ZAI LAB(ZLAB) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Zai Lab Limited as of September 30, 2023, and for the three and nine months then ended, including balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with accompanying notes Condensed Consolidated Balance Sheets As of September 30, 2023, total assets decreased to $1.04 billion from $1.22 billion at year-end 2022, primarily due to a reduction in cash and cash equivalents, while total liabilities and shareholders' equity also saw slight declines Condensed Consolidated Balance Sheet Highlights (in thousands of U.S. dollars) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $788,806 | $1,008,470 | | Total current assets | $959,731 | $1,124,336 | | Total assets | $1,043,694 | $1,220,140 | | Liabilities & Equity | | | | Total current liabilities | $124,896 | $139,842 | | Total liabilities | $162,715 | $174,545 | | Total shareholders' equity | $880,979 | $1,045,595 | Condensed Consolidated Statements of Operations For Q3 2023, total revenues increased to $69.2 million, and the net loss significantly narrowed to $69.2 million from $161.2 million year-over-year, driven by higher product revenue, lower R&D expenses, and a foreign currency gain Statement of Operations Summary (in thousands of U.S. dollars) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $69,228 | $56,963 | $200,889 | $150,633 | | Total revenues | $69,228 | $57,540 | $200,889 | $152,439 | | Research and development | $(58,767) | $(99,524) | $(183,920) | $(219,462) | | Loss from operations | $(83,570) | $(128,583) | $(242,592) | $(307,064) | | Foreign currency gain (loss) | $4,852 | $(40,442) | $(26,315) | $(73,052) | | Net loss | $(69,152) | $(161,190) | $(239,191) | $(381,517) | | Loss per share - basic | $(0.07) | $(0.17) | $(0.25) | $(0.40) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities improved to $183.3 million, while net cash used in investing activities shifted to $25.2 million, resulting in an overall decrease of $218.7 million in cash, cash equivalents, and restricted cash Cash Flow Summary (in thousands of U.S. dollars) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(183,261) | $(258,350) | | Net cash (used in) provided by investing activities | $(25,233) | $424,389 | | Net cash used in financing activities | $(6,826) | $(1,531) | | Net (decrease) increase in cash | $(218,675) | $155,376 | Notes to Financial Statements The notes detail accounting policies and financial items, highlighting ZEJULA as the top product revenue contributor, share-based compensation expenses, and milestone payments for SUL-DUR and repotrectinib Net Revenue by Product (Nine Months Ended Sep 30, in thousands of U.S. dollars) | Product | 2023 | 2022 | | :--- | :--- | :--- | | ZEJULA | $127,230 | $102,863 | | Optune | $38,596 | $35,051 | | QINLOCK | $14,535 | $9,123 | | NUZYRA | $15,588 | $3,596 | | VYVGART | $4,940 | — | | Total | $200,889 | $150,633 | - Share-based compensation expense totaled $59.2 million for the nine months ended September 30, 2023, up from $45.7 million in the prior-year period[76] - During Q3 2023, the company paid a $3.0 million development milestone for SUL-DUR and a $5.0 million development milestone for repotrectinib[78] Management's Discussion and Analysis (MD&A) Management discusses the company's financial performance, noting a 33% increase in net product revenue to $200.9 million and a narrowed net loss of $239.2 million for the first nine months of 2023, supported by strong liquidity of $822.2 million in cash and investments Recent Developments Recent developments include the commercial launch of VYVGART in China, positive final overall survival data for ZEJULA, Breakthrough Therapy Designations for repotrectinib and efgartigimod SC, and key executive appointments - Launched VYVGART in September 2023 for adult patients with generalized myasthenia gravis (gMG), making it the company's fifth commercial product[92] - The Center for Drug Evaluation (CDE) of the NMPA granted Breakthrough Therapy Designation (BTD) for repotrectinib for patients with advanced NTRK gene fusion solid tumors[100] - The CDE also granted BTD for subcutaneous efgartigimod for the treatment of chronic inflammatory demyelinating polyneuropathy (CIDP)[105] Results of Operations For Q3 2023, total revenues grew 20% year-over-year to $69.2 million, with the net loss improving by 57% to $69.2 million, driven by increased product revenue, decreased R&D expenses, and reduced foreign currency losses Financial Performance Summary (Nine Months Ended Sep 30, in thousands of U.S. dollars) | Metric | 2023 | 2022 | Change % | | :--- | :--- | :--- | :--- | | Total revenues | $200,889 | $152,439 | 32% | | Research and development | $(183,920) | $(219,462) | (16)% | | Selling, general, and administrative | $(198,982) | $(186,947) | 6% | | Net loss | $(239,191) | $(381,517) | (37)% | - The decrease in R&D expenses for the nine months ended Sep 30, 2023 was primarily due to a $30.9 million decrease in licensing fees and a $11.1 million decrease in CRO/CMO expenses[128] - Foreign currency loss decreased by $46.7 million in the nine months ended Sep 30, 2023, primarily due to decreased remeasurement loss from the depreciation of the RMB against the U.S. dollar[136] Liquidity and Capital Resources As of September 30, 2023, the company maintained a strong liquidity position with $822.2 million in cash, cash equivalents, restricted cash, and short-term investments, sufficient to fund operations for at least the next 12 months - The company held $822.2 million in cash, cash equivalents, restricted cash, and short-term investments as of September 30, 2023[153] - Net cash used in operating activities decreased by $75.1 million to $183.3 million in the nine months ended September 30, 2023, compared to the same period in 2022[155] - Management expects current cash reserves to be sufficient to meet cash requirements for at least the next 12 months[153] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks, primarily foreign exchange risk from RMB fluctuations, credit risk concentrated in cash deposits and accounts receivable, and has not experienced a material impact from inflation to date - The company's primary market risk is foreign exchange risk due to the fluctuation of the RMB against the U.S. dollar, as most operations are in China while financial statements are in U.S. dollars[162] - Credit risk is concentrated in cash held at major financial institutions and accounts receivable. As of September 30, 2023, the two largest customers accounted for approximately 29% of total accounts receivable[167][168] - Inflation has not had a material impact on the company's results of operations[170] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the third quarter of 2023 - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[172] - No material changes were made to the internal control over financial reporting during the fiscal quarter ended September 30, 2023[173] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal or administrative proceedings - As of the report date, the company is not involved in any material legal proceedings[174] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, have been reported - No material changes in risk factors were reported compared to those disclosed in the 2022 Annual Report[175] Other Information On August 12, 2023, Joshua Smiley, the company's President and COO, adopted a Rule 10b5-1 trading plan to purchase up to 15,000 ADSs, set to terminate by May 13, 2024 - The company's President and COO, Joshua Smiley, adopted a Rule 10b5-1 trading plan on August 12, 2023, to purchase up to 15,000 ADSs[179]