four marketed products in the Greater China region despite challenges from the COVID-19 pandemic and geopolitical risks[3]. - Cash and cash equivalents, short-term investments, and restricted cash totaled $1.313 billion as of March 31, 2022, down from $1.409 billion as of December 31, 2021[29]. - Cash and cash equivalents as of March 31, 2022, were $846.957 million, down from $964.100 million as of December 31, 2021[36]. - Total assets as of March 31, 2022, were $1.500 billion, compared to $1.610 billion as of December 31, 2021[37]. - Total liabilities as of March 31, 2022, were $192.907 million, down from $230.000 million as of December 31, 2021[36]. - Shareholders' equity as of March 31, 2022, was $1.308 billion, compared to $1.380 billion as of December 31, 2021[37]. - The company appointed Josh Smiley as COO, effective August 2022, bringing over 26 years of biopharmaceutical experience[27]. - The company completed a 1-for-10 reverse stock split effective March 30, 2022, to enhance liquidity and attract more investors[27].

Financial Data and Key Metrics Changes - Product revenues for Q4 2021 were $44 million, compared to $15.1 million in Q4 2020, and for the full year 2021, revenues were $144.1 million, up from $49 million in 2020 [30] - R&D expenses increased to $573.3 million in 2021 from $222.7 million in 2020, primarily due to upfront payments for new licensing agreements and increased clinical trial activities [32] - The net loss for 2021 was $704.5 million, or a loss per share of $7.58, compared to a net loss of $268.9 million, or a loss per share of $3.46 in 2020 [33] Business Line Data and Key Metrics Changes - ZEJULA sales for Q4 2021 were $29.4 million, up from $9.9 million in Q4 2020, and for the full year, sales were $93.6 million compared to $32.2 million in 2020 [31] - Optune sales for Q4 2021 were $11.6 million, up from $5 million in Q4 2020, and for the full year, sales were $38.9 million compared to $16.4 million in 2020 [32] - QINLOCK sales for Q4 2021 were $2.9 million, significantly up from $0.2 million in Q4 2020, and for the full year, sales were $11.6 million compared to $0.4 million in 2020 [32] Market Data and Key Metrics Changes - ZEJULA was included in the NRDL for first-line ovarian cancer maintenance treatment, expected to become a leading PARP inhibitor in China [10] - Optune is covered by 33 municipal or provincial supplemental insurance plans, enhancing its market access [29] - QINLOCK has been covered by 52 supplemental insurance plans since its launch, with a significant patient population in the fourth-line GIST indication [29] Company Strategy and Development Direction - The company aims to expedite bringing medicines to patients by accelerating data results and regulatory filings across its portfolio [11] - Plans to file the NDA for Efgartigimod in China in mid-2022 and initiate a registrational study for Bemarituzumab in Greater China [11] - The company forecasts at least 15 market product approvals in over 30 indications by 2025, with a long-term market potential of $2.5 billion to $3 billion through 2030 [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term market potential of their differentiated portfolio, designed to address significant unmet medical needs [12] - The regulatory environment is expected to remain supportive for innovative drug companies like Zai Lab [12] - Management highlighted the importance of leveraging their leading position in China to accelerate revenue growth through innovation and partnerships [11] Other Important Information - The company achieved proof of concept for ZL-1102, an anti-IL-17A Humabody for chronic plaque psoriasis, and plans to move it into full global development [9] - Efgartigimod received approval in the U.S. for generalized myasthenia gravis, with plans for a BLA filing in China [19] - SUL-DUR, a treatment for serious infections caused by Acinetobacter baumannii, is expected to be filed with regulators in China in Q4 2022 [23] Q&A Session Summary Question: Growth trajectory for ZEJULA in 2022 and beyond - Management expressed excitement about ZEJULA's momentum and the impact of NRDL inclusion for first-line cancer patients, which represents a significant market opportunity [36][37] Question: Impact of price adjustments on ZEJULA - Management acknowledged that price adjustments are common in the industry and that future renegotiations would likely be more modest compared to initial discounts [41][42] Question: Revenue projection of $2.5 billion to $3 billion - Management clarified that this projection includes the current portfolio and is based on a diversified revenue mix with multiple product launches expected [48][49] Question: Plans for additional therapeutic areas - Management indicated a focus on strengthening existing therapeutic areas while remaining open to opportunities in other areas with significant unmet medical needs [51][52] Question: Plans for adagrasib in China - Management confirmed ongoing discussions with regulators in China regarding adagrasib and expressed optimism about its potential approval [56][57] Question: Clarification on Bemarituzumab study plans - Management confirmed plans to initiate a registrational frontline gastric study in China, with details still being finalized [59][60] Question: Gross margin fluctuations in Q4 - Management explained that non-recurring items impacted gross margin, but normalized margins showed improvement [66] Question: Sales performance of Optune and QINLOCK - Management noted that sales fluctuations were due to channel inventory build and COVID-related restrictions, but long-term growth remains robust [80]

Product Portfolio and Development - Zai Ding Pharma has established a product portfolio of 28 products, including 11 internally developed products with global rights and 4 already marketed products[4]. - The company aims to have at least 15 marketed products covering over 30 indications by 2025, leveraging favorable policy environments[7]. - The first non-oncology product, New Zai Le, has been approved, enhancing the company's registration achievements[5]. - The company's four marketed products, including Ze Le and Ai Pu Dun, continue to drive commercialization efforts[5]. - Zai Ding Pharma's leading product portfolio addresses significant unmet medical needs in China, particularly in oncology and autoimmune diseases[4]. - The company has expanded its candidate product pipeline from 4 in 2015 to 28 as of the report date, including 12 in late-stage clinical development[18]. - The company aims to become a leading global biopharmaceutical company focused on developing and commercializing innovative therapies for unmet medical needs[18]. - The company is focused on addressing medical needs in oncology, autoimmune diseases, infectious diseases, and central nervous system disorders[18]. Financial Performance - Total revenue for the fiscal year 2021 reached $144.312 million, a significant increase from $48.958 million in 2020, representing a growth of 195%[14]. - Product revenue net amounted to $144.105 million in 2021, compared to $48.958 million in 2020, indicating a growth of 194%[14]. - The company reported a net loss of $704.471 million for the fiscal year 2021, compared to a net loss of $268.905 million in 2020, which is an increase in losses of 162%[14]. - Cash and cash equivalents, along with restricted cash, totaled $964.903 million in 2021, a substantial increase from $442.859 million in 2020, marking a growth of 118%[13]. - Total assets increased to $1.609956 billion in 2021 from $1.297638 billion in 2020, representing a growth of 24%[13]. - Shareholders' equity rose to $1.379956 billion in 2021, compared to $1.169345 billion in 2020, indicating an increase of 18%[13]. - The company has a strong cash position with total cash and short-term investments amounting to $1.409 billion in 2021, compared to $1.187 billion in 2020, an increase of 18.6%[13]. - The company incurred significant R&D expenses amounting to approximately $573 million, primarily paid to contract research organizations (CROs) and contract manufacturing organizations (CMOs) for outsourced services[23]. Research and Development - The company has made important R&D progress, with ZL-1102 achieving proof of concept for treating chronic plaque psoriasis[5]. - Research and development expenses for 2021 were $573.306 million, up from $222.711 million in 2020, reflecting an increase of 157%[14]. - R&D expenses include costs related to employee wages, patent fees, clinical trials, and materials, with all expenses recognized as incurred if they lack alternative future use[70]. - The company assesses its collaborative arrangements under ASC Topic 808, determining the appropriate recognition method for each component[69]. Strategic Collaborations and Partnerships - The company has established strategic collaborations with leading global biopharmaceutical companies to enhance its product pipeline[18]. - The company has entered into a global exclusive licensing agreement with Crescendo Biologics Ltd., with upfront payments totaling $4,500 and milestone payments of $6,000, plus potential milestone payments up to $298,075[135]. - The company has secured exclusive rights to develop and commercialize multiple products in the Greater China region through various licensing agreements with different partners[137][139][140]. - The company has a collaboration agreement with Regeneron, with an upfront payment of $30,000 and potential milestone payments up to $160,000 based on regulatory and sales milestones[140]. Market Presence and Operations - The company has a significant market presence in Greater China and the United States, focusing on innovative therapies for unmet medical needs in oncology and autoimmune diseases[44]. - The company has built a factory in China to support its operations across the Greater China region and the United States[175]. - The company has opened a new research facility in the San Francisco Bay Area and established a new office in Cambridge, Massachusetts to expand its presence in the U.S.[175]. - Zai Lab's operational subsidiaries include various entities registered in Hong Kong and mainland China, indicating a broad operational footprint in the Greater China region[167]. Risks and Compliance - Zai Lab reported significant operational risks associated with conducting business in mainland China, including potential changes in laws and regulations that could adversely affect the company's market value[169]. - The company is subject to significant legal and operational risks due to the political and economic policies of the Chinese government, which could adversely impact its business and financial performance[169]. - The company must obtain several approvals from relevant Chinese authorities to operate and issue securities to foreign investors[170]. - Compliance with various Chinese laws, including the Data Security Law and Personal Information Protection Law, may pose additional challenges for the company[172]. Stock and Equity - The weighted average shares used to calculate basic and diluted loss per share increased to 92,992,112 in 2021 from 77,667,743 in 2020[14]. - Basic and diluted loss per share for 2021 was $(7.58), compared to $(3.46) in 2020, reflecting a deterioration in per-share performance[14]. - The company has a total of 8,101,559 unexercised stock options as of December 31, 2021, with a weighted average remaining contractual life of 5.98 years[124]. - The company has granted stock options with a weighted average grant date fair value of $20.98, $40.60, and $126.02 for the years 2019, 2020, and 2021, respectively[124][125]. Product Commercialization - Niraparib (Zelboraf) is a PARP 1/2 inhibitor approved for maintenance treatment in adult patients with recurrent epithelial ovarian cancer, tubal cancer, or primary peritoneal cancer after platinum-based chemotherapy, with FDA approval received in March 2017[182]. - The drug has been launched in Hong Kong and Macau for the treatment of platinum-sensitive recurrent high-grade serous ovarian cancer, with regulatory approvals in December 2018 and August 2021 respectively[183]. - Tumor Treating Fields (TTFields) therapy, delivered through the Optune Lua device, is approved for use in combination with temozolomide for newly diagnosed GBM patients and for recurrent GBM patients[185]. - The company has an exclusive licensing agreement with Novocure for the development and commercialization of Optune Lua in the Greater China region[185].

Legal and Regulatory Risks in China - The Chinese legal system's uncertainties may affect the company's ability to enforce contractual rights or tort claims, leading to potential legal and regulatory risks[461] - The Chinese government may intervene in the company's operations, potentially requiring permission to continue business activities, which could adversely affect its financial condition[467] - Changes in Chinese regulations or interpretations regarding corporate structures, such as variable interest entities (VIEs), could negatively affect the value of the company's ADSs or ordinary shares[510] - The Draft Rules proposed by the CSRC may require the company to submit filings for future equity securities offerings to foreign investors, adding regulatory complexity[512] - The M&A Rules in China require offshore special purpose vehicles to obtain CSRC approval before listing securities on overseas stock exchanges[513] - Uncertainty remains regarding the enactment and interpretation of regulatory requirements for overseas securities offerings, which could impact the company's ability to raise capital and repatriate proceeds[518] U.S.-China Relations and Capital Market Risks - The company faces risks from changes in U.S.-China relations, including tariffs, sanctions, and increased scrutiny on companies with significant China-based operations, which could impact its business and capital-raising ability[464] - The SEC has issued statements targeting companies with significant China-based operations, potentially subjecting the company to enhanced review and affecting its ability to raise capital in the U.S.[465] - The company's auditor is not inspected by the PCAOB, which may lead to additional Nasdaq listing criteria, penalties, or potential delisting from U.S. stock markets[470] - The Holding Foreign Companies Accountable Act (HFCA Act) could prohibit the company's securities from trading on U.S. exchanges if its auditor is not inspected by the PCAOB for three consecutive years[473] - Nasdaq has adopted additional listing criteria for companies operating in jurisdictions with restrictive laws, which may apply to the company due to its operations in mainland China and Hong Kong[476] - The Accelerating Holding Foreign Companies Accountable Act (AHFCA Act) could reduce the non-inspection period from three to two years, increasing the risk of delisting for the company[477] - The company is implementing business processes to comply with the HFCA Act, but there is no assurance these measures will be sufficient or successful[478] - Delisting of the company's ADSs could force investors to sell or convert their shares, potentially leading to increased costs or losses[478] - SEC proceedings against China-based accounting firms could impact the company's ability to file compliant financial statements, potentially leading to delisting[481][482][483] Data Security and Privacy Regulations in China - Compliance with China's Data Security Law, Cyber Security Law, and other regulations may entail significant expenses and could materially affect the company's business[484] - The company maintains personally identifiable health information and de-identified health data, which could be deemed "personal information" or "important data" under Chinese regulations[485][486] - China's Data Security Law, effective September 2021, requires data classification and prohibits unauthorized data transfers to foreign entities without government approval[487] - The Cyber Security Law mandates a multi-level protection scheme (MLPS) for network and data security, requiring entities to assess and report their security levels[488] - The company must establish a comprehensive data and network security management system, which could be costly and may not fully mitigate all risks[489] - Data categorized as "important data" requires higher protection levels and may need government approval for cross-border transfers[490] - The Revised CAC Measures, effective February 2022, require cybersecurity reviews for companies with over one million users seeking foreign listings[492] - The Draft Management Regulations propose annual data security assessments for companies seeking foreign listings, with potential significant uncertainty[493] - The PIPL, effective November 2021, imposes strict data privacy and protection requirements, with fines up to RMB 50 million or 5% of annual revenues for serious violations[498] - Data localization requirements under China's national security legal regime mandate stricter controls on personal and health-related data, potentially increasing operational costs and causing business disruptions[506] Biosecurity and Clinical Trial Regulations in China - The Biosecurity Law of China, effective from April 15, 2021, establishes a comprehensive regulatory system for biosecurity-related activities, including human genetic resources (HGR), and grants significant regulatory power to the Ministry of Science and Technology (MOST)[501] - A multinational pharmaceutical company's Chinese subsidiary was banned from submitting clinical trial applications due to illegal transfer of biospecimens, resulting in a temporary halt in new clinical trials in mainland China[502] Financial and Tax Risks - RMB is not freely convertible into foreign currencies, which may limit the ability of Chinese subsidiaries to pay dividends to offshore entities[526] - Chinese regulations require residents of mainland China to register with SAFE for offshore investments, which could restrict capital injections or profit distributions[528] - If classified as a Chinese resident enterprise, the company would be subject to a 25% enterprise income tax (EIT) on its global income[537] - Non-resident enterprise shareholders may be subject to a 10% Chinese withholding tax on gains from the sale of ADSs or ordinary shares[539] - Indirect transfers of equity interests in Chinese resident enterprises may be subject to a 10% income tax on gains if deemed for tax avoidance[540] - The company may face uncertainties and potential tax liabilities related to future private equity financing and share exchange transactions[542] - Failure to comply with Chinese regulations on employee equity incentive plans may result in fines and legal sanctions[543] Operational and Commercial Risks - The company generated net revenue of $144.3 million in 2021, compared to $49.0 million in 2020, primarily from product sales[556] - The company reported a net loss of $704.5 million in 2021, compared to $268.9 million in 2020[556] - The company raised approximately $164.6 million in private equity financing and $2,462.7 million in net proceeds from public offerings as of February 28, 2022[560] - The company's net cash used in operating activities was $549.2 million in 2021, compared to $216.1 million in 2020[560] - The company has four approved, commercialized products: ZEJULA, Optune, QINLOCK, and NUZYRA, which are being marketed in various regions including mainland China, Hong Kong, Macau, and Taiwan[554] - The company expects to continue incurring significant losses as it expands commercialization efforts, clinical trials, and manufacturing facilities[556] - The company's cash and cash equivalents are expected to fund operating expenses and capital expenditures for at least the next twelve months[561] - The company may face challenges in renewing leases for its office and manufacturing facilities, potentially leading to relocation expenses and operational disruptions[553] - The company may be subject to fines ranging from RMB1,000 to RMB10,000 per lease agreement for unregistered leases in mainland China[552] - The company's ability to generate revenue in the near future is highly dependent on the commercial success of its four approved products[566] - Sales of the company's four approved products (ZEJULA, Optune, QINLOCK, NUZYRA) depend on factors such as safety, efficacy, pricing, and market acceptance, which could impact commercial success[569] - The company is building its salesforce in China to commercialize approved products, requiring significant capital and resources[572] - Limited experience in commercializing products, including managing sales teams and obtaining reimbursement, poses risks to successful product launches[573] - The company relies on third-party manufacturers for production, and any disruptions could delay manufacturing and harm operations[576][579] - Plans to build a large-scale manufacturing plant in Suzhou may face delays, impacting long-term manufacturing capacity and financial performance[578] - The company faces challenges in identifying qualified contract manufacturing organizations (CMOs) for scaled production of commercial supplies[577] - Regulatory approval for product candidates is uncertain and may be delayed or denied due to clinical trial results, manufacturing processes, or regulatory changes[589][591] - The company's limited operating history and lack of experience in large-scale clinical trials and commercialization increase risks and uncertainties[584][585] - Success depends on completing development, obtaining regulatory approval, and commercializing product candidates in a timely manner[588] - The company competes with well-funded pharmaceutical and biotechnology companies for marketing and sales personnel, which could impact commercialization efforts[574] - Regulatory approval processes vary significantly across countries, and obtaining approval in one country does not guarantee approval in others, such as mainland China, where additional clinical trials may be required[592] - The company may allocate limited resources to specific products or indications, potentially missing more profitable opportunities due to financial and managerial constraints[593] - The company's products and product candidates are subject to extensive regulation, and there is no assurance of additional regulatory approvals or successful commercialization[595] - Obtaining regulatory approvals in Greater China, the United States, and other countries is expensive, time-consuming, and subject to delays due to policy changes or additional requirements[596] - Even if approved, regulatory authorities may impose limitations, require costly post-marketing trials, or restrict labeling claims, potentially harming commercial prospects[597] - The market for the company's products may be limited to patients who have failed prior treatments, and the addressable patient population could be smaller than estimated[598][599] - The company's revenue and profitability could be adversely affected if market opportunities are smaller than estimated or if approvals are based on narrower patient population definitions[601] - The pharmaceutical industry in Greater China is highly regulated, and changes in laws or regulations could impact the approval and commercialization of the company's products[605] - The company faces significant competition from larger pharmaceutical and biotechnology companies with greater resources, which could impact its ability to commercialize products[615] - Clinical development is a lengthy, expensive, and uncertain process, with no guarantee that product candidates will prove effective, safe, or receive regulatory approval[618][619] - Clinical trials may face delays or termination due to regulatory, safety, or enrollment issues, potentially increasing costs and delaying product commercialization[623][624][626][628][629] - Patient enrollment challenges, particularly for genomically defined diseases, could significantly delay or halt clinical trials[629][631] - Undesirable side effects from products or product candidates could lead to trial suspension, regulatory delays, or more restrictive labeling[632][633][635] - Post-approval regulatory requirements, including ongoing safety monitoring and compliance, may increase costs and limit product marketing[642][643] - Category 1 drug designation in China may not guarantee faster development or approval, and regulatory processes remain unpredictable[638][640][641] - Competitor clinical trials may reduce patient enrollment for the company's trials, further delaying progress[631] - Supply or quality issues with clinical trial materials could disrupt trials and increase costs[623] - Regulatory authorities may impose additional requirements or restrictions, such as post-marketing studies or risk management plans[636][643] - Failure to comply with regulatory requirements could result in fines, product recalls, or market withdrawal[643] - Negative or inconclusive clinical trial results may require additional trials or lead to program abandonment[623][627] Pricing and Reimbursement Risks in China - The company may face significant price reductions for drugs included in China's National Reimbursable Drug List (NRDL), with average price reductions of 60% for 70 drugs in 2019, 50.64% in 2020, and 61.71% in 2021[657] - ZEJULA's inclusion in the NRDL in December 2020 led to significant price decreases, potentially negatively impacting revenue[657] - The company may need to reduce prices and negotiate reimbursement ratios with provincial healthcare security administrations in China upon regulatory approval[658] - Revenue from oncology-based products in China is expected to be largely self-paid by patients, which may reduce demand[658] Strategic Collaborations and Partnerships - The company entered into a strategic collaboration with argenx BV in January 2021, obtaining an exclusive license for efgartigimod in Greater China in exchange for cash and ordinary shares[652] - Future partnerships, acquisitions, or investments may dilute shareholders, increase debt, or incur large write-offs[651] - The company may explore licensing or collaboration opportunities outside Greater China, exposing it to additional risks in international markets[649] International Market Risks - The company faces risks in international markets, including currency fluctuations, regulatory changes, and compliance with anti-bribery laws[649] - Changes in U.S. and international trade policies, particularly with China, may adversely impact the company's business and operating results[547] - Investments in the U.S. may be subject to CFIUS review, potentially delaying or blocking transactions[545] Human Resources and Organizational Risks - The loss of key personnel could impede research, development, and commercialization objectives[646] - The company expects significant growth in employees and operations, which may lead to increased costs and management challenges[647] Manufacturing and Supply Chain Risks - Manufacturing facilities in mainland China may face challenges meeting FDA, NMPA, and EMA standards, potentially delaying product approvals[532] - Local governments in mainland China provide financial incentives to the company's subsidiaries, but these incentives are discretionary and subject to change[533] - Government grants and subsidies recognized in the income statement for 2021 and 2020 were $4.1 million and $7.3 million, respectively[535]

Financial Data and Key Metrics Changes - Revenues for Q3 2021 were $43.1 million, up from $14.7 million in Q3 2020, representing a growth of 194% year-over-year [37] - Year-to-date revenues for 2021 reached $100.1 million, compared to $33.9 million for the same period in 2020, indicating a growth of 195% [37] - Net loss for Q3 2021 was $96.4 million, compared to a net loss of $63.7 million in Q3 2020, with a loss per share of $1.01 versus $0.84 in the prior year [39] Business Line Data and Key Metrics Changes - ZEJULA sales for Q3 2021 were $28.2 million, up from $8.5 million in Q3 2020, marking a 232% increase [38] - OPTUNE sales for Q3 2021 were $10.7 million, compared to $6 million in Q3 2020, reflecting an increase of 78% [38] - QINLOCK sales for Q3 2021 were $4.3 million, compared to $0 in Q3 2020, as it was launched in May 2021 [38] Market Data and Key Metrics Changes - ZEJULA was listed in nearly 1,100 hospitals in China as of September 30, 2021, following its inclusion in the NRDL [33] - The annual incidence of lung cancer in China exceeds 800,000 cases, with non-small cell lung cancer accounting for approximately 85% [14] - The target population for dementia-related psychosis in China is about 2 million patients, highlighting a significant market opportunity for KarXT [17] Company Strategy and Development Direction - The company aims to expand its product portfolio by establishing partnerships for three new potentially first-in-class products, including two lung cancer compounds and a neuroscience asset [9][10] - Zai Lab is focused on building a strong oncology pipeline, with 28 globally innovative assets, including 13 in late-stage development [13] - The company plans to leverage its existing infrastructure to create synergies in the neuroscience market, following the collaboration with Karuna Therapeutics [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for accelerated regulatory approval for efgartigimod in China, with an expected NDA filing in the first half of 2022 [10][31] - The company anticipates reaching significant milestones in Q4 2021 and 2022, which are expected to unlock considerable value [13] - Management highlighted the importance of the oncology pipeline and the potential for first-in-class and best-in-class products to address unmet medical needs [25] Other Important Information - The company achieved clinical proof-of-concept for ZL-1102, a novel treatment for plaque psoriasis, which is expected to advance into full development [11][29] - Zai Lab is preparing to file for regulatory approval for sulbactam-durlobactam in China, targeting serious infections caused by Acinetobacter baumannii [27] - The company has a strong patent position for niraparib, which is expected to maintain its market position even with potential generic competition [65] Q&A Session Summary Question: Comments on the Karuna transaction and synergy in neurology - Management discussed the adjacency of the neuroscience market to their existing operations and the limited sales team required for commercialization [44][46] Question: Confidence level regarding efgartigimod regulatory discussions - Management expressed optimism about the potential for accelerated filing based on discussions with regulatory authorities [47][48] Question: ZEJULA's current market share and sales distribution - Management refrained from providing specific market share figures but indicated a positive trend in market penetration and sales across hospital tiers [49][50] Question: Plans for internal research in neurology - Management confirmed plans to build out internal research capabilities in neuroscience while maintaining focus on oncology and autoimmune diseases [53][55] Question: Strategy following the INTRIGUE study results - Management emphasized the strength of their GI cancer portfolio and plans to evaluate data for potential combinatorial approaches [57] Question: Progress of the OPTUNE LUNAR study - Management indicated that the study is ongoing and that data readout is anticipated in 2022 [60][61] Question: Patent landscape for Lynparza and potential generics - Management highlighted a strong patent position for niraparib and expressed confidence in maintaining market dominance despite potential generic competition [65][66]

Financial Data and Key Metrics Changes - Revenues for Q2 2021 were $36.9 million, up from $11 million in Q2 2020, and year-to-date revenues were $57 million compared to $19.2 million in the same period last year [28] - ZEJULA sales for Q2 2021 were $23.4 million, up from $7.5 million in Q2 2020, and year-to-date sales were $36 million compared to $13.8 million last year [28] - Optune sales for Q2 2021 were $9.5 million, up from $3.5 million in Q2 2020, and year-to-date sales were $16.6 million compared to $5.4 million last year [28] - QINLOCK generated $4 million in revenue for the quarter after its launch on May 20, 2021 [28] - Research and development expenses increased to $142.2 million in Q2 2021 from $68.3 million in Q2 2020, primarily due to strategic partnerships and increased clinical trial activities [29] - Selling, general and administrative expenses rose to $54.4 million in Q2 2021 from $23.8 million in Q2 2020, driven by increased commercial headcount and activities [30] - The net loss for Q2 2021 was $153.3 million, compared to a net loss of $88.6 million in Q2 2020 [30] - Cash and cash equivalents totaled $1.77 billion as of June 30, 2021, compared to $1.19 billion at the end of 2020 [30] Business Line Data and Key Metrics Changes - ZEJULA has been listed in over 800 hospitals in China, representing a more than sevenfold increase since the NRDL implementation in March 2021 [15] - The launch of QINLOCK in China was completed in record time, with initial performance encouraging [18] - Optune is the first innovative medical device supported by commercial health insurance in China, with extensive physician education campaigns conducted [17] Market Data and Key Metrics Changes - Zai Lab has 25 globally innovative assets in its pipeline, with 12 in late-stage development and 3 having received FDA breakthrough therapy designation [10] - The company has entered into strategic collaborations with Mirati, MacroGenics, and Schrödinger to enhance its pipeline and market position [9][25] Company Strategy and Development Direction - Zai Lab aims to build a leading global biopharmaceutical company with a strong foundation in both China and the U.S., focusing on innovative medicines to address unmet medical needs [13] - The company plans to expand its presence in the U.S. with a new clinical development and business facility in Cambridge, Massachusetts [12] - Zai Lab is committed to leveraging its scale and operating excellence to expand its pipeline through strategic partnerships and internal R&D [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory of Zai Lab, citing numerous upcoming milestones and regulatory approvals expected in 2021 [11] - The company believes it is well-positioned to capture growth opportunities in the biopharmaceutical sector, particularly in oncology and autoimmune diseases [13] - Management highlighted the importance of innovation and differentiation in the Chinese biotech industry, emphasizing ongoing government support for the sector [49] Other Important Information - Zai Lab plans to hold an R&D Day on September 22 to provide a comprehensive overview of its pipelines and growth potential [12] - The company has made significant investments in R&D and commercial operations, reflecting its commitment to long-term growth [30] Q&A Session Summary Question: Focus on Business Development Efforts - Management confirmed that Zai Lab will continue to seek globally first-in-class assets while also exploring transformative deals beyond existing therapeutic areas [35] Question: Combination Strategies within Oncology Portfolio - Management indicated that there are opportunities for combination trials, particularly in the gastric and lung cancer franchises, leveraging the broad number of assets in the portfolio [38] Question: Strategic Implications of Recent Collaborations - Management emphasized that collaborations, such as with Schrödinger, are aimed at enhancing internal discovery capabilities while continuing to pursue unmet medical needs [43][44] Question: Regulatory Landscape and Market Position - Management reassured investors about the stability of Zai Lab amidst regulatory changes in China, highlighting the company's focus on innovation and compliance with international standards [49][56] Question: Competitive Landscape for Tumor Treating Fields - Management acknowledged the emergence of local competitors but expressed confidence in Zai Lab's established position and ongoing clinical trials [71]

Financial Performance - Total revenue for the six months ended June 30, 2021, was $57.038 million, a significant increase from $19.213 million in the same period of 2020, representing a growth of approximately 197%[16]. - The net loss for the six months ended June 30, 2021, was $396.234 million, compared to a net loss of $128.617 million for the same period in 2020, indicating a deterioration in financial performance[16]. - The company reported a basic and diluted loss per share of $4.37 for the first half of 2021, compared to a loss of $1.74 per share in the same period of 2020[16]. - The company incurred a net loss attributable to ordinary shareholders of $163.324 million for the six months ended June 30, 2021, compared to a net loss of $80.629 million for the same period in 2020[94]. - The net loss attributable to common shareholders was $396.2 million for the six months ended June 30, 2021, compared to a net loss of $128.6 million for the same period in 2020[112]. Research and Development - Research and development expenses for the first half of 2021 were $346.076 million, compared to $102.049 million in the prior year, reflecting a year-over-year increase of about 239%[16]. - The company is focused on expanding its research and development efforts to enhance its core products and pipeline, indicating a strategic emphasis on innovation and market growth[16]. - The company is dedicated to developing and commercializing therapies for unmet medical needs, particularly in oncology, autoimmune diseases, and infectious diseases[35]. - The company has twelve candidate products in late-stage clinical development as of June 30, 2021, in both China and the United States, with multiple other candidates in clinical and preclinical development[88]. - Total R&D expenses for the three months ended June 30, 2021, amounted to $142.2 million, a significant increase from $68.3 million for the same period in 2020[98]. Cash and Liquidity - Cash and cash equivalents as of June 30, 2021, amounted to $1.767 billion, a substantial increase from $442.116 million at the end of 2020[15]. - The company raised $818,874 thousand from the public offering, compared to $281,295 thousand in the previous year, reflecting strong investor interest[34]. - The net cash used in operating activities for the six months ended June 30, 2021, was $235.3 million, compared to $92.3 million for the same period in 2020, indicating an increase in cash outflow[120]. - The company had cash and cash equivalents, along with restricted cash, totaling $1,767.3 million as of June 30, 2021, sufficient to cover operational and capital expenditure needs for at least the next 12 months[119]. - The net cash provided by financing activities for the six months ended June 30, 2021, was $820.9 million, compared to $281.5 million in the same period of 2020, reflecting increased financing efforts[120]. Market and Product Development - The company has three commercialized products approved for sale in one or more regions of Greater China as of August 9, 2021[21]. - There are twelve projects in late-stage development, indicating a strong pipeline for future growth[21]. - The company has a significant market share in both Greater China and the United States[21]. - The company is collaborating on the development of bispecific antibodies based on CD3 or CD47 with MacroGenics, contributing intellectual property to the partnership[66]. - The company is preparing to submit a marketing authorization application for Optune Lua for treating unresectable, locally advanced, or metastatic malignant pleural mesothelioma[82]. Regulatory and Compliance - The company has received exemptions from strict compliance with certain corporate governance regulations under the Hong Kong Listing Rules[17]. - The company is subject to new regulatory frameworks, including the implementation of National Order No. 739, which increases compliance responsibilities for market authorization holders[83]. - The SEC has increased scrutiny on companies with significant operations in China, which may affect the company's ability to raise capital effectively in the U.S.[137]. - Compliance with China's new data security laws and regulations may incur substantial costs and significantly impact the company's operations[138]. - The company is not currently involved in any significant legal or administrative proceedings that could materially affect its financial condition or operating performance[135]. Strategic Partnerships - The company has entered into a collaboration and licensing agreement with GSK, involving upfront payments of $15,000 and potential milestone payments totaling up to $36,000[65]. - The company has also established a collaboration agreement with MacroGenics for the development and commercialization of certain products in the Greater China region[65]. - The company entered into a collaboration and licensing agreement with Mirati for the exclusive commercialization of the small molecule KRASG12C inhibitor adagrasib in Greater China[80]. - The company has exclusive rights to develop and commercialize multiple products in the Greater China region, including those from MacroGenics, Deciphera, and Turning Point[66][67][68]. - The company has paid Turning Point an upfront fee of $25,000 and milestone payments totaling $3,000, with potential payments up to $146,000 for development and regulatory milestones[68]. Operational Challenges - The company faces potential risks from changing U.S.-China relations, which could adversely impact business operations, financial performance, and the market price of its common stock[136]. - The company is aware of the risks associated with adverse safety events that could damage its reputation or financial standing[146]. - The company is monitoring the impact of COVID-19 on its operations and the potential for ongoing effects from the pandemic[146]. - The company faces challenges in navigating the evolving regulatory landscape in China, which may lead to increased operational risks and costs[145]. - The company anticipates needing additional funding to achieve its R&D goals, although current cash reserves are expected to meet operational needs for the next year[119].