Zai Lab Ltd Q4 FY2022 Earnings Call

Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab Full Year and Fourth Quarter 2022 Financial Results Conference Call. As a reminder, today's call is being recorded. It's now my pleasure to turn the floor over to Billy Cho, Chief Financial Officer of Zai Lab, who will make introductory comments.

Thank you, operator. Good morning, good evening, and welcome, everyone. Zai Lab recently issued a press release providing the details of the company's full year 2022 financial results, as well as some recent product highlights and a corporate update. The press release is available in the Investor Relations section of the company's website at ir.zailaboratory.com. Today's call will be led by Dr. Samantha Du, Zai Lab’s Founder, Chief Executive Officer and Chairperson. After Dr. Du provides opening remarks with an overview of 2022 highlights, Josh Smiley, Chief Operating Officer, will further discuss key business updates and 2023 strategic priorities. Dr. Rafael Amado, President and Head of Global Development Oncology will discuss advances with our oncology product candidates; Dr. Harald Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases will speak about progress we’ve made in those three therapeutic areas. I will discuss the performance of our market products and conclude the comments on our full year and fourth quarter financial results. Additional executives will 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 with respect to our business plans and objectives, clinical trials, sales and revenue forecasts for our products and product candidates, regulatory applications and commercial launches. Such 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 and actual results could differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. At this time, it is my pleasure to turn the call over to Zai Lab's Founder, Chief Executive Officer and Chairperson, Dr. Samantha Du.

Thank you, Billy. Hello, everyone, and thank you all for joining us today. On this call, I'll discuss highlights from 2022 and what we aim to accomplish in 2023 and in the longer term. In 2022, despite challenges from the COVID-19 pandemic in China, our four marketed products, each with substantial sales growth, showcased our exciting programs across our broad and expansive pipeline. Our products continue to demonstrate potential best-in-class or first-in-class profiles globally. The numerous positive clinical data readouts announced during the year included adagrasib in non-small cell lung cancer and CAR-T in schizophrenia, among others. We are also pleased to have contributed to several successful registrational studies, including the Tumor Treating Fields LUNAR study and the Repotrectinib TRIDENT-1 study. We are glad to have added QINLOCK and NUZYRA to our portfolio as we enter 2023. We further deepened our women’s cancer franchise through our strategic collaboration with Seagen for TIVDAK. Additionally, we continued to significantly enhance our talented global team, further building on our solid foundation. Zai Lab is already a leading global biotech with significant scale, a world-class pipeline, and a growing commercial portfolio in China. We expect to achieve commercial profitability this year and are preparing to launch at least eight additional products with an aim for overall corporate profitability by the end of 2025. We will continue to invest in R&D as we seek to advance our product pipeline, including our internal discovery activities, and accelerate medicines to patients in need. We also aim to enhance our portfolio and strategic positioning with potentially transformative assets and partnerships. We believe that the global regulatory environment will continue to be supportive of innovative biopharmaceutical companies like Zai Lab. We will continue to build on our success in pursuit of our overall goal of improving human health, in China and globally. I'd like to now turn the call over to Josh to discuss key business updates and 2023 strategic priorities in more detail. Josh?

Thank you, Samantha. As Samantha mentioned, in 2022, we continued to attract top talent with deep domain expertise. I'd like to highlight a few recent additions to our global leadership team. In December, we were pleased to welcome Dr. Rafael Amado to our team as President and Head of Global Oncology Research and Development. Rafael joined us from Allogene and has experience in leading worldwide discovery and clinical development across a broad range of oncology products. In November 2022, Dr. Peter Huang joined as our Chief Scientific Officer. Dr. Huang will lead and oversee our discovery efforts in translational medicine. We were also pleased to appoint Michel Vounatsos to our Board of Directors in January 2023. Mr. Vounatsos brings to the Board extensive global leadership and management experience in the biopharmaceutical industry, including more than 25 years of service as an executive at leading companies. His expertise includes significant commercial experience in China and worldwide. We expect 2023 to be an exciting year for Zai, as we anticipate achieving many significant milestones. First, on the regulatory front for efgartigimod, we expect BLA approval and commercial launch for the IV formulation of efgartigimod in generalized myasthenia gravis, or gMG in 2023, and a BLA submission for the subcutaneous efgartigimod in gMG in mid-2023. We also plan to submit a new drug application to the NMPA for Repotrectinib in ROS1+ advanced non-small cell lung cancer this year. We're pleased to have obtained the NMPA acceptance of the NDA for Sulbactam-Durlobactam for the treatment of infections caused by Acinetobacter baumannii. Regarding our commercial products, we delivered good growth even though we faced COVID challenges last year. Now, with the COVID challenges behind us, we expect strong growth in revenue in 2023. We expect ZEJULA to become the leader in PARP sales for ovarian cancer in China this year. In the fourth quarter of 2022, we continued to gain share of hospital sales across all indications, reaching 39% of total PARP hospital sales. Since last September, there have been concerns around ZEJULA's China label for ovarian cancer in the recurrent setting following the U.S. FDA decision. However, as we've previously communicated, we do not expect the U.S. label restriction to impact the approval from the NMPA for ZEJULA in China. For QINLOCK and NUZYRA, we anticipate a significant increase in sales for both products following their inclusion this year on the National Reimbursement Drug List. Regarding the key research and clinical development milestones for both Zai and our partners, we are looking forward to the top line data readouts for subcutaneous efgartigimod for chronic inflammatory demyelinating polyneuropathy in the second quarter of 2023, as well as updates for pemphigus vulgaris and chronic immune thrombocytopenia in the second half of 2023. We expect the full data readout of the Tumor Treating Fields LUNAR study in non-small cell lung cancer in the first half of 2023. We also look forward to the clinical data update for adagrasib in combination with pembrolizumab in first-line KRAS G12C-mutated non-small cell lung cancer in the second half of 2023. Additionally, we will complete enrollment in the global Phase 3 innovaTV 301 study of TIVDAK in second and third-line cervical cancer in the first half of 2023 and plan to join the global Phase 3 FORTITUDE-101 study of bemarituzumab in first-line gastric cancer in China in mid-2023. We anticipate initiating a bridging study of KarXT for schizophrenia in China in mid-2023. I would like to emphasize that the advancement of these potential treatments for lung and gastric cancers continues to add robust strength in these areas of large unmet patient needs. We will continue to invest in R&D and advance our internal global pipeline. In terms of key research milestones, we plan to move ZL-1102 for potential use in chronic plaque psoriasis into full global development with the initiation of a global Phase 2 study in 2023. We also plan to initiate a global Phase 1 study for ZL-1218 in the first half of 2023. Of course, we will also continue to evaluate business development opportunities, including the addition of potentially transformative opportunities and partnerships for our regional and global pipeline. Zai Lab is a trusted brand and strategic partner of choice, and we look forward to entering into more deals that we believe will create significant value and synergies for our existing business. Before I conclude, I’d like to welcome Dr. Rafael Amado to his first earnings call with Zai. Rafael will make introductory remarks before discussing advances with respect to our oncology product candidates. And now I'll turn the call over to Dr. Amado. Rafael?

Thank you, Josh. I'm thrilled to be joining Zai Lab at such a pivotal time in the company's history. As a physician scientist, I’ve had the privilege to work on the development and approval of cancer therapies across various modalities and to lead R&D teams. Zai has a broad portfolio of innovative product candidates with capabilities for development in Greater China, and the ambition to continue to globalize research and development in oncology. The combination of products with transformational potential, excellence in execution, together with the ambition for global expansion made Zai Lab an easy choice as the next step in my career. I look forward to working with outstanding colleagues to continue to build capability and help catalyze the expansion of our oncology pipeline. In the fourth quarter of 2022, Zai Lab’s oncology franchise continued to make progress on all fronts, and we expect to have a productive year in 2023. For Tumor Treating Fields, in January 2023, Zai Lab and NovoCure announced that the LUNAR study met its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in overall survival over standard therapies. The LUNAR study also showed statistically significant and clinically meaningful improvement in overall survival when patients were treated with Tumor Treating Fields in combination with immune checkpoint inhibitors compared to those treated with immune checkpoint inhibitors alone. There was also a positive trend in overall survival when patients were treated with Tumor Treating Fields and docetaxel versus docetaxel alone. Tumor Treating Fields therapy was well tolerated among patients enrolled in the experimental arms of the study. We are excited about the potential of Tumor Treating Fields to help lung cancer patients. In China alone, lung cancer is the most common cancer type, with approximately 700,000 new cases diagnosed each year. We are pleased to have contributed to and to be a part of the LUNAR study. Because LUNAR met its primary endpoint of overall survival, we're optimistic about its broad potential across a range of hard-to-treat and prevalent cancers. The late-stage studies underway in other cancer types include pancreatic cancer where Zai is actively enrolling. Moving now to KRAZATI (adagrasib), it was granted accelerated approval by the FDA in December 2022 for adult patients with KRAS G12C-mutated locally advanced or metastatic non-small cell lung cancer who have received at least one prior systemic therapy. In China, we will continue to accelerate the regulatory pathway for second-line non-small cell lung cancer monotherapy by leveraging the global data package from the FDA approval and the ongoing KRYSTAL-12 study. Furthermore, in December 2022, the FDA granted Breakthrough Therapy Designation to adagrasib in combination with cetuximab for patients with KRAS G12C-mutated advanced colorectal cancer whose cancer has progressed following prior treatment with chemotherapy and an anti-VEGF therapy, with results published in the New England Journal of Medicine. Adagrasib demonstrated anti-tumor activity in heavily pretreated patients with KRAS G12C metastatic colorectal cancer both as monotherapy and in combination with cetuximab. Mirati plans to submit a new supplemental drug application in third-line KRAS G12C-mutated advanced colorectal cancer by year-end 2023 and move forward with the Accelerated Approval pathway. Zai initiated enrollment in the randomized clinical trial in second-line metastatic colorectal cancer in June 2022, expecting enrollment completion by the end of 2023. We remain confident that adagrasib is a potential best-in-class KRAS G12C inhibitor in colorectal cancer. For first-line non-small cell lung cancer, in December 2022, Mirati reported results from the KRYSTAL-7 Phase 2 trial showing the results of adagrasib in combination with pembrolizumab in patients for the treatment of first-line non-small cell lung cancer harboring a KRAS G12C mutation across all PD-L1 subgroups. We are excited that these results are the first to demonstrate the tolerability and feasibility of a concurrent combination regimen of a KRAS G12C inhibitor and a PD-1/PD-L1 checkpoint inhibitor, and we will continue to work with Mirati on our first-line development plan for adagrasib. We announced in July that we were pleased the NMPA granted full approval to the first-line ovarian cancer maintenance indication for ZEJULA on February 3, 2023, regardless of biomarker status. In December 2022, we presented new interim overall survival data in Chinese patients with platinum-sensitive recurrent ovarian cancer from the Phase 3 NORA study conducted exclusively by Zai Lab at the ESMO Virtual Plenary session. Median overall survival was numerically longer for patients receiving ZEJULA regardless of biomarker status at 46.3 months, compared to 43.4 months in the placebo group. None of the safety issues were identified. We expect to present the final analysis of the Phase 3 NORA study sometime this year. Moving now to our internal global research and development programs, the translational and clinical biomarker data for ZL1211, an anti-Claudin 18.2 antibody will be presented in a poster at our upcoming AACR Conference. We plan to initiate a global Phase 1 study in the first half of 2023 for ZL-1218, an anti-CCR8 antibody. With an abundance of potentially best-in-class or first-in-class products, we are very excited about our oncology pipeline at Zai Lab. And now I will turn the floor over to Dr. Harald Reinhart, to discuss the progress in our autoimmune, infectious disease, and neuroscience therapeutic areas. Harald?

Thank you, Rafael. I'm excited for the opportunity to share with you today the progress across our autoimmune, infectious disease, and neuroscience therapeutic areas. Let's start with VYVGART or efgartigimod. On the regulatory front, we and our partner argenx continue to make excellent progress. Argenx recently announced that the FDA has accepted for priority review, a BLA for efgartigimod subcutaneous for the treatment of adult patients with generalized myasthenia gravis. The PDUFA date is June 20, 2023. As a reminder, we submitted the BLA for efgartigimod IV for the treatment of patients with gMG in China in the second quarter of 2022 and expect approval for commercial launch this year. We also expect to submit a BLA for efgartigimod subcutaneous for gMG in mid-2023. We continue to support argenx on indication expansion in China and worldwide. Indeed, enrollment in two proof-of-concept trials for autoimmune renal diseases began in February. Moving to KarXT, the combination of xanomeline and trospium, which we are developing with our partner Karuna for acute schizophrenia. Zai Lab's proposed development plan for China has been accepted by the NMPA, and we expect to start a clinical bridging study in mid-2023. As you recall, results from Karuna’s EMERGENT-2 trial were released in August 2022. This pivotal trial met its primary endpoint with KarXT demonstrating a statistically significant 9.6 reduction in PANSS total score compared to placebo at week 5. Additionally, Karuna expects top line results from the Phase 3 EMERGENT-3 trial in schizophrenia in the first quarter of 2023 and an NDA submission to the FDA for KarXT in schizophrenia in May 2023. Regarding our infectious diseases portfolio, we have several noteworthy developments. First, Sulbactam-Durlobactam or SUL-DUR. We submitted the NDA for the treatment of carbapenem-resistant Acinetobacter baumannii infection to the NMPA in December 2022. We were granted priority review one month later in January 2023. In February, the NDA was officially accepted by the NMPA. We look forward to bringing this novel drug to China and the Asia Pacific, where severe CRAB infections are frequent and can often no longer be adequately treated due to multidrug resistance. For omadacycline NUZYRA, as Samantha mentioned earlier, we are happy to report that it was successfully listed on China's NRDL as of January 2023, and implementation starts this month. Lastly, our internally developed topical IL-17 product, ZL-1102 continues to progress towards initiation of a Phase 2 study for chronic plaque psoriasis in late 2023. And now Billy will speak about progress with our commercial products and financial results. Billy?

Thank you, Harald. Our four marketed products, ZEJULA, Optune, QINLOCK, and NUZYRA continue to achieve solid revenue growth, driven by strong demand and commercial execution. ZEJULA continues to perform well and increase its share of PARP sales for ovarian cancer during the fourth quarter of 2022. We expect ZEJULA to become the sales leader in China this year. For Optune, we are starting to see a strong recovery given the COVID situation throughout last year, achieving solid revenue growth in the fourth quarter. Our team focused on continuing to improve market access by expanding commercial and supplemental insurance coverage for Optune and educating physicians about its potentially significant clinical benefits including survival. As of December 31, 2022, Optune was covered by 87 municipal or provincial supplemental insurance plans, up from 33 such plans the prior year. We're pleased to have added QINLOCK and NUZYRA to China's national reimbursement drug list in January 2023, and implementation starts this month. As discussed earlier, we expect strong revenue ramp-up for these products as a result of their inclusion in the NRDL. For efgartigimod, the first and only U.S.-approved FcRn blocker with pipeline and product potential, we are getting ready for the commercial launch later this year. We plan to have a specialized and experienced team of about 100 employees at launch. We are quite excited about its blockbuster potential in China. Now I will discuss our full year and fourth quarter of 2022 financial results compared to the prior year periods. Total revenues for the full year of 2022 were $215 million, compared to $144.3 million in 2021, representing a 49% year-over-year growth. Total revenues for the fourth quarter of 2022 were $62.6 million, compared to $44.2 million in the prior year, representing a 41.7% year-over-year growth. Product revenues for the full year of 2022 were $145.2 million for ZEJULA compared to $93.6 million in 2021, representing a 55.2% year-over-year growth; $47.3 million for Optune compared to $38.9 million for 2021, a 21.6% year-over-year growth; $15 million for QINLOCK compared to $11.6 million in 2021, a 28.7% year-over-year growth; and $5.2 million for NUZYRA compared to close to zero in 2021. R&D expenses were $286.4 million for 2022, compared to $573.3 million for the same period in 2021. The decrease in R&D expenses in 2022 was primarily due to lower upfront payments for new licensing agreements. Excluding upfront payments for new licensing agreements, R&D expenses were $256.4 million in 2022 compared to $252 million in 2021. SG&A expenses were $259 million for 2022, compared to $218.8 million for the same period of 2021. The increase was primarily due to higher payroll and payroll-related expenses from the increased headcount as Zai Lab continued to expand and invest in its commercial operations in China and infrastructure in the United States in anticipation of substantial growth over the next few years. Zai Lab reported a net loss of $443.3 million, or a loss per share attributable to common stockholders of $0.46 for 2022 compared to a net loss of $704.5 million, or a loss per share attributable to common stockholders of $0.76 for 2021. The decrease in the net loss was primarily attributable to lower payments related to new business development activities and continued growth in product sales. As of December 31, 2022, cash and cash equivalents, short-term investments, and restricted cash totaled $1 billion, compared to $1.4 billion as of December 31, 2021. We would now like to turn the call back over to the operator to open up the line for questions. Operator?

The first question is from Michael Yee from Jefferies. Please go ahead.

Hey, guys, thanks and good morning from our side. We had two questions. One was maybe you could just give us sort of a real-time update on how things are going in China as it relates to opening up as COVID evolves, both from a commercial execution standpoint and from a clinical trial execution standpoint for all the partners. And how is that progressing, relatively to pre-COVID? And then second is obviously with Tumor Treating Fields and lung cancer. That was a big announcement recently. I appreciate that this will probably need to be filed first, etc. How are you thinking about that launch and opportunity relative to GBM, and particularly in terms of the reimbursement side?

Hey, thanks, Mike, for your questions. Maybe I'll get started and other colleagues can chime in. On the ground reporting from COVID-19 opening, I think everyone is quite familiar with the challenges faced in 2022, which continued through the end of '22 and early this year. We're monitoring the situation closely and will continue to do so. So far, so good. As we enter March, wrapping up the first quarter, it looks like we're optimistic going into the spring and beyond, hoping for some semblance of normalcy. It's great to see activity picking up again. The commercial side and the R&D side have remained resilient. Our clinical development team has done a terrific job managing the challenges posed by COVID-19 in the past, allowing us to execute effectively and meet our commitments to patients, the physician community, and our partners. I’m proud of that performance, along with the consistent growth we've seen. I think the fourth quarter performance remained strong given the circumstances. As we look toward 2023, we expect a strong year of growth. Regarding Tumor Treating Fields, as previously mentioned, there is a possibility this will be formalized with NRDL as early as this year. The opportunity appears significant, as noted by Rafael. There are approximately 700,000 new cases per year for non-small cell lung cancer in China, with half of whom are at stage 4, and around 30% at stage 3, presenting a major unmet medical need.

Thank you.

Thank you for your question. We are now taking the next question. Please stand by. The next question is from Anupam Rama from J.P. Morgan. Please go ahead.

Hey, guys. Thanks so much for taking the question. Maybe a broader question actually. You guys have talked a lot about private pay and supplemental insurance. What portion of revenues are currently reimbursed through this mechanism? And what does that look like as you model out to the 2025 and 2030 timeframe? Which products do you see with the greatest portion being reimbursed by private pay and supplemental insurance?

Sure. Hi, Anupam. Thanks for the question. We're pleased with the overall reimbursement environment in China and its development over the last few years. On the supplemental insurance side, we’ve seen coverage grow from about 40 million at the end of 2020 to 150 million at the end of 2022. We expect that number to grow over the next few years to somewhere between 200 million and 300 million, a sizable population compared to other countries. So that's a positive trend, most directly seen in Optune. While we don’t break out specific percentages, we noted that approximately 70% of our sales were from some NRDL mechanism last year, with the balance from a combination of commercial, supplemental insurance, and private pay. Our strategy is to bring great innovations to Chinese patients and capitalize on NRDL opportunities, like we have successfully with ZEJULA. We've seen robust economics associated with the three products we have on NRDL and will pursue this for innovative drugs like efgartigimod this year.

Thanks so much.

Thank you for your question. We are now taking the next question. The next question is from Yigal Nochomovitz from Citi. Please go ahead.

Hi. Thank you for taking the questions. Billy, I think you said that you're basically flat year-on-year on R&D upfront, and maybe marginally higher year-on-year on SG&A. Could you clarify whether spend is basically going to be flattish going forward to drive overall corporate profitability with top-line growth by the end of '25? Or might you have some flexibility to accelerate OpEx and still navigate to profitability with top-line growth by the end of '25?

Yes. Hey, Yigal. You heard that correctly. For core R&D, it was roughly flat year-over-year. This year, you can expect a modest increase. We have an active development calendar, given the anticipated approvals and launches over the next three years. However, we should expect that range to hold. As for SG&A, while we are targeting commercial profitability this year, even as we build a new sales team for the efgartigimod launch, we will see operating leverage continue to increase with rising revenues and given the layout of a strong balance sheet and our growth. We have a lot of flexibility with all our engines firing simultaneously, allowing us to be proactive about growth and profitability.

Got it.

Just one quick point to add: our priorities remain focused on growing the top line and advancing clinical programs. If we execute on those two fronts, profitability will follow. Products like ZEJULA, along with our women's health franchise, will drive profitability and give us the flexibility Billy mentioned. So it’s all about executing well on our diverse pipeline.

And just one housekeeping on QINLOCK and NUZYRA. Can you share at this point what the discount is for the NRDL? I think you mentioned the press release, expecting a significant increase. Just for modeling purposes, what does that look like?

Yes, the NRDL pricing for QINLOCK is $2,400 a month. For NUZYRA, it's $450 per treatment.

Okay.

Thank you for your question. We are now taking the next question. Please stand by. The next question is from Jonathan Chang from SVB Securities. Please go ahead.

Hi, guys. Thanks for taking my questions. First, can you elaborate more on the assumptions underlying your guidance of achieving corporate profitability by the end of 2025 and discuss your level of confidence in this? Second, can you discuss Zai Lab's current state of compliance with the HFCAA and how you're thinking about the situation going forward? Thank you.

Yes, thanks, Jonathan. I can take these two. First, regarding HFCAA compliance, our 10-K was just filed with KPMG U.S. That means we have five items fully accessible by the PCAOB and are now compliant with the requirements of the HFCAA, precluding any kind of future delisting from NASDAQ. I'm proud of the team's work in achieving this. For our guidance on achieving profitability by the end of '25, we wouldn’t make such a statement without careful consideration. Use your 2025 forecasts as guidance; assuming steady growth and conservative projections, we should reach profitability. We're confident in our roadmap. Our corporate structure allows flexibility and a robust pipeline for future revenue growth.

Got it. Thank you.

Thank you for your question. We are now taking the next question. Please stand by. The next question is from Ziyi Chen from GS. Please go ahead.

Thank you. Thank you for taking my questions. The first question is, if we're looking at the commercial infrastructure, or with more drugs expected to be launched in 2023 and next year, including margetuximab and more antibiotics. The therapeutic category is becoming much bigger compared to what it is now. How is the plan to establish a commercialization team to achieve sales efficiency and maintain productivity across various therapeutic areas? Secondly, can you elaborate on the LUNAR data plans, particularly in terms of reimbursement strategy and the timetable for potential indications in China?

Thanks, Ziyi. On your first question, our portfolio is curated around strategic areas that are differentiated and have significant potential. We anticipate commercial profitability within that framework and are prepared to grow our team in conjunction. Our oncology franchise, including Tumor Treating Fields, carries great promise. We expect robust commercial execution supporting our launches. The timing for our products means many will launch sequentially, allowing building efficiency and expertise. The second part regarding LUNAR data: we expect NovoCure to submit a pre-market approval application to the U.S. FDA in the second half of this year. Our plan is to follow closely with our submission in China shortly thereafter. While we cannot provide hard PDUFA timelines in China, we work closely with local authorities to expedite the approval process.

Got it. Thank you.

Thank you for your question. We are now taking the next question. Please stand by. The next question is from Seamus Fernandez from Guggenheim Partners. Please go ahead.

Great. Thanks for the question. Two quick questions. Can you walk us through how you see the KarXT opportunity evolving? I think Billy, you specifically stated that you feel this particular program is underappreciated. Additionally, regarding the Tumor Treating Fields opportunity, how will you approach manufacturing to support the potential size of that market?

Hey, Seamus, thanks for your question. I’ll address the manufacturing part to Josh. As for KarXT, you're correct; many may not fully appreciate the potential in China with over 8 million individuals diagnosed with schizophrenia today. Of those, around 4.3 million suffer from severe forms of the condition. KarXT's ability to address negative symptoms differentiates it from existing options. We genuinely believe this product holds significant potential for the Chinese market.

It’s clear that when we in-licensed KarXT, we aimed to address needs in the schizophrenia space, acknowledging difficulty with existing pharmaceuticals treating negative symptoms. There's increased government support to enhance psychiatric resources, creating a positive environment for adoption. We see a significant underserved market in China on this front with strong potential for patient engagement.

For the manufacturing side on Tumor Treating Fields: this is a great issue to have. NovoCure has strategies to enhance manufacturing efficiency to handle large opportunities globally. With estimates that about 1.8 million patients in China could benefit from this technology, we'll collaborate closely with NovoCure on these strategies, and their existing experience will be crucial in bringing down unit costs. We are optimistic about this market and will be able to support anticipated volumes effectively as we drive towards establishing solid gross margins.

Thank you for your question. We are now taking the next question. Please stand by. The next question is from Yang Huang from Credit Suisse. Please go ahead.

Thanks for taking my questions. I have two. The first is about the LUNAR trial. Given its complexity, can you indicate if subgroup analysis will be critical in your filing? What if the subgroup analysis in the PD-1 plus chemo group yields disappointing results? Will that impact the indication you seek? My second question is, how is your commercial preparation going for MG? Have you begun identifying MG patients to prepare for your drug launch?

Thank you for your insightful question. The most important aspect is understanding that the LUNAR study met its primary endpoint with statistically significant and clinically meaningful results, critically necessary in any study. The randomization accounts for prior PD-1 treatments in the studied population, serving as the primary focal point for our filing. We are excited about the basis our primary analysis provides, and we advise caution in making conclusions based on subgroup analyses until the full dataset is available. The diverse makeup of PD-1 subgroup participants, and how they might influence study outcomes, will be addressed in future presentations.

Regarding the identification of myasthenia gravis patients: we acknowledge that the patient population for MG is approximately 200,000. Early on, we’ve started to raise awareness and engage with physicians and potential patients in targeted regions. We’ve launched programs allowing access to treatments strategically, realizing the importance of patient engagement as we build toward the anticipated launch. Addressing what is happening globally provides encouraging insights for our approach in China as well.

Okay, great. Thank you.

Thank you for your question. There are no further questions at the moment. I will hand back 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. We look forward to updating you again after the first quarter of 2023. Operator, you may now disconnect the call.