ZAI LAB(ZLAB) - 2025 Q2 - Quarterly Report

Special Notes Regarding the Company This section provides important context on forward-looking statements and defines key terms and subsidiaries Forward-Looking Statements This section outlines the inherent uncertainties and risks of forward-looking statements, which are not guarantees - Forward-looking statements are not guarantees of future performance and are subject to inherent uncertainties, risks, and changes in circumstances[11] - Key risk factors include the ability to successfully commercialize products, obtain funding, achieve positive clinical trial results, secure regulatory approvals, manage third-party relationships, ensure manufacturing compliance, protect intellectual property, navigate U.S. and China trade policies, and address economic, political, and legal conditions in mainland China[11][16] Usage of Terms and Subsidiaries This section defines key terms and clarifies that 'the Company' refers to Zai Lab Limited and its consolidated subsidiaries - References to 'Zai Lab,' 'the Company,' 'we,' 'us,' and 'our' refer to Zai Lab Limited and its subsidiaries on a consolidated basis[13] - The company's operating subsidiaries are domiciled in Hong Kong, mainland China, Taiwan, Australia, and the United States[14] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, and cash flows Condensed Consolidated Balance Sheets This table presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :------------------------------- | :--------- | :--------- | | Total current assets | 1,034,062 | 1,050,480 | (16,418) | (1.6)% | | Total assets | 1,164,101 | 1,185,753 | (21,652) | (1.8)% | | Total current liabilities | 331,501 | 299,385 | 32,116 | 10.7% | | Total liabilities | 372,366 | 344,855 | 27,511 | 8.0% | | Total shareholders' equity | 791,735 | 840,898 | (49,163) | (5.8)% | Condensed Consolidated Statements of Operations This table presents the company's financial performance, detailing revenues, expenses, and net loss over specific periods | Metric (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :---------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Total revenues | 109,977 | 100,504 | 9,473 | 9.4% | 216,464 | 187,653 | 28,811 | 15.3% | | Loss from operations | (54,895) | (76,064) | 21,169 | (27.8)% | (111,206) | (146,373) | 35,167 | (24.0)% | | Net loss | (40,727) | (80,277) | 39,550 | (49.3)% | (89,165) | (133,748) | 44,583 | (33.3)% | | Loss per share - basic and diluted | (0.04) | (0.08) | 0.04 | (50.0)% | (0.08) | (0.14) | 0.06 | (42.9)% | Condensed Consolidated Statements of Comprehensive Loss This table presents the company's comprehensive loss, including net loss and other comprehensive income/loss components | Metric (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :---------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Net loss | (40,727) | (80,277) | 39,550 | (49.3)% | (89,165) | (133,748) | 44,583 | (33.3)% | | Foreign currency translation adjustments | (2,955) | 3,605 | (6,560) | (182.0)% | (4,167) | 5,147 | (9,314) | (180.9)% | | Comprehensive loss | (43,682) | (76,672) | 32,990 | (43.0)% | (93,332) | (128,601) | 35,269 | (27.4)% | Condensed Consolidated Statements of Shareholders' Equity This section details changes in shareholders' equity, reflecting net loss, share-based compensation, and other adjustments - Total shareholders' equity decreased from $840.9 million at December 31, 2024, to $791.7 million at June 30, 2025, primarily due to net loss and foreign currency translation adjustments, partially offset by share-based compensation and exercise of share options[25] - Accumulated deficit increased from $(2,453.1) million at December 31, 2024, to $(2,542.2) million at June 30, 2025, reflecting the net loss incurred during the period[25] Condensed Consolidated Statements of Cash Flows This table presents the company's cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity (in thousands $) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :---------------------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Net cash used in operating activities | (92,723) | (132,279) | 39,556 | (29.9)% | | Net cash provided by investing activities | 323,211 | 2,446 | 320,765 | 13113.0% | | Net cash provided by financing activities | 51,990 | 69,870 | (17,880) | (25.6)% | | Net increase (decrease) in cash, cash equivalents and restricted cash | 282,603 | (60,100) | 342,703 | (570.2)% | Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations for financial statement line items, accounting policies, and specific accounts 1. Organization and Principal Activities This note describes Zai Lab Limited as a biopharmaceutical company and its primary geographic markets - Zai Lab Limited is a biopharmaceutical company focused on discovering, developing, and commercializing products for oncology, immunology, neuroscience, and infectious diseases[29] - The company's principal operations and geographic markets are in Greater China and the United States[30] 2. Basis of Presentation and Consolidation and Significant Accounting Policies This note outlines the basis of financial statement preparation, consolidation, and significant accounting policies - The financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim financial reporting, with certain information condensed or omitted[31] - Management uses subjective judgment for estimates in areas such as rebates, R&D expenses, share-based compensation, deferred tax assets, and useful life of intangible assets[34] - The company is evaluating new FASB ASUs (2023-09 and 2024-03) for income tax and expense disaggregation disclosures, with expected adoption in 2025 and 2027, respectively[37][38] 3. Cash and Cash Equivalents This note details the composition and changes in the company's cash and cash equivalents, including currency denominations | Category (in thousands $) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Cash | 730,971 | 448,508 | | Cash equivalents | 1,188 | 1,159 | | Total | 732,159 | 449,667 | - Cash and cash equivalents increased by $282.5 million from December 31, 2024, to June 30, 2025[40] - A significant portion of cash is denominated in US$ ($718.4 million) and RMB ($12.2 million), with RMB conversion subject to Chinese government foreign exchange controls[40][41] 4. Inventories, Net This note provides a breakdown of inventory categories and details inventory write-downs for the period | Category (in thousands $) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Finished goods | 36,534 | 24,063 | | Raw materials | 21,232 | 13,268 | | Work in progress | 3,934 | 2,544 | | Total Inventories, net | 61,700 | 39,875 | - Inventory write-downs were $0.3 million for both the three and six months ended June 30, 2025, a decrease from $0.7 million and $0.8 million respectively in the prior year[42] 5. Property and Equipment, Net This note presents the net carrying amount of property and equipment and associated depreciation expense | Category (in thousands $) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Total Gross Carrying Amount | 88,681 | 85,081 | | Less: accumulated depreciation | (38,521) | (37,120) | | Property and equipment, net | 50,160 | 47,961 | - Depreciation expense was $2.3 million and $4.3 million for the three and six months ended June 30, 2025, respectively[43] 6. Intangible Assets, Net This note details the net carrying value of intangible assets, including commercial products and software | Category (in thousands $) | June 30, 2025 Net Carrying Value | December 31, 2024 Net Carrying Value | | :------------------------ | :------------------------------- | :----------------------------------- | | Commercial products | 55,265 | 54,467 | | Software | 1,254 | 1,560 | | Total | 56,519 | 56,027 | - Amortization expense for intangible assets was $1.5 million and $2.9 million for the three and six months ended June 30, 2025, respectively, an increase from the prior year[46] - The weighted-average remaining amortization period for intangible assets for commercial products is 9.2 years and for software is 2.8 years[46] 7. Revenues This note provides a detailed breakdown of total revenues by type and commercial program | Revenue Type (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :---------------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Product revenue, net | 109,085 | 100,106 | 8,979 | 9.0% | 214,735 | 187,255 | 27,480 | 14.7% | | Collaboration revenue | 892 | 398 | 494 | 124.1% | 1,729 | 398 | 1,331 | 334.4% | | Total revenues | 109,977 | 100,504 | 9,473 | 9.4% | 216,464 | 187,653 | 28,811 | 15.3% | | Commercial Program (Net Revenue in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :---------------------------------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | ZEJULA | 41,042 | 44,999 | (3,957) | (8.8)% | 90,571 | 90,500 | 71 | 0.1% | | VYVGART / VYVGART Hytrulo | 26,497 | 23,190 | 3,307 | 14.3% | 44,602 | 36,352 | 8,250 | 22.7% | | NUZYRA | 14,292 | 12,295 | 1,997 | 16.2% | 29,410 | 22,208 | 7,202 | 32.4% | | OPTUNE | 12,355 | 12,584 | (229) | (1.8)% | 23,718 | 25,064 | (1,346) | (5.4)% | | QINLOCK | 8,536 | 7,038 | 1,498 | 21.3% | 17,045 | 13,131 | 3,914 | 29.8% | | XACDURO | 4,622 | — | 4,622 | NM | 5,739 | — | 5,739 | NM | | AUGTYRO | 1,399 | — | 1,399 | NM | 3,025 | — | 3,025 | NM | | Other | 342 | — | 342 | NM | 625 | — | 625 | NM | | Total product revenue, net | 109,085 | 100,106 | 8,979 | 9.0% | 214,735 | 187,255 | 27,480 | 14.7% | 8. Income Tax This note explains the company's income tax position, including the absence of provision and valuation allowance - No provision for income taxes was accrued due to the company being in a cumulative loss position for the periods presented[50] - A full valuation allowance was recorded against deferred tax assets of all consolidated entities due to their cumulative loss position[51] 9. Loss Per Share This note presents the calculation of basic and diluted loss per share and factors affecting it | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss (in thousands $) | (40,727) | (80,277) | (89,165) | (133,748) | | Weighted-average shares (basic and diluted) | 1,091,933,150 | 975,937,790 | 1,086,413,130 | 974,541,780 | | Net loss per share - basic and diluted | (0.04) | (0.08) | (0.08) | (0.14) | - Share options and non-vested restricted shares were excluded from the calculation of diluted loss per share as their inclusion would have been anti-dilutive due to the company's net loss[52] 10. Borrowings This note details the company's short-term debt arrangements with Chinese financial institutions | Bank (in thousands $) | Weighted-average interest rate per annum | June 30, 2025 | | :----------------------------------- | :------------------------------------- | :------------ | | Bank of China Working Capital Loans | 2.42 % | 48,891 | | SPD Bank Working Capital Loans | 2.80 % | 41,908 | | China Merchant Bank Working Capital Loans | 2.87 % | 34,895 | | Bank of Communications Working Capital Loans | 2.75 % | 41,908 | | Ningbo Bank Discounted Bills | 1.90 % | 6,907 | | Total short-term debt | 2.66 % | 174,509 | - The company has various short-term debt arrangements with Chinese financial institutions totaling $174.5 million as of June 30, 2025, with a weighted-average interest rate of 2.66%[54] - These facilities, including those with Bank of China, SPD Bank, CMB, BOCOM, and Ningbo Bank, support working capital needs in mainland China, typically with one-year terms and varying interest rates[56][57][58][59][60] 11. Other Current Liabilities This note provides a breakdown of other current liabilities and explains the period-over-period changes | Category (in thousands $) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Accrued payroll | 18,004 | 30,198 | | Accrued professional service fee | 3,532 | 5,728 | | Payables for purchase of property and equipment | 2,498 | 449 | | Accrued rebate to distributors | 10,453 | 10,839 | | Tax payables | 4,762 | 5,154 | | Other | 4,802 | 6,352 | | Total | 44,051 | 58,720 | - Total other current liabilities decreased by $14.7 million from December 31, 2024, to June 30, 2025, primarily due to a decrease in accrued payroll[61] 12. Related Party Transactions This note discloses a license agreement with a related party, including upfront and potential future payments - In January 2025, the Company entered a license agreement with Zenas BioPharma (HK) Limited, a related party, for an IGF-1R antibody in Greater China, incurring a $10.0 million upfront fee[62] - Potential future payments under the Zenas agreement include up to $117.0 million in development and sales-based milestones, as well as tiered royalties[62] 13. Share-Based Compensation This note details share-based compensation expense by category and unrecognized compensation expense | Expense Category (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Selling, general and administrative | 11,244 | 10,421 | 21,470 | 21,456 | | Research and development | 5,729 | 8,217 | 11,303 | 15,162 | | Total | 16,973 | 18,638 | 32,773 | 36,618 | - As of June 30, 2025, unrecognized share-based compensation expense was $64.7 million for unvested share options (weighted-average period of 2.52 years) and $75.4 million for unvested restricted shares (weighted-average period of 2.46 years)[65] 14. License and Collaboration Agreements This note reports on upfront fees for license agreements and the absence of new significant agreements or milestone fees - The company recorded $20.0 million in upfront fees for license and collaboration agreements that are not individually significant in the six months ended June 30, 2025[68] - No new significant license or collaboration agreements were entered into, and no milestone fees were incurred under existing significant agreements in the six months ended June 30, 2025[67] 15. Other Income (Expense), Net This note details the components of other income (expense), net, and explains period-over-period changes | Category (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :------------------------ | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Government grants | 3,850 | 534 | 3,316 | 621.0% | 3,866 | 3,325 | 541 | 16.3% | | Loss on equity investments | — | (10,035) | 10,035 | (100.0)% | (1,912) | (5,147) | 3,235 | (62.9)% | | Other miscellaneous | (100) | 558 | (658) | (117.9)% | 1,599 | 2,240 | (641) | (28.6)% | | Total | 3,750 | (8,943) | 12,693 | (142.0)% | 3,553 | 418 | 3,135 | 750.0% | - Other income, net, significantly improved in Q2 2025 and H1 2025, primarily driven by higher government grants and a decreased loss on equity investments[69][114] 16. Restricted Net Assets This note explains restrictions on distributions from Chinese subsidiaries due to statutory reserve requirements - Chinese laws and regulations restrict the company's ability to receive distributions from its Chinese subsidiaries, requiring statutory reserves of at least 10% of annual after-tax profit until 50% of registered capital is reached[70][71] - No appropriation to statutory reserves was made in the three and six months ended June 30, 2025 and 2024, due to substantial losses in the Chinese subsidiaries[72] - Amounts restricted, including the paid-in capital of Chinese subsidiaries, totaled $506.0 million as of June 30, 2025, and December 31, 2024[73] 17. Commitments and Contingencies This note discloses purchase commitments related to manufacturing and capital expenditures, and legal proceedings - As of June 30, 2025, the company had $1.1 million in purchase commitments related to commercial manufacturing development activities and capital expenditures, expected to be incurred within one year[74] - The company is not currently a party to any material legal proceedings[75] 18. Segment Information This note clarifies that the company operates as a single segment and provides breakdowns of R&D and SG&A expenses - The company operates as a single operating segment focused on discovering, developing, and commercializing products in oncology, immunology, neuroscience, and infectious disease[77] | R&D Expense Category (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Personnel compensation and related costs | 22,447 | 31,209 | (8,762) | (28.1)% | 46,527 | 59,217 | (12,690) | (21.4)% | | Licensing fees | — | — | — | NM | 19,997 | — | 19,997 | NM | | CROs/CMOs/Investigators expenses | 19,935 | 24,305 | (4,370) | (18.0)% | 29,765 | 44,209 | (14,444) | (32.7)% | | Other costs | 8,232 | 6,111 | 2,121 | 34.7% | 15,054 | 12,844 | 2,210 | 17.2% | | Total research and development expenses | 50,614 | 61,625 | (11,011) | (17.9)% | 111,343 | 116,270 | (4,927) | (4.2)% | | SG&A Expense Category (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :------------------------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Personnel compensation and related costs | 42,679 | 48,279 | (5,600) | (11.6)% | 83,322 | 94,173 | (10,851) | (11.5)% | | Other costs | 28,359 | 31,431 | (3,072) | (9.8)% | 51,138 | 54,731 | (3,593) | (6.6)% | | Total selling, general, and administrative expenses | 71,038 | 79,710 | (8,672) | (10.9)% | 134,460 | 148,904 | (14,444) | (9.7)% | 19. Subsequent Events This note reports on a new revolving credit facility entered into after the reporting period - On August 6, 2025, the company entered into a new revolving credit facility with CMB for up to RMB500.0 million (approximately $69.6 million), replacing its previous RMB250.0 million facility that expired in July 2025[80] - The new credit facility will be available for two years and includes customary representations, warranties, and affirmative and restrictive covenants[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, and future outlook, highlighting revenue drivers and liquidity Overview This overview describes Zai Lab as a global biopharmaceutical company and its financial performance challenges - Zai Lab is a patient-focused, innovative, commercial-stage global biopharmaceutical company with a substantial presence in Greater China and the United States, focusing on oncology, immunology, neuroscience, and infectious disease[82] - The company has seven commercial programs and multiple late-stage product development programs, but has incurred net losses and negative cash flows from operations due to significant investments in R&D and selling, general, and administrative costs[82][83] - Future profitability and positive cash flow depend on successfully marketing commercial products, expanding indications, and developing/commercializing pipeline candidates, with financial results expected to fluctuate[83][84] Recent Developments This section highlights recent product revenue growth and key advancements in the oncology and immunology pipelines - Net product revenue for the second quarter of 2025 increased by 9% year-over-year to $109.1 million, primarily driven by higher sales of VYVGART, XACDURO (launched Q4 2024), and NUZYRA, partially offset by softer sales of ZEJULA due to competitive dynamics[85] - Oncology pipeline highlights include FDA Fast Track designation for ZL-1310 (DLL3 ADC) for ES-SCLC and positive Phase Ia/Ib data, positive Phase III results for bemarituzumab in 1L gastric cancer, positive Phase III PANOVA-3 trial results for Tumor Treating Fields in pancreatic cancer, NMPA acceptance of sNDA for repotrectinib for NTRK+ solid tumors, and new preclinical data for ZL-6201 (LRRC15 ADC) and ZL-1222 (PD-1 / IL-12)[86][87][89] - Immunology/Neuroscience pipeline highlights include FDA approval of VYVGART Hytrulo PFS for self-injection in gMG and CIDP, and new preclinical data for ZL-1503 (IL-13 / IL-31R) for atopic dermatitis[88][90] Factors Affecting Our Results of Operations This section discusses key factors influencing financial results, including product revenue, R&D, SG&A, and license agreements - Product revenue is expected to increase through enhanced patient access (NRDL listing, supplemental insurance) and new product launches, while cost of product revenue will rise with increased sales volume[91] - The company is committed to significant and sustained investments in research and development, including internal discovery, clinical/pre-clinical trials, and business development activities, as a primary factor for long-term competitiveness[92] - Selling, general, and administrative expenses are expected to remain significant to support commercial product sales and preparations for future product launches[93] - License and collaboration agreements involve potential future payments, including up to $211.0 million for clinical programs, $366.0 million for other programs, and $1,753.0 million for sales-based milestones as of June 30, 2025[96] Results of Operations This section provides a detailed analysis of the company's revenues, expenses, and net loss for the reporting periods | Metric (in thousands $) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :------------- | | Total revenues | 109,977 | 100,504 | 9,473 | 9.4% | 216,464 | 187,653 | 28,811 | 15.3% | | Cost of product revenue | (43,003) | (35,148) | (7,855) | 22.3% | (81,455) | (68,767) | (12,688) | 18.4% | | Cost of collaboration revenue | (217) | (85) | (132) | 155.3% | (412) | (85) | (327) | 384.7% | | Research and development | (50,614) | (61,625) | 11,011 | (17.9)% | (111,343) | (116,270) | 4,927 | (4.2)% | | Selling, general, and administrative | (71,038) | (79,710) | 8,672 | (10.9)% | (134,460) | (148,904) | 14,444 | (9.7)% | | Loss from operations | (54,895) | (76,064) | 21,169 | (27.8)% | (111,206) | (146,373) | 35,167 | (24.0)% | | Interest income | 8,843 | 9,330 | (487) | (5.2)% | 17,449 | 18,988 | (1,539) | (8.1)% | | Interest expenses | (1,262) | (492) | (770) | 156.5% | (2,449) | (605) | (1,844) | 304.8% | | Foreign currency gains (losses) | 2,837 | (4,108) | 6,945 | (169.1)% | 3,488 | (6,176) | 9,664 | (156.5)% | | Other income (expense), net | 3,750 | (8,943) | 12,693 | (142.0)% | 3,553 | 418 | 3,135 | 750.0% | | Net loss | (40,727) | (80,277) | 39,550 | (49.3)% | (89,165) | (133,748) | 44,583 | (33.3)% | - Net product revenue increased by $9.0 million (9%) in Q2 2025 and $27.5 million (15%) in H1 2025, driven by VYVGART, XACDURO, and NUZYRA, partially offset by ZEJULA[102] - Research and development expenses decreased by $11.0 million (18%) in Q2 2025 and $4.9 million (4%) in H1 2025, primarily due to lower personnel and CROs/CMOs/Investigators expenses, partially offset by increased licensing fees in H1[106] - Selling, general, and administrative expenses decreased by $8.7 million (11%) in Q2 2025 and $14.4 million (10%) in H1 2025, mainly due to reduced personnel compensation and related costs[110] - Foreign currency gains of $2.8 million in Q2 2025 and $3.5 million in H1 2025, compared to losses in prior periods, were primarily driven by the appreciation of the RMB against the U.S. dollar[113] - Net loss significantly decreased by $39.6 million (49%) in Q2 2025 to $40.7 million, and by $44.6 million (33%) in H1 2025 to $89.2 million, reflecting improved operational efficiency and other income[116][117] Critical Accounting Policies and Significant Judgments and Estimates This section outlines critical accounting policies and the significant judgments and estimates involved in financial reporting - Revenue recognition involves significant judgment in estimating rebates based on contracted rates, sales volumes, and distributor inventories, with actual results potentially differing from estimates[121][122] - Research and development expenses are accrued based on estimates of actual services performed by third parties (CROs and CMOs), requiring judgment on service status and contractual milestones[124][125][126] - Share-based compensation fair value is estimated using the Black-Scholes option valuation model, which relies on significant assumptions for volatility, expected term, dividend yield, and risk-free interest rates[127][128] - Income tax accounting requires significant judgment in recognizing deferred tax assets and liabilities and assessing the need for valuation allowances based on future profitability forecasts and tax planning strategies[129][131] Liquidity and Capital Resources This section discusses the company's historical financing, current liquidity, and future capital requirements - The company has historically financed its activities through private placements ($164.6 million) and public offerings ($2,677.8 million net proceeds)[132] - Net cash used in operating activities decreased by $39.6 million to $92.7 million in the six months ended June 30, 2025, compared to $132.3 million in the prior year, primarily due to a decrease in net loss[133][137] - As of June 30, 2025, the company had $832.3 million in cash, cash equivalents, current restricted cash, and short-term investments, which are expected to meet cash requirements for at least the next 12 months[135] - The company has debt arrangements with Chinese financial institutions, with $174.5 million in short-term debt outstanding as of June 30, 2025, providing additional capital capacity[134] - Net cash provided by investing activities increased significantly by $320.8 million in the six months ended June 30, 2025, primarily due to $330.0 million in proceeds from the maturity of short-term investments[138] Recently Issued Accounting Standards This section notes that the company has not adopted any new accounting standards during the reporting period - The company has not adopted any new accounting standards in the three and six months ended June 30, 2025[140] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to market risks, including foreign exchange, credit, and interest rate risks - The company is exposed to foreign exchange risk, particularly due to the RMB not being freely convertible and its value being subject to Chinese government policies and economic conditions[142][144] - Appreciation of the RMB against the U.S. dollar or HK dollar would adversely affect the U.S. dollar or HK dollar amounts received from conversion, while appreciation of the U.S. dollar or HK dollar against the RMB would negatively impact conversion amounts for payments[145] - Credit risk is concentrated in cash and cash equivalents, restricted cash, short-term investments, accounts receivable, and notes receivable, with major financial institutions and the two largest customers accounting for significant portions[147][149][150] - Interest rate risk from short-term debt (subject to fixed and floating rates) is largely offset by exposure in cash, cash equivalents, restricted cash, and short-term investments; a hypothetical 10% change in interest rates is not expected to materially impact financial condition[153][152] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[154] - There were no material changes in the company's internal control over financial reporting during the fiscal quarter ended June 30, 2025[155] PART II. OTHER INFORMATION This part covers other required disclosures, including legal proceedings, risk factors, equity sales, and subsequent events Item 1. Legal Proceedings The company is not currently a party to any material legal or administrative proceedings - The company is not currently a party to any material legal or administrative proceedings[156] Item 1A. Risk Factors There have been no material changes in the company's risk factors from those disclosed in its 2024 Annual Report - There have been no material changes in the company's risk factors from those disclosed in its 2024 Annual Report on Form 10-K[157] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds are reported for the period - No unregistered sales of equity securities or use of proceeds to report[158] Item 3. Defaults Upon Senior Securities No defaults upon senior securities are reported for the period - No defaults upon senior securities to report[159] Item 4. Mine Safety Disclosures No mine safety disclosures are reported for the period - No mine safety disclosures to report[160] Item 5. Other Information This section reports on a new revolving credit facility with CMB and confirms no changes in Rule 10b5-1 trading arrangements - On August 6, 2025, the company secured a new two-year revolving credit facility with CMB for up to RMB500.0 million (approximately $69.6 million), replacing an expired facility[161] - The new credit agreement includes customary representations, warranties, and affirmative and restrictive covenants, requiring prior written consent for certain transactions[161] - No directors or executive officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025[162] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements and officer certifications - Exhibits filed include an amended and restated employment agreement, CEO and CFO certifications, and Inline XBRL documents[164] Signatures The report was signed by Yajing Chen, Chief Financial Officer, on August 7, 2025, as required by the Securities Exchange Act - The report was signed by Yajing Chen, Chief Financial Officer (Principal Financial and Accounting Officer), on August 7, 2025[169]