Zai Lab Ltd Q3 FY2021 Earnings Call

Hello, ladies and gentlemen. Thank you for standing by and welcome to Zai Lab’s Third Quarter 2021 Financial Results Conference Call. As a reminder, today’s call is being recorded. It is now my pleasure to turn the floor over to Mr. Billy Cho, Chief Financial Officer of Zai Lab, who will make introductory comments.

Thank you, operator. Good morning and welcome everyone. Zai Lab recently issued a press release providing the details of the company’s financial results for the third quarter ended September 30, 2021, as well as product highlights and corporate updates. The press release is available in the Investor Relations section of the company’s corporate website at ir.zailaboratory.com. Today’s call will be led by Dr. Samantha Du, Zai Lab’s Founder, Chairperson and Chief Executive Officer. She will be joined by Jonathan Wang, Head of Business Development, to discuss our recent collaborations for three new potentially transformative medicines; Dr. Alan Sandler, President and Head of Global Development, Oncology, who will discuss the balances with our oncology product candidate; Dr. Harald Reinhart, CMO, Autoimmune and Infectious Diseases, who will speak about the progress we have made in two therapeutic areas; Tao Fu, Chief Strategy Officer, who will discuss the performance of our market products; and I will conclude with comments on our financial results in the quarter. We will all be available to answer questions during the Q&A portion of the call. As a reminder, during today’s call, Zai Lab will be making certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our business plans and objectives and timing and success of our clinical trials, regulatory applications, and commercial launches. These forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. I refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today. At this time, it is my pleasure to turn the call over to Zai Lab’s Founder, Chairperson and Chief Executive Officer, Dr. Samantha Du.

Thank you, Billy. Hello, everyone and thank you all for joining us. On this call, I will discuss highlights from our third quarter, including two exciting new deals we announced yesterday and give you the latest update on what we expect to accomplish in the fourth quarter and beyond. We continue to deliver strong growth and performance across our entire business. We made important advances across our innovative portfolio, which we continue to differentiate in terms of its depth and breadth. I am very pleased to share with you that we expanded our product portfolio, both vertically and horizontally by establishing partnerships for three new potentially first-in-class and/or best-in-class products. Our agreement with Blueprint Medicines for two promising lung cancer compounds, BLU-945 and BLU-701, present opportunities to further expand our world-class lung cancer franchise. Our deal with Karuna Therapeutics allows us to enter a whole new therapeutic area, neuroscience, with an exciting anchor asset, KarXT. Jonathan Wang will provide additional details about this product. In the third quarter of 2021, Zai Lab made significant progress across all fronts: R&D, BD, regulatory and commercial. We continue to generate strong revenue growth from ZEJULA, OPTUNE and QINLOCK. We had a positive meeting with NMPA on efgartigimod, which suggests the potential for an accelerated pathway for regulatory approval for gMG in China. Subject to the FDA approval and further discussion with NMPA, we expect to file the NDA in China in the first half of 2022. We announced exciting data from the ATTACK clinical trial for sulbactam-durlobactam and will now proceed to prepare for regulatory filing. We achieved clinical proof-of-concept for ZL-1102, our IL-17A novel very high antibody fragment for topical treatment of mild to moderate plaque psoriasis. Demonstrating proof-of-concept for ZL-1102 was an important milestone for Zai Lab in our efforts to discover and develop a pipeline of internally developed products with global rights and to expand to as many indications as possible worldwide. Several of our innovative product candidates have exciting data updates at recent medical meetings. Alan, Harald, and Tao will elaborate on those positive elements in a few minutes. We continue to expect approval of NUZYRA for community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections by the NMPA in the fourth quarter. We are making progress in preparing regulatory filings for tumor treating fields in mesothelioma and margetuximab in breast cancer. We expect to enroll patients in China for numerous global clinical trials over the next several quarters. We now have 28 globally innovative assets in our pipeline and the quality, depth and breadth of our pipeline continues to grow from strength to strength, with 13 products in late-stage development, of which five have already been approved in the U.S. and four have received FDA breakthrough therapy designation. In addition, our growing pipeline includes 11 early-stage programs with worldwide rights, including three in global clinical trials and one that achieved proof-of-concept and is advancing into full development. We have had a very productive year so far for 2021. We expect our fourth quarter and 2022 to yield milestones that unlock significant value in our business. With that, I will now ask Jonathan to speak about our two collaborations.

Thank you, Samantha. As Samantha mentioned, yesterday, we announced two strategic collaborations that further strengthen and broaden our pipeline. Our agreement with Blueprint on the two next-generation EGFR inhibitors, BLU-945 and BLU-701, will significantly strengthen our established lung cancer franchise and precision medicine portfolio, one of our most important focus areas, where we have multiple late-stage assets that are complementary with each other. You will recall that lung cancer is the most commonly diagnosed cancer type and the leading cause of cancer death in China. The annual incidence of lung cancer in China is more than 800,000 cases, of which non-small cell lung cancer accounts for approximately 85%. EGFR mutations are more common in China than in the United States, occurring in 40% to 50% of non-small cell lung cancer patients here. These two compounds target the largest subpopulation in lung cancer for China. Third-generation EGFR TKIs, such as elzovantinib, are commonly prescribed and have emerged as the standard of care for the first-line setting. However, resistance inevitably emerges, leading to disease progression. There are no approved therapies for patients with disease progression following third-generation EGFR treatment. These two compounds from Blueprint are potentially first and/or best-in-class fourth-generation EGFR inhibitors. Together with our other lung cancer products, this will enable Zai to cover nearly all the different patient populations for this deadly disease. BLU-945 is a potential first-in-class inhibitor of triple mutant EGFR harboring either deactivating L858R or exon 19 deletion mutations, combined with the acquired T790M and C797S mutations. It is potent and has demonstrated high wild-type EGFR selectivity to enable its use in combination, and it has shown antitumor activity, both alone and in combination with osi pre-clinically. It entered a Phase 1/2 clinical trial earlier this year. BLU-701 is a selective EGFR double mutant inhibitor, providing potential best-in-class coverage of activating EGFR mutations, plus coverage of the major on-target resistance mutation for osi, which is the C797S mutation. It is also highly potent and penetrates the blood-brain barrier, which is important because in EGFR mutant non-small cell lung cancer patients with baseline brain metastasis, up to 40% of disease progression involves CNS metastasis. BLU-701 is expected to begin Phase 1 clinical trials before the end of the year. The development strategy for these two compounds is either as monotherapy or in combination together or with other agents to overcome or prevent on-target resistance across multiple lines of treatment. In addition, this collaboration provides an opportunity to combine BLU-945 or BLU-701 with other Zai Lab lung cancer drug candidates to address off-target resistance mutations. Yesterday, we also announced an exciting collaboration with Karuna to exclusively develop and commercialize KarXT for schizophrenia and dementia-related psychosis in Greater China. We already have several products in urology, including efgartigimod. So this is an adjacent expansion for Zai, and KarXT can leverage our existing infrastructure to create synergies. Just as efgartigimod gave Zai Lab an anchor asset in autoimmune disorders, we believe KarXT will do the same for us in neuroscience. It is a late-stage asset with first-in-class potential in a disease area with a large patient population and significant unmet medical needs. There are an estimated 8 million schizophrenia patients in China, and the target population for dementia-related psychosis in China is about 2 million patients. KarXT is a Phase 3 asset with strong Phase 2 data and significant differentiation from existing treatments. In the Phase 2 EMERGENT-1 clinical trial, it showed good efficacy in PANSS scores, particularly in negative symptoms of schizophrenia, such as apathy, lethargy, lack of pleasure, reduced speech and withdrawal. It also was well tolerated and demonstrated a favorable safety profile compared to existing therapies. Overall, these two collaborations vertically and horizontally expanded our pipeline, and we look forward to bringing in more deals for innovative and differentiated products, such as these. And now I will turn the floor over to Dr. Sandler.

Thank you, Jonathan. We and our partners had several encouraging data updates for our oncology product candidates in the third quarter, and we anticipate further progress in the fourth quarter. Our partner, Mirati, presented exciting data on adagrasib in colorectal cancer and non-small cell lung cancer at ESMO. In the Phase 2 KRYSTAL-1 trial in patients harboring the KRAS G12C mutation for the adagrasib monotherapy arm, Mirati reported a response rate of 22% and a disease control rate of 87% in 45 colorectal cancer patients treated with single-agent adagrasib, who received at least two prior lines of systemic anticancer therapies. In 28 colorectal cancer patients treated with at least two prior lines of systemic anticancer therapies who received the combination of adagrasib and cetuximab, they reported a response rate of 43% and a disease control rate of 100%. In the lung cancer portion of KRYSTAL-1, which is potentially registration enabling, Mirati reported an objective response rate of 43% and a disease control rate of 80% for adagrasib monotherapy while demonstrating a safety and tolerability profile consistent with previously reported findings for adagrasib in non-small cell lung cancer patients. Importantly, 98.3% of patients received adagrasib following treatment with immunotherapy and chemotherapy. Adagrasib has the potential to be a first-in-class and best-in-class KRAS G12C inhibitor in China. We plan to join global Phase 3 studies in second-line plus non-small cell lung cancer and second-line colorectal cancer in the first half of 2022. Moving to margetuximab, its bridging study of the compound in combination with chemotherapy in advanced previously treated HER2-positive breast cancer met its primary endpoint of median progression-free survival, as defined by the achievement of at least 50% of the efficacy of margetuximab plus chemotherapy in the SOPHIA study. The safety profile of margetuximab plus chemotherapy was acceptable and consistent with that seen in the SOPHIA trial. Based on these positive results, Zai Lab expects to file a BLA in China for this indication around year-end. Our partner, Turning Point, provided positive data updates for repotrectinib and elzovantinib at the AACR-NCI-EORTC triple meeting. In addition, repotrectinib received breakthrough therapy designation by the FDA in the quarter for the treatment of patients with advanced solid tumors that have an NTRK gene fusion, which is the second breakthrough therapy designation and seventh overall regulatory designation for repotrectinib. We plan to join the global Phase 2 portion of the SHIELD-1 study for elzovantinib in 2022. For tumor-treating fields, we completed enrollment of our pilot Phase 2 clinical trial of tumor-treating fields in gastric cancer in China during this quarter. We plan to join global Phase 3 pivotal trials in pancreatic cancer and ovarian cancer and to submit a regulatory filing in malignant pleural mesothelioma. Bemarituzumab was granted breakthrough therapy designation for first-line treatment for patients with FGFR2b-overexpressing and HER2-negative metastatic and locally advanced gastric and GEJ cancers in combination with modified FOLFOX6. Amgen initiated a global Phase 3 trial of bemarituzumab in gastric cancer in the fourth quarter. I’m sure you’re aware that last Friday, Deciphera announced that QINLOCK failed to meet its primary endpoint in the entry trial. We were surprised and disappointed with this result and are waiting for further analysis. We will collaborate with our partner, Deciphera, to determine next steps going forward, including a possible combination strategy. Note that QINLOCK is still the standard of care for fourth-line GIST patients and addresses major unmet medical needs. It remains the only product that has demonstrated significant benefits, including a survival benefit in this setting. We continue to have a world-class GI cancer portfolio and multiple products in development. GI cancer is a key area of strength for Zai, and we are fully committed to working with the gastric cancer medical community in China and globally. In hematology, we recently announced that we had enrolled the first patient in China in our partner Regeneron’s global potentially registrational Phase 2 trial of odronextamab in non-Hodgkin’s lymphoma, so many potentially best-in-class and first-in-class products are on schedule. We are very excited about our oncology pipeline at Zai Lab. And now I will turn the floor over to Harald.

Thank you, Alan. The third quarter brought several very encouraging new developments, clinical and regulatory in our autoimmune and infectious diseases franchise. They stand to surely advance our pipeline to the next stage. Recently, our partner, Entasis, announced top-line results from the ATTACK trial. This is a global Phase 3 registrational trial evaluating the safety and efficacy of sulbactam-durlobactam, comparing it to colistin in patients with serious infections caused by Acinetobacter baumannii. Sulbactam-durlobactam, or SUL-DUR for short, met the primary endpoint of statistical non-inferiority in 28-day all-cause mortality. The patients had mainly pulmonary infections with carbapenem-resistant Acinetobacter baumannii, known as CRAB. At Test of Cure, there was a statistically high clinical response with SUL-DUR. In addition, SUL-DUR met the primary safety objective of the study, achieving a statistically significant reduction in nephrotoxicity versus colistin. SUL-DUR is the first investigational drug to demonstrate efficacy against CRAB in a prospective, well-controlled clinical trial. CRAB infections are among the worst bacterial infections known to man. Safe and effective treatment options are almost nonexistent. As a narrow-spectrum antibiotic, SUL-DUR targets CRAB bacteria preferentially, thus potentially avoiding the collateral damage associated with broad-spectrum antibiotics. We look forward to bringing this drug to China where severe CRAB infections are frequently seen in ICUs and result in high mortality. As Samantha noted, we are actively preparing to file SUL-DUR with regulators in China. Moving on to ZL-1102. This is our internally developed anti-IL-17A novel human VH antibody fragment. We are developing it for topical treatment of plaque psoriasis. We recently achieved proof-of-concept with this novel compound and formulation in the first-in-human Phase 1b study. In the study, a psoriatic target lesion was treated for four weeks with 1102 versus placebo in a double-blind fashion. 1102 showed a 45% relative improvement compared to placebo in the local psoriasis area severity index or PASI. This clinical benefit was maintained after the end of treatment for a prolonged time, observed for up to six weeks. Two key PASI components, erythema and scaling showed clear improvement. There was also a reduction in target lesion size with 1102 in contrast to an increase in lesion size in the placebo arm. In a responder analysis, 1102 had higher responder rates compared to placebo at all time points after week one. These patients had a 50% or greater reduction in local PASI score to qualify as responders. The safety and tolerability profile of 1102 was indistinguishable from placebo. Pharmacokinetic studies confirmed a lack of systemic absorption, which explains its benign safety profile. There are about 125 million cases of psoriasis worldwide, and 80% to 90% of these have plaque psoriasis. 70% to 80% of plaque psoriasis patients have mild to moderate disease. We are developing 1102 as the first IL-17 directed topical treatment for chronic plaque psoriasis, concentrating on those with mild to moderate disease. Currently approved IL-17 inhibitors for psoriasis are effective, but they are administered subcutaneously and absorbed systemically. Because they are immunosuppressive, they carry various warnings and precautions in their labels and are therefore approved for moderate to severe psoriasis only. On the other hand, existing topical treatments for psoriasis are lacking in efficacy or create safety concerns with long-term use. 1102 is a unique IL-17 inhibitor that can be applied topically to the psoriatic plaque without being absorbed systemically. We look forward to advancing this compound into full development, including registrational studies. We also achieved important regulatory progress for efgartigimod, which we partner with Argenx. As you know, our partner expects a decision by the FDA on the regulatory filing of efgartigimod for generalized myasthenia gravis during the fourth quarter of 2021. As Samantha mentioned, we had a positive meeting with the NMPA on efgartigimod, which suggests the potential for an accelerated pathway for regulatory approval of gMG in China. Subject to U.S. FDA approval and further discussion with NMPA, we expect to file the NDA in China by the first half of 2022. Lastly, we expect approval of omadacycline NUZYRA for community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections in China by the end of this year.

Thank you, Harald. The third quarter marks our continuing progress in ramping up our three commercial products, all launched within a period of 16 months. Despite the COVID-19 flare-up in certain regions in China, which presented access difficulties, our commercial team did a great job overcoming these challenges and delivering a strong sales performance. ZEJULA continues to perform well, building on the momentum from the last quarter when the second-line ovarian cancer indication was included in the NRDL. Our team executed two key strategies to grow the ZEJULA brand. First, our team has been laser-focused on increasing hospital listings as a result of our NRDL landing. As of September 30, 2021, ZEJULA was listed in nearly 1,100 hospitals in China. Second, our commercial team focused on market penetration to drive pull-through by leveraging ZEJULA’s differentiated label as the only PARP inhibitor monotherapy approved for all-comers in first-line ovarian cancer. By executing these two strategies, we were able to grow ZEJULA’s market share in both revenue and the number of new patients treated, and we plan to carry the momentum into the fourth quarter when we expect to enter into NRDL negotiations for first-line ovarian cancer. We’re confident that over time, ZEJULA will be the market-leading PARP inhibitor in China for ovarian cancer. Similarly, the launch of OPTUNE is going well. During the third quarter, our team focused on continuing to improve market access by expanding commercial insurance and supplemental insurance coverage for OPTUNE and educating target physicians about its significant clinical benefits, including survival benefits. Currently, OPTUNE is covered by 25 municipal or provincial supplemental insurance plans. The implementation of some of the newly added plans in the fourth quarter presents a good opportunity for us to grow OPTUNE. We have also kicked off several important physician education campaigns and plan to establish a GBM patient journey management platform to increase the number of patients treated. As we noted last quarter, we successfully launched QINLOCK for fourth-line GIST in China last May, and we’re still very early in our launch process. The key focus of our launch is increasing physician awareness and the number of patients treated by leveraging INVICTUS trial data and QINLOCK's status as the only later-line GIST treatment regardless of the mutation status, as well as the guideline recommendation by the Chinese Society of Clinical Oncology. In the third quarter, we also received approval for and launched QINLOCK in Taiwan, making it the first-ever product that is available to all parts of the Greater China region during the first year of launch. As Alan mentioned earlier, we’re still assessing the impact of the INTRIGUE results. We’re committed to establishing QINLOCK as the standard treatment for fourth-line GIST based on its compelling product profile, extending patient survival, and we will make appropriate adjustments to our commercial strategy.

Thank you, Tao. We saw continued significant growth and strong performance across our business. Today, I’ll briefly summarize our financial results for the third quarter as well as year-to-date 2021. Revenues for the third quarter and year-to-date in 2021 were $43.1 million and $100.1 million, respectively. Over the same period last year, revenues were $14.7 million and $33.9 million, respectively. We’re still early in our commercialization phase, but we’re very pleased with the successful launches and sales trajectory of our first three oncology products. With many more product launches anticipated, our commercial platform over time is expected to generate strong growth and considerable operating leverage. ZEJULA sales for the third quarter and year-to-date 2021 were $28.2 million and $64.2 million, respectively. Over the same period last year, ZEJULA sales were $8.5 million and $22.3 million, respectively. OPTUNE sales for the third quarter and year-to-date 2021 were $10.7 million and $27.3 million, respectively. Over the same period last year, OPTUNE sales were $6 million and $11.4 million, respectively. QINLOCK sales for the third quarter and year-to-date 2021 were $4.3 million and $8.7 million, respectively. Research and development expenses were $55.1 million for the three months ended September 30, 2021, compared to $58.1 million for the same period in 2020. The decrease in R&D expenses was primarily attributable to lower upfront payments for new licensing agreements, partially offset by the increase in expenses related to ongoing and newly initiated late-stage clinical trials and payroll-related expenses from increased R&D headcount. Selling, general and administrative expenses were $59 million for the three months ended September 30, 2021, compared to $27.9 million for the same period in 2020. The increase was primarily due to payroll and payroll-related expenses from increased commercial headcount and expanded commercial activities as Zai Lab continued to expand its commercial operations throughout Greater China. For the three months ended September 30, 2021, Zai Lab reported a net loss of $96.4 million or a loss per share attributable to common stockholders of $1.01 compared to a net loss of $63.7 million or a loss per share attributable to common stockholders of $0.84 for the same period in 2020. As of September 30, 2021, cash and cash equivalents, short-term investments, and restricted cash totaled $1.57 billion compared to $1.19 billion as of December 31, 2020. We would now like to turn the call back over to the operator to open up the line for questions.

We have the first question coming from Michael Yee from Jefferies. Please go ahead.

Hi, thank you very much, and congrats on a great quarter. We had two questions. The first was, obviously, on the announcement of the Karuna transaction. This brings you into a pretty big market opportunity in neurology, but also a complex one. Can you just comment on how you’re thinking about synergy and being opportunistic in neurology now going forward? And what that means for business development for you? And the second question is, you had made some nice comments about efgartigimod, the argenx compound. Can you just remind us about your confidence level and regulatory discussions and the potential faster filing in 2022? And if you could do that, that would be huge. So we would just love to know if you – actually I think that’s possible. Thank you.

Thanks, Mike, for the question. This is Billy. As several members of our management team, I’m sorry about the background noise. We have several members of our management on, so I’ll help direct some traffic. For your first question on Karuna and our entry into neuroscience, I’ll – Jon, why don’t you take this? And I’m sure other colleagues will chime in as needed.

Sure. Thanks for the question, Mike. I think, first of all, there is actually a similarity and adjacencies for this expansion into neuroscience. Like what we have done in the past going into sort of severe autoimmune diseases with efgar or going into hematology with our Regeneron collaboration. There has been a lot of thought and strategizing as we go into new areas. So when we go into new areas, there is always similarity. In this case, the similarity, first of all, is that especially with this drug, where patients seek care in China, is very concentrated. There is a very limited number of psychiatric hospitals where patients go get care; there are about 1,000 of them. In addition, the large Class 3A hospitals, only a very limited number of them have these psychiatric departments within them. Therefore, the amount of sales team that’s required to commercialize this is very limited. I mean, if you look at some of the leading companies in China, focused in this area, their sales force is somewhere between 100 to 300 FTEs. That brings me to my second point that there is adjacency to our current business because if you look at efgar, the first indication is within urology, it’s in gMG. So before we launch KarXT, we will already have a commercial team on the ground, selling efgar and building up the care networks in this area. So it’s been a very slow process as we go into neuroscience. It’s a very big market. It’s right behind oncology and immunology, one of the largest TAs in China. In fact, a very high-growth ETA, double-digit growth, even though there is a very lack of innovative products. This product being a very differentiated offering both on the efficacy side as well as safety side, clear differentiation compared to the standard of care today. We are very confident about the commercial viability, given our presence already in urology, given the adjacency, a differentiated product. In terms of the future BD assets, when we get into the new area, we’re bringing an anchor product, a de-risked late-stage product. This is our first product here. We’re obviously going to continue to look for assets that may be synergistic with this and expand our CNS pipeline with similar de-risked late-stage assets. But certainly, we will be on the lookout for those.

And Mike, for your second question – yes, Mike, for your second question on efgartigimod, you’re right, we did make an announcement just on our third-quarter earnings that we have the potential to submit for approval in the first indication by the first half of next year. Your question was our confidence level of that. Samantha, would you like to provide some commentary on this?

Sure. Thank you, Michael, for the question. Definitely, we are very optimistic about the potential of accelerating this whole process and to meet the application in the first half of 2022 based on our discussion with FDA.

Okay. Thank you.

Sure. Thank you.

Thanks, Michael.

We have the next question. This is coming from the line of Yigal Nochomovitz from Citigroup. Please go ahead.

Hi, Billy and team, thank you very much for taking the questions. I had three. First, I was just wondering about ZEJULA’s current market share in second-line ovarian in China and how that market share has been trending since the ZEJULA launch? Second, I’m curious about the distribution of sales for ZEJULA across the 1100 Tier 1, 2 and 3 hospitals, whereas ZEJULA is available. Is there a certain tier where you’re seeing most sales or are the sales evenly distributed across hospital tiers? And finally, just curious, what are the gating factors for when you will begin to introduce revenue guidance for ZEJULA and also for OPTUNE?

Alright. Yigal, thank you for your question. I mean, I’ll kick it off on all three and invite other colleagues to join if needed. So ZEJULA second-line market share, we are not providing specific guidance at this point. You can access information like you do in the U.S. throughout IQVIA, etc. to get views on it. What I can share with you, Yigal, is that with the introduction of ZEJULA in the marketplace, in second line, which is an NRDL reimbursed product and then, of course, with first-line as the only all-comer labeled PARP inhibitor in ovarian cancer. Clearly, we’ve seen not only the increasing of the pie of the PARP penetration, but also our market share within it. That’s both within second-line and also increasingly so in the first line. So we’re very optimistic that this trend will continue. And so hopefully, that helps you. And we can provide additional color as we make further progress. We are very confident that we are really set up here to have a commanding market share position for ZEJULA in the ovarian cancer space in the not-too-distant future. Your second question on the distribution of sales of ZEJULA between Tier 1, 2 and 3 sort of hospitals or geographies, clearly, our initial focus was to really make sure that we penetrate the Class 3 hospitals in the top Tier 1, 2 cities. And you have the benefit – we have the benefit of that legacy with strong execution. Now with the second line in NRDL, we have nationwide coverage. But the first-line is still private pay. We are optimistic that we are well-positioned for NRDL negotiation on first-line as well. And that’s when you are also going to see not only a dramatic impact of the volume going up, but also a broader distribution as well. And in terms of any gating factors for revenue guidance, I guess, and we are still very much early in our lifecycle in terms of commercialization, as we noted on the call. But every month that goes by, we are getting more momentum, more hard real data inside Zai Lab, and our commercial platform continues to execute strong growth and productivity. There will be a point in time, but that point in time is not at this moment.

Got it. Thank you very much.

Thank you.

The next question comes from the line of Anupam Rama from JPM. Please go ahead.

Hi guys. Thanks so much for taking the question. I have got two quick ones. Maybe following up on Mike Yee’s question on neurology, you talked about business development, but will there also be a build-out of an internal kind of research effort on the neuro side? And then the second question, I think there was a mention of NRDL for first-line ZEJULA, I wanted to confirm that QINLOCK is also going to be NRDL submission and when those pricing effects could take place in 2022? Thanks so much.

Hi Anupam. I will address your second question and then key it up for the team on your first question. So yes, you heard it right. First-line – for NRDL negotiation, particularly in first line, will be happening. We are well prepared and we are optimistic that we are well prepared for a good outcome, but that’s to be determined. What you will hear in the public domain will be very similar to last year and previous years, where the drug that made it, the companies and drugs who have made it on the NRDL and accepted will be made public by the NRDL a few weeks after the negotiations finalize, which you know is happening in the near-term. Most of the companies will be signing NDA. You will not hear about that prior until the implementation date, which will be likely in January of next year, early next year, this year, not like March of last – like in 2021 where implementation date was March. Next year is expected to be happening in the usual January cycle. So that’s the cadence. There will be more to come, but again, we are optimistic that ZEJULA will be a very important drug for many more patients, and we will have a dominating or commanding market share position in the PARP class for ovarian cancer patients. Now for QINLOCK, we were eligible. We launched the advanced GIST label in October 20, 2021, which means we were eligible to be included in the NRDL negotiation. We have elected not to because we have an ability to drive adoption, and as the only really established standard of care, as Alan mentioned, in advanced GIST. We have enough opportunity next year to do so. We have good optionality there. Your first question on neurology, where we are going to build out our internal research capabilities there, as you know, Anupam, we have been really dedicating our energy towards oncology and autoimmune. But in terms of neurology, I mean, we just signed this deal, so it’s harder to press yesterday, but in terms of building that out. I don’t know if other, Samantha, Alan, or Harald, if you have additional comments on that.

Yes. Thanks, Billy. Thanks. Go ahead.

Yes. Hi. Thank you for the question. Will there be a build-out in neurosciences? The answer is yes. This is a big new addition to our current franchise. It does require extra work. It will require extra dedication, and it has huge potential. This is a big new market for us, but it’s not an unknown market because we have had experience in the neuroscience world. As mentioned before, we have two programs on the efgartigimod side that are in neurology—gMG and CIDP. So, yes, there will be a build-out in clinical and also in the sales team. It will be for commercialization in those hospitals in China that have psychiatric units, which actually is not too much, but it will not require a large team. We think it’s worthwhile. Also, we are going into this area because we understand the mechanism. This is a well thought-out mechanism of an antagonist and an agonist working on the M1 and M4 muscarinic receptor. That’s a very well-established approach. It hasn’t been really tried yet because everybody else has looked in other areas with other antagonists that focus on dopamine and serotonin. There is also a lot of data in support of this. So, with all of this, it gives us confidence, together with the EMERGENT-1 trial data, that this is something we can really sprint full press forward.

Yes. I think – thanks, Anupam, thanks, Harald. Harald brought a real good point about branching out into this area with a lot of information. But in terms of discovery, Anupam, we are not interested in building our own research. We still remain focused on oncology and autoimmune.

Thanks for taking my question.

Thanks, Anupam.

Thank you. We have the next question coming from the line of Jonathan Chang. Please go ahead.

Hi guys. Thanks for taking the questions. First question, can you discuss your cancer strategy following the recent INTRIGUE study results? Can you provide any color around how you are thinking about potential next steps?

We will pass that to Alan.

Great. Thanks very much for the question. I think for next steps, at this particular point, we believe very strongly in our world-class GI cancer portfolio and specifically for QINLOCK in the fourth-line setting, which, again, as has been noted in a randomized study, showed significant overall survival benefits. We will continue to look and work in that particular area to continue to build on that. In addition, of course, we are looking forward to working with Deciphera to evaluate the data from the original study and see what sort of opportunities we have moving forward, which potentially could include combinatorial approaches as well. That’s the approach we will be taking at this point. Thank you so much for the question.

Got it. Thank you. And second question, can you provide any color around how the OPTUNE LUNAR study is progressing? Are you able to provide any more granular color on when the study could read out? Thank you.

Alan, would you like to comment on this one as well?

Yes. Again, thanks for the question. This is something that, of course, is a study that’s been accruing and is run, of course, by our partner, Novocure, and we are still – we are working with them on this and participating in that study and waiting again for the accrual to finish. As you know, given the recommendations by the DMC, the follow-up for the study has been reduced from 18 months to 12 months. So the minimal follow-up might provide you with a little bit of guidance as to when we will start to see data potentially after the completion of accrual. Thank you again.

Yes, Jonathan, Novocure also will be same now, and I am not – I don’t think they have only said that; that’s the 2022 milestone final data to be read out. So I don’t think we have guided to whether it’s going to be first half or second half, but that’s going to be an anticipated milestone for next year.

Got it. Thanks for taking the questions.

Thanks, Jonathan.

We have the next question. This is coming from the line of Seamus Fernandez from Guggenheim Securities.

Hello. Thanks guys. Just a couple of quick questions. First, AstraZeneca in its filing document has noted a patent expiration for Lynparza in 2024. Just wanted to get a little bit more color on how you guys are assessing the patent landscape in China? Should – are you anticipating the entry of Lynparza generics in 2024 or shortly thereafter? And if not, why not? Have you assessed the patent landscape and feel that Lynparza is likely to be protected longer? If there are generics that are introduced in 2024, what’s your expectation for the evolution of the market from that point in time? My second question really relates to the expansion and earlier stage opportunity for OPTUNE. What are you guys doing at this point to prepare for a potential expansion should the Phase 2 trial, the LUNAR trial, read out positively to basically prepare for uptake in demand?

Hi, Seamus, thanks for your questions. I think the first one, Jon, would you like to take it, and then I will take the second one?

Sure. Thanks for the question, Seamus. Let me first say that we have a very strong patent position for niraparib. Our composition of matter is almost to the end of this decade. We have a very differentiated product. Even if there is a generic that comes to the market after Lynparza's patent expiration, we have very differentiated assets. In particular, we are the only asset that has the all-comer monotherapy label in first-line. We are rapidly gaining market share as we are being on the second-line NRDL as we have a better product. Now as we have NRDL negotiations that are currently ongoing, if we are successful getting onto the front line for NRDL, we will have an even stronger market position. We will solidify our broader label. Therefore, I think with a differentiated product, with a strong patent position, we can dominate the market for a very long time with that.

And Seamus, for your second question on tumor treatment fields, so OPTUNE, we have had it in the market since the second half of last year. Our dedicated commercial team is doing a great job covering the top hospitals in OPTUNE for GBM. There are about the top 250 hospitals in fact with great coverage to neurology and radiotherapy departments. We have a dedicated DSS team that continues to provide patient care and education. They have also done a great job with the supplemental insurance. You saw from our earnings release that we have up to about 25 supplemental insurance plans signed up. This is going to bode well for not only OPTUNE, but really positioning and building awareness for tumor treatment fields in the future across indications. Now next year, obviously, the LUNAR readout is going to be an important milestone. But ahead of that, there are a lot of things we will be doing. In addition to other indications in global Phase 3 trials, and we just wrapped up a ton of only Phase 2 trial, and we will have data out for that by about the first half of next year. We are also preparing to submit the second indication in mesothelioma. This gives us a strategic opportunity to engage with the lung cancer community ahead of a possible positive outcome for the LUNAR trial. We can really optimize that event if it was positive. We remain optimistic on all of those fronts and continue to be big believers in the potential of tumor treatment fields to serve many, many more patients than what we are doing right now. So, thanks, Seamus, for your question. Can we move on to the next question, operator.

Certainly. The next question comes from Ziyi Chen from Goldman Sachs. Please go ahead.

Thanks for taking my questions. A couple of questions on the recent deals. Number one is on Blueprint to EGFR assets. I am trying to understand a bit more about the two molecules, preclinical tox, how does the therapeutic window look like? And also for their clinical strategy in China because the third generation EGFR, including Tagrisso, some of the domestic brands potentially becoming the standard of care in China in the first-line, second-line setting. Some of them also show a decent barrier to penetration. So, will the BLU-945 and 701 mainly target the patient that failed the third-generation EGFR? Or are we trying to move into earlier lines? I guess, how does the tox study become inevitable? Any chance that the combo could potentially beat the third-generation EGFR in the survival benefits to patients? Trying to understand a bit more about your thoughts here. And also for KarXT, while we understand there is a large population of schizophrenia patients in China, 6 million plus; however, a lot of them actually are in a poor financial condition. So affordability might be a big challenge. Particularly given available standard of care now are super cheap. What could potentially be the pricing strategy here in China? How should we look at the commercial potential? Thank you.

Thank you for your questions. Alan, would you like to take these questions around the EGFR?

Sure. Thanks, Chen. Thanks, Billy and thanks for the question. A couple of aspects. I can probably lump those together. The initial one was more sort of the toxicity. For these two agents, there is wonderful preclinical data that shows exceptional wild-type sparing effects. That is the main cause for toxicity with these types of agents. By limiting the effects on the wild-type, there should be fewer toxicities such as dermatologic issues and diarrhea. This is one potential advantage. It also allows for the potential for a combination of these two agents. That’s a very key element for this because by combining these two agents based on preclinical data, not only do you limit wild-type, you also impact those original mutations in EGFR and also the resistance, such as the T790M and the C797S mutations. This allows for coverage that is actually, in some ways, similar to that of Tagrisso and then superior because it can potentially overcome the escape mechanisms and resistance mechanisms. Although the initial study of these agents will be in resistance because that’s a faster path to approval, ultimately moving and looking at this combination in the frontline setting is certainly a logical approach. We are confident, along with our partners at Blueprint, that there is an opportunity to be superior to Tagrisso in this area. Thank you.

Ziyi, for your second question on KarXT, clearly we have done a lot of work around this, as we always do for all of our programs. But I will invite Jon to provide additional color.

Yes. Thanks for the question, Ziyi. Look, I think first of all, the cheaper prices are due to – they are pretty much mostly generics. However, all the products are on the NRDL. In fact, when there is a more recent launch product, gone onto the NRDL, the price cut was very limited. For example, INVEGA only had a 5% to 10% price cut to get onto the NRDL, and its annual treatment cost is about $4,000 to $5,000. But it’s still a very largely undifferentiated asset in the dopamine H1T category. This product, a totally new mechanism of action with first and best-in-class attributes, not only addresses the positive symptoms of schizophrenia but, more importantly, addresses the negative symptoms, which currently nothing out there does. With a much better tolerability profile—weight gains, QT elongations—these are bad side effects and seem to do very well at it. We believe this is definitely worth a premium pricing. Then, you couple that with the fact that there are about 8 million schizophrenia patients in China, at least of chronic usage. Better tolerability allows room for a much longer duration of treatment. Beyond schizophrenia, obviously, there is potential in dementia-related psychosis when currently nothing is approved on the market, so that is a very large market potential. We should consider as well. Hopefully, this answers your question.

Yes. Look, it’s undergoing the prosecution. Globally, its patent is a pretty broad family of patents; there are two primary major families. The patents are strong. As you know, it includes two APIs. One of the APIs is not approved anywhere in the world, so there is no potential for any off-label usage. Overall, in the U.S., we are looking at the patent up to 2039, and we believe we have a good opportunity here in China as well.

Thank you.

Thank you. We have the next question. This is coming from Yang Huang from Credit Suisse. Please go ahead.

Thanks. I have two questions. First one is on ZEJULA; can you quickly comment on the rough split for ZEJULA prescriptions in terms of ovarian cancer first-line maintenance therapy and the second-line maintenance therapy in China right now? Just give us some more rough idea, would be great. It seems ZEJULA is being NRDL negotiation; I think it has a large chance it can be included for first-line. If first-line included in the NRDL, then in the long term, what kind of a rough split between first-line and the second-line prescription for ZEJULA in the longer term? That’s my first question. My second question is about our PD-1 strategy since we see in our portfolio; we don’t have a PD-1 approval yet, but quite a few of our drugs. Actually, our partners are doing combo studies for the KRAS and margetuximab, they are all doing combo studies and the combo studies with PD-1 have seen greater efficacy and safety. Can you clarify your PD-1 or PDL-1 kind of development strategy in China? Thanks.

Yang, thank you for your questions. So, for the ZEJULA-related question, first of all, as you have heard on this call, we are selected for final negotiation for NRDL inclusion for first-line ZEJULA, which will be going into effect early next year. So, there is a season for that. I also would like to remind you, we are and will be the only all-comer first-line monotherapy product in the market, and it’s a very differentiated product profile. The inclusion into the NRDL will significantly solidify our market position. We are optimistic on the negotiation and ZEJULA's potential to be a market share leader in ovarian cancer. The first-line indication is really where the battle is going to be won, and we continue to have confidence around that. At this time, we are not still giving split between first-line and second-line market share and revenue splits as well. Just want to remind you, Yang, that we recently launched first line, and it’s a private pay product. It was up against the reimbursed product, so we try to provide additional color as we go into—I mean, 2021 was our first full calendar year of commercialization. We are still very much ramping up. I hope you understand. In terms of your second question on PD-1 strategy, you are right about that. I will invite Alan to also comment here, but we have several combos, and in the future, we will have additional synergies that we expect to realize, which will be quite proprietary. You already listed a few that are ongoing, the KRAS; we just had an update a day or two ago about the combo for lung, that was quite interesting. We have margetuximab, and even ZEJULA, right? There are PD-1 late-stage combo trials in two very large indications, frontline lung and breast cancer as well. It will be strategic for us to have PD-1 and to have an unencumbered portfolio within immunooncology to maximize utilization. Alan, do you want to provide any additional color?

Billy, you did a great job, and I don’t have too much more to add other than we will continue with the studies that we are doing to establish our PD-1, retifanlimab, as an opportunity for you, such that we can then go on to those combinatorial approaches, as you mentioned. Again, the KRAS is certainly an exciting one. There will be other opportunities, of course, as well along with that, in second-generation IL combinations as well.

Okay. Thanks.

Thanks, Yang.

Thank you. I am showing no further questions at this time. I will now turn the call back over to Zai Lab’s CEO, Samantha Du, for closing remarks.

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