Zai Lab Ltd Q2 FY2023 Earnings Call

Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to Christine Chiou, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, good evening, and welcome to Zai Lab’s Second Quarter 2023 Earnings Call. Today’s call will be led by Dr. Samantha Du, Zai Lab’s Founder, CEO, and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer, Dr. Rafael Amado, President and Head of Global Oncology and Research and Development, Dr. Harald Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases, and Dr. Yajing Chen, Chief Financial Officer. Jonathan Wang, our Chief Business Officer will also be available to answer questions during the Q&A portion of the call. As a reminder, during today's call, we will all be making certain forward-looking statements based on their current expectations. These statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors including those discussed in our SEC filings. We will also refer to product revenue growth rates on a constant exchange rate basis, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on August 7, 2023, for certain disclosures regarding this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du.

Thank you, Christine. Hello, everyone. Thank you all for joining us today. In the second quarter of 2023, we continue to successfully execute across our business, achieving multiple key milestones. Our commercial products continue to deliver strong double-digit growth. We progressed several important late-stage and early development programs within our pipeline. Most importantly, we gained NMPA approval of VYVGART, a first-in-class therapy that has the potential to significantly transform the lives of patients living with gMG in China, and we were able to achieve this monumental milestone on June 30th, which makes us eligible for NRDL listing in 2024. Recently, we also had positive registrational data from the ADHERE trial evaluating VYVGART Hytrulo in CIDP, and the results were outstanding. Later this year, we anticipate two additional registrational data readouts for VYVGART, further supporting its potential as a blockbuster product. The NMPA’s approval of VYVGART exemplifies our ability to quickly develop novel first-in-class therapies addressing significant unmet need for patients. And today, we have over 17 pivotal trials ongoing, and by 2028, we expect to more than triple the number of commercial products in our portfolio. Our world-class R&D team is a key part of our success, driving our remarkable accomplishments, consistently demonstrating the impeccable ability to identify and develop drugs of global quality. This impressive track record in scale gives us the confidence to bolster our global pipeline, both organically and collaboratively. In our early research efforts, we continue to pursue targets and modalities within specific areas of oncology and autoimmune disorders. We're focusing on areas where there is opportunity for differentiation where the unmet needs are high. However, make no mistake, we will continue to be prudent on capitalization, prioritizing our R&D efforts and driving increased productivity across the organization by leveraging our existing infrastructure and creating synergies across our business. We expect that these listings, along with our expected revenue growth, will allow us to reach corporate profitability by the end of 2025. I'm also encouraged by the continued support of innovation within the life sciences industry in China. As evidenced by the recently published NRDL renewal guidelines and other policy updates, I'm confident that with our world-class team and the strong foundation we have built, we will be able to reach new highs driven by an unwavering commitment to bring innovative medicines to patients in need, to provide speed, quality, and efficiency that bring significant value to our shareholders as we deliver on our mission. And with that, I would like to now turn the call over to Josh. Josh?

Thank you, Samantha. As Samantha mentioned, because of the proactive steps taken by our team, Zai Lab has established a solid foundation for future commercial execution and strong financial performance. Product revenues in the second quarter of 2023 grew 45% year-over-year to $69 million. This revenue growth was 53% on a constant currency basis. Each of our commercial products had continued revenue growth. NUZYRA experienced strong volume uptake as a result of its listings on the National Reimbursement Drug List or NRDL, which became effective in March. We expect the successful NRDL inclusions will continue to drive significant sales growth for these two products in the remaining months of 2023 and beyond. ZEJULA continued to perform well, increasing 26% versus the prior year quarter, driven by growth in the sales of PARP inhibitors in ovarian cancer and ZEJULA’s increased share of carbo sales. For Optune, our team further improved market access by expanding supplemental insurance coverage. We expect this strong momentum for both products to continue throughout the remainder of this year. We're also very excited to be launching our fifth approved product later this year, following the NMPA's approval of VYVGART as the first and only FCRN blocker to treat generalized myasthenia gravis or gMG in China. There are nearly 150,000 patients in China who have acetylcholine receptor antibody positive gMG, and we are thrilled to be able to provide these patients with a new treatment option that has the potential to meaningfully improve their symptoms and subsequently have a positive effect on their quality of life. Our specialized and experienced team of about 100 employees in the field are already engaging key opinion leaders and healthcare professionals and are establishing a solid network across all sites of care. We are building brand awareness through activities that include broad-reaching campaigns and our ongoing named patient program, which is generating initial clinical data among Chinese patients. VYVGART, which is eligible for NRDL listing in 2024, will be our fourth product on the list, and we are ready for a full commercial launch later this year. Moreover, another significant milestone we achieved with VYVGART was the positive results from the registrational ADHERE study in CIDP. The safety and efficacy profile of VYVGART represents a significant advancement for patients, one that has the potential to change the treatment paradigm for those living with CIDP. Similar to the ADHERE study, Zai is also participating in two registrational studies evaluating VYVGART in pemphigus and immune thrombocytopenia, where we expect data later this year. In these four indications alone, we have a total addressable population of over 400,000 patients, highlighting the significant opportunity we have with this product. Over the next few years, we expect to further drive innovation through our expertise in research and development. We intend to do this both as a trusted partner with our demonstrated capabilities in contributing to global, high-quality, multicenter trials and through the successful execution of trials for our own assets with global rights. The strong foundation we have built puts us in an excellent position to execute our five-year strategic plan, which we announced at our Investor Day. By the end of 2028, we expect to have over 15 commercial-stage products with at least one IND per year for global best-in-class, first-in-class assets. Our robust portfolio is expected to drive a revenue compound annual growth rate of over 50% from 2023 to 2028. As we launch new products and indications, we will be able to leverage our infrastructure and scale to drive profitability. And we expect to be commercially profitable by the end of 2023 and to achieve corporate profitability by the end of 2025. And now I will turn the call over to Dr. Amado. Rafael?

Thank you, Josh. In the second quarter of 2023, Zai Lab's oncology franchise continued to make progress across all stages of development. Within oncology, our R&D team will remain properly focused on the execution of our latest product developments, and we expect several important updates from some of our key programs over the next six to twelve months. Starting with VYVGART, in June, we announced that the National Medical Products Administration in China has accepted our new drug application for the treatment of adult patients with locally advanced or metastatic ROS1-positive non-small cell lung cancer after granting priority review in May 2023. Repotrectinib has the potential to be the next-generation best-in-class treatment for ROS1-positive non-small cell lung cancer in both TKI naive and pretreated patients. We look forward to bringing this important medicine to patients in need as early as possible. For tumor-treating fields, in June, our partner NovoCure presented the full results of the LUNAR clinical trial evaluating TTFields in non-small cell lung cancer. The primary endpoint of median overall survival was met, and a meaningful overall benefit was demonstrated when TTField therapy was added to immune checkpoint inhibitors, with a median overall survival of 18.5 months versus ICIs alone of 10.8 months. TTFields therapy was well-tolerated with no added systemic toxicity. We are also participating in several other pivotal trials, including METIS in brain metastases from lung cancer, as well as PANOVA-3 in locally advanced pancreatic cancer. I look forward to these data readouts over the next year. For Bemarituzumab, Zai Lab enrolled the first patient in the Mainland China portion of the global Phase 3 FORTITUDE-101 study, which was initiated by our partner Amgen and is evaluating pembrolizumab with chemotherapy versus placebo plus chemotherapy in first-line gastric cancer with FGFR2b overexpression. Gastric cancer is a significant burden in China, where nearly 90% of patients are HER2 negative, and adults above 30% are FGFR2b positive. Pembrolizumab has the potential to become the standard-of-care as a first-line treatment for FGFR2b positive gastric cancer when no specific targeted therapies exist today. We are aggressive; we are on track to finish this year on the K-12 trial and have completed the second-line PXT study K-10, which will form the basis for the submission in these indications together with the global single-arm study. For TIFGAC, we also remain on track executing on the randomized study in cervical cancer, and we will also join the global study in squamous cell carcinoma of the head and neck, plus also pivotal registration in these indications in the Greater China region. Moving to our internal global research and development programs, in July 2023, we enrolled the first patient in the global Phase 1 study for ZL-1218, an anti-CCR8 antibody in solid tumors in the United States. Regarding our DLL3ADC ZL-1310, we remain on track and expect an IND submission by the end of the year. With many potential best-in-class and first-in-class products, both in China and globally, we are very excited about our expanding 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 diseases and neuroscience therapeutic areas. Harald?

Thank you, Rafael. We have made excellent progress across our autoimmune, infectious disease, and neuroscience therapeutic areas. Starting with VYVGART or efgartigimod, we had several significant achievements in the second quarter. In June, we received NMPA approval for VYVGART intravenous injection for the treatment of generalized myasthenia gravis or gMG in adult patients who are acetylcholine receptor antibody positive. gMG is a chronic debilitating disease characterized by a loss of muscle function with severe muscle weakness. In China, patients are often treated with acetylcholinesterase inhibitors, steroids, immunosuppressants, and IVIG. The currently available treatments for gMG have limited efficacy and also show significant side effects. With the high prevalence of these diseases and current unsatisfactory treatment options, patients are in urgent need of a safe and effective treatment option that can control symptoms more rapidly. Furthermore, in July, we announced the NMPA’s acceptance of the biologic license applications for the subcutaneous formulation of VYVGART for gMG. Once approved, this would provide patients with increased dosing flexibility and convenience. In July, we and our partner argenx were happy to announce positive top-line results in the ADHERE study, a trial in patients with CIDP or chronic inflammatory demyelinating polyneuropathy. Before presenting the key results, I would like to provide background information on CIDP in China. In China, the prevalence of the disease is estimated at approximately 50,000 patients. CIDP is a chronic progressive autoimmune disease characterized by weakness and impaired sensory function that often worsens over time. The disease is debilitating, causing immobility, and difficulty with walking and balance, leaving patients unable to perform simple daily tasks. Current treatment options are primarily steroids and intravenous immunoglobulin IVIG or plasma exchange PLEX, generally reserved for refractory patients. There are limitations to each of these therapies, including the well-known shortage of IVIG, as well as a significant burden associated with administration, especially for PLEX and IVIG. With long-term steroid use, adverse events become a concern, as most patients require chronic treatment. Therefore, there remains a significant unmet need for alternative treatment options that are effective, well-tolerated, and convenient for patients with CIDP in China. The ADHERE study was the largest CIDP trial ever conducted with 322 patients entering Stage 8. The enrolled patient population was representative of the real world of CIDP patients, including treatment-naïve patients off treatment for at least six months and those who had been on IVIG or steroids within the last six months. In Stage 8, we saw that 67% of patients demonstrated evidence of clinical improvements, and up to 78% in patients who received a full series of four doses of VYVGART. Stage B made our primary efficacy endpoints, demonstrating a significantly lower risk of relapse with VYVGART Hytrulo. This was a well-designed, placebo-controlled trial with time to first adjusted in-cap deterioration as its primary endpoint. The p-value was highly significant, driven by a hazard ratio of 0.39 indicating that VYVGART Hytrulo reduces the risk of relapse by 61%. This positive data provides strong clinical evidence that VYVGART Hytrulo meaningfully improves and stabilizes disease symptoms in CIDP patients. As in other studies, efgartigimod treatment had a favorable safety profile. We believe with this profile, there's a clear benefit over existing treatments. Therefore, VYVGART Hytrulo has the potential to dramatically change the treatment paradigm for CIDP in China. We also see significant potential for efgartigimod across multiple indications. We will continue to work with our partner argenx on indication expansion similar to the ADHERE study where Zai contributed a significant number of patients. Regarding our infectious disease portfolio, in May our partner Entasis, now Innoviva, announced that the FDA approved drug DURAL or Sulbactam-Durlobactam for the treatment of adults with hospital-acquired pneumonia and ventilator-associated bacterial pneumonia caused by susceptible strains of Acinetobacter baumannii. Our NDA was accepted by the NMPA in China in February and is currently under priority review. We look forward to bringing this novel drug to China and Asia Pacific versus carbapenem-resistant or CRAB infections that are frequently hard to treat due to multi-drug resistance. Switching now to KarXT, we initiated a clinical bridging study in China in June to support China registration. KarXT is the combination of xanomeline and trospium, which we are developing with our partner Karuna for acute schizophrenia. Karuna plans to submit a new drug application to the FDA in the third quarter of 2023 with a potential launch in the second half of 2024 if approved. KarXT could be a very important treatment option. It represents a new class of medicine for schizophrenia patients in China and globally. And now, Yajing will speak about the progress with our commercial products and financial results. Yajing?

Thank you, Harald. Now, I will discuss our second quarter 2023 financial results compared to the prior year period. Total net product revenue for the second quarter of 2023 was $69 million, compared to $48 million for the same period in 2022, representing year-over-year growth of 45%. On a constant currency basis, growth year-over-year was 53%. The increase in net product revenue was primarily due to increased sales volume and a decrease in negative effects from the COVID-19 pandemic. Our total net product revenue included $43 million for ZEJULA, which increased 26% year-over-year; $14 million for Optune, which increased 18% year-over-year; $7.5 million for QINLOCK, which increased from $0.6 million for the same period in 2022; and $4.6 million for NUZYRA, which increased from $1.3 million for the same period in 2022. Research and development expenses were $77 million for the second quarter of 2023, compared to $66 million for the same period in 2022. The increase in R&D expenses was primarily due to increased research activity and clinical advancements. Selling, general and administrative expenses were $68 million for the second quarter of 2023, compared to $63 million for the same period in 2022. The increase was primarily due to higher general and selling expenses to support new product launches. Zai Lab reported a net loss of $121 million, or a loss per ordinary share of $0.13 for the second quarter of 2023, compared to a net loss of $138 million for the same period in 2022 or a loss per ordinary share of $0.14. The decrease in net loss was primarily due to product revenue growing faster than net operating expenses. We are in a strong financial position, ending the quarter with $876 million in cash, cash equivalents, short-term investments, and restricted cash, compared to $931 million as of March 31, 2023. Based on our operating plan and our anticipated revenue growth, we expect to be able to fund our business until we reach profitability, which is currently expected by the end of 2025. And with that, I would now like to turn the call back over to the operator to open up the line for questions. Operator?

Thank you. Our first question comes from Ziyi Chen from Goldman Sachs. Please go ahead, Ziyi.

Thank you for giving me the opportunity to raise the first questions. I got two questions. I think in the past two weeks in China, the anti-corruption campaign has been one of the key topics in the healthcare industry. So we try to understand a bit more about that and particularly the potential impact on Zai Lab's commercial activities, including efgartigimod, the launch event, because we think that's going to be really important for not only this year, but also over the next few years. Our second question also regarding efgartigimod. While the positive top-line data coming for CIDP is pretty encouraging, we're trying to understand a bit more about the clinical practice difference in China versus the U.S. and how that could potentially affect the clinical development in China and also the potential in China? Thank you.

Great. Thank you for the question. It's Josh Smiley. I'll take the anti-corruption question first, and then ask Harald to provide a little bit more color on the current clinical practice and where we see efgartigimod fitting in CIDP. But anti-corruption first, we don't expect any impacts operationally to our commercial business or practices. In fact, I think we believe that the anti-corruption focus is going to be a positive force in the healthcare industry since it promotes high standards of care. It's a positive point of comparison for companies like Zai Lab. If you look at our portfolio, it’s got highly innovative and differentiated products. So our commercial practice is focused on medical education, and we believe those will be unaffected and unimpacted by any of this focus. I think as you all know, we've always been committed to serving the needs of patients with highly innovative, first-in-class, best-in-class types of products. Our commercial practices adhere to the highest standards of ethics and regulations across China. Also, one of the things that made us very attractive to global partners is our focus on commercial excellence and ethics and compliance. So, again, from a general standpoint, we don't see any changes or operational impact as a result of this focus, and we think the more any country focuses on quality education and emphasis on differentiated products is a good thing long term. As it relates specifically to efgartigimod, again, our focus here with this best-in-class and first-in-class product is educating the healthcare provider community. We've been doing that since the approval we’re in the process of doing that now. We haven't stepped back or been impacted in any way by this emphasis. So, we don't expect there would be any impact on the launch activities that we have planned, and we will move into a full commercial launch later this year. But, for now, we’re educating physicians and providers in major cities and will continue to do that. So, again, overall, we are excited about the opportunity to bring efgartigimod to Chinese patients. We think that the emphasis that we're seeing from the anti-corruption campaign will not impact that and, in fact, will help us from a differentiated perspective. I think transitioning now to CIDP, Harald, maybe you could provide a little bit more on current treatment paradigms and how VYVGART will fit.

Thank you. The question was about clinical practice in the U.S. versus China from CIDP treatment. Overall, the treatment is very similar. It is as we said before, it usually starts with steroids, long-term steroids in those milder patients. If this is necessary, the next step would be IVIG. This is by guidelines that were recently propagated in Europe and in the U.S., and China is using a similar regimen. So steroids followed by IVIG based on supply is the treatment for these patients that is often required for a long time. This is a chronic demyelinating disease and the progression is usually over months to years. These patients, once they have damage to the neurons and to the myelin sheath, they have a downhill course and having only IVIG as a resort at the current moment, efgartigimod really fits nicely into the treatment paradigm here. I do believe that we have a very underserved disease here, and as such it has really high potential to be used, and efgartigimod is filling the gap. Thank you so much for the question.

Thanks, Harald.

Thank you, Josh, and thank you, Harald. Thank you.

Thank you. Our next question comes from the line of Yigal Nochomovitz from Citi. Please ask your question, Yigal.

Hi. Thank you very much for taking the questions. Just a few specific ones on efgartigimod and then one on finances. For VYVGART, for sure MG is there any potential to sell this product on a private pay basis in the second half of the year before you get the NRDL listing?

Hey, Yigal, it’s Josh. Yes, for sure. We are, as I mentioned, we're in the midst of educating providers. Now, we'll have a full commercial launch later this year, and we do expect to certainly expect commercial sales in the fourth quarter. Of course, we're very excited about the opportunity to list on NRDL early in 2024. So we have a lot of activity going into that preparation. But in the meantime, we will look to the private pay and supplemental insurance market for primarily the third and fourth quarter of this year.

Okay. And then, I'm not sure if I saw it, but when are you planning to file for CIDP in China and the timing of the launch?

Yeah, I’ll ask Harald to provide some comments. But we participated in the trial and we will follow argenx at the submission. Harald, if you want to add anything to that?

No, you pretty much said it - we will follow the path that argenx used for CIDP and we will file in due time afterwards.

Okay. The 2024 first half filing, I think…

That's pretty much what we are currently anticipating. Yes.

Okay. And then, I was looking at the slides from the Analyst Day from June, and I noticed that myositis was one of the indications that's got about a threefold higher representation in China, but it's not part of the global Phase 3 registration. I'm just wondering what the thoughts are there. It looked like a potentially attractive opportunity. But it doesn't seem to be emphasized right now.

Harald, if you want to?

Yes. Thanks for the question. It’s indeed one of those many autoimmune diseases for which efgartigimod has a wonderful way of hopefully turning around the course for patients. Myositis is like many of those indications that we are considering. However, we cannot do all of them, but we have decided instead to go with the TED or other indications going forward. These decisions are being made with a partner, and we are in constant discussions with argenx here to select the next indications if we indeed going to myositis or into TED. So, these kinds of indications are open fields for efgartigimod treatment, and we believe that we will over time address the needs of patients in these diseases, which are clearly antibody-driven.

Okay. Thanks, Harald. And then, just two very quick ones. You mentioned the IVIG shortage in China. Is that sort of a permanent feature of the landscape there, or is that expected to resolve at some point? And then lastly on the finances, I think this is the first time you've reported sales on a constant currency basis if I recall. Is there just a reason for the change there? And should we expect that metric going forward? Thank you.

Yeah, just I think on IVIG, I think there is – it’s a perpetual challenge I think in terms of supply. Jonathan, if you want to add anything to that when I'm done here, you can. But I think then on constant currency, Yigal, it’s really just the fact that we've seen over the course of the last year a pretty significant depreciation relative to the U.S. dollar, and we wanted to make sure that given the fact that we report in dollars here but are translating from RMB, we just want to make sure that was clear. So you should expect to see both going forward. We do expect some volatility in the currency and want to make sure that you get – that’s clear investors get a clear picture of the overall operational impact to the business in China as we move forward.

Okay. Thank you.

I think we can go to the next question, please, Amber.

Thank you. Our next question comes from the line of Michael from Jefferies. Please ask your question, Michael.

Hey, guys. Good morning. Good afternoon. It's Michael Yee from Jefferies. We had two questions. One was on efgartigimod. If you could just take a step back for us and remind us how we should think about reimbursement and pricing structure for rare orphan diseases here. I know, for example, I think if you look at – it’s a pretty low number compared to the U.S. pricing. So just walk us through the bookends on how to think about orphan pricing for efgartigimod, given that there's a potential big impact there on how to think about these sales?

Great. Thank you, Michael. I would say that when you look at the patient populations across China for the various indications we’re pursuing with efgartigimod, it’s sort of not really all that rare. I mean, we're looking at probably 400,000 patients across four lead indications now. And so pricing, of course, is going to reflect on those kinds of patient volume opportunities. I would say that we're preparing for a full commercial launch, but we do have a pre-NRDL price that’s in U.S. dollar terms at least for gMG; when we look at cycles and otherwise it’s about $47,000 per year. So that'll be our starting pre-NRDL price. And as we've been very clear with everyone with that approval by June 30th of this year, we expect to enter and be successful with NRDL negotiations for 2024. If you look at price ranges for drugs that are highly differentiated and first-in-class in rare conditions that bring the kind of benefits that we believe efgart does and that the data supports, you should think about pricing on a net basis that is going to be less than the launch, $47,000 price. But certainly, we see a robust pricing opportunity on a relative basis in China. Of course, we'll have more to disclose on that as we work through the negotiations for next year.

So we're really excited about that opportunity. I think then moving on to ZEJULA, yeah, so first, we're pleased with the performance of ZEJULA so far this year. Current market share value for ZEJULA across all indications is 44%. Given that we're focused in ovarian cancer and has broader indications, we're clearly the market share leader in ovarian cancer for PARP inhibitors. Any way you cut it, whether by value or number of prescriptions. We had said we were on track to become the market share leader, and we have, in fact, done that. We've seen really good growth in share over the last year. I think in terms of growth, it’s not a surprise; we've known for a long time that Lynparza will face generic competition at the end of 2024. As you know, we've got a differentiated label. We've got all comers in first line, where Lynparza has only got the BRCA mutation. While there will be, of course, some generic impact in second line and maybe in the more targeted first line settings, we still see lots of room for growth for ZEJULA in 2024 and beyond. If you look at our sales today, about 60% of ZEJULA sales are in the first-line setting, and penetration in the first line for corps is also somewhere around 60% or so. So we still have a lot of room to grow. Penetration in the first line setting where there's great data, and that's where we'd expect to see the good growth even in the face of generic competition in 2025 and beyond. Okay. Thank you. And particularly the $47,000 number. Appreciate that. Thank you, guys.

Thank you. Our next question comes from the line of Anupam Rama from JP Morgan. Please ask your question, Anupam.

Hi. Thank you for taking the questions. This is actually Malcolm Kuno on for Anupam. Just one question from us. Across your commercial portfolio, where are you seeing the most growth in terms of private pay?

Thanks, Malcolm. Yeah, I'll ask maybe Jonathan, who is on the line here, to take the question on private pay and how it’s impacting our portfolio.

Yeah, thanks for the question. So for us, the main product since the beginning of the year that is on private pay is OPTUNE. Because QINLOCK and NUZYRA entered into the NRDL as of June the 1st. So we see pretty good growth for OPTUNE. That growth is coming from increasing KOL patient adoption that is particularly driven by the growth in supplemental health insurance. OPTUNE today is available in about 68 to 70 major cities across China with supplemental insurance. When we started the program in early 2021, we were at low single digits for penetration with supplemental insurance. Today, we're about 30% of our total sales. And we project that to continue to grow quite rapidly. So, you should expect continued strong growth for OPTUNE.

Great. Thank you. Appreciate it.

Thanks, Jonathan. Amber, next question.

Thank you. Our next question comes from the line of Jonathan Chang from Leerink Partners. Please ask your question, Jonathan.

Hi guys. Thanks for taking the questions. Can you please confirm that Zai Lab did not participate in the INNOVATE 3 study? And if that is true, can you provide some color around that? And what does that mean for Zai Lab if the INNOVATE 3 study results positively?

Rafael, do you want to go ahead with that one?

Thank you, Jonathan, for your question. You're right, Zai Lab did not take part in INNOVATE 3, which is a survival study comparing TTFields plus another treatment with paclitaxel alone in patients with platinum-resistant ovarian cancer. Results are expected soon. We did take part in METIS, a study on brain metastases from lung cancer, and also in PANOVA-3, which NovoCure has indicated is moving toward completion of survival after a DMT review. If the INNOVATE 3 study produces positive results, which we are hopeful for, we have options to register with the NMPA for the ovarian cancer indication. The most logical approach would be to conduct a bridging study after consulting with the NMPA, as there is no pharmacokinetic study required for this device. We would then submit that study along with the global package from INNOVATE-3 for approval, which is akin to pre-market approval in the United States and China. We are eagerly awaiting the results and will make decisions based on them.

Got it. Thank you.

Next question comes from the line of Jason Liu from Credit Suisse. Please ask your question, Jason.

Two questions from my end. One on just overall policy; we do know that for National Reimbursement, there had been some kind of changes in rules lately as well. So, going forward, based on some of these renewal rule updates, how does that impact Zai’s products and products that may be up for renewal going forward? And then, second question, just on the strategic plan for five years. We've mentioned again that the break-even target is by 2025, so I was wondering if there can be any more detail on how we plan to meet that target? Thanks.

Thanks, Jason. I think on NRDL, we've been pretty clear that the renewal policies are I think very favorable - good transparency. It should yield lower reductions on a biannual basis. Samantha, I don't know if you want to make any comments on NRDL or policy environment more generally?

Okay.

Okay, got it. Thanks.

I actually have – still in my background, if you cannot hear me better, I'm sorry about that. Yes, I think I agree with Josh. It's especially in terms of new indications coming in with an updated NRDL guidance. It will really help us to say that the price we initially developed. So there are other things like other questions raised about OPTUNE’s new indication. Some of them, we’ve participated in, some we don't. But just be clear, even the first approval in China was based on the U.S. data. And there's a lot of potential space on the unmet needs. We need to work with the regulator locally. So just a few quick comments. Thank you, all.

Thanks, Samantha. And Jason, on your second question around the five-year strategic plan and our cash position and profitability. First, we are currently on track for the guidance that we gave out in June at our Investor Day, which is a 50% compound annual growth rate in sales from ‘23 to ‘28, and profitability by the end of 2025, of course, increasing margins from there on. If you look at the quarter, I think you can see the beginnings of that 50% - greater than 50% growth in sales and good expense management. Of course, that's the formula that will lead to profitability in 2025 and beyond. I think if you look at our cash position and cash burn, it's coming down significantly. So we feel good about where we are from that perspective and have plenty of capacity to invest in all our new launches that start with efgartigimod this year and continue to pursue good targeted business development opportunities. We have plenty of capacity within the R&D line to finish the studies we’re participating in now for registration and be able to bring new ones on board within that same envelope of R&D spend. I’ll ask Yajing Chen to make a few comments specifically about the balance sheet and cash position.

Thank you, Josh. Yes. So, we are in a strong financial position right now. We have $876 million in cash. Regarding revenue growth, we expect 50% in OpEx – leverage as we head down the path to profitability. Secondly, we look at our commercial organization; there are a lot of new launches that present numerous synergies to pursue. We're optimizing our commercial growth in the next five years. With our expenditures in R&D, we have 17 pivotal trials. The slight increase in R&D expenses this year will continue for the next two years. We strive to drive productivity in our R&D organization. On the other hand, we already have a strong infrastructure right now, and we don't expect any loss on that front. Both on the leverage side, we have high revenue growth with significantly lower expenditure expansion that will get us to profitability by the end of 2025.

Thank you, Yajing. And thanks for the questions. I think at this point I would turn it back over to Samantha to close out the call.

Sure. Operator, do you want to say something? Okay, thank you, Josh. 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 third quarter of 2023. Operator, you may now disconnect this call.

This concludes today's conference call. Thank you for participating. You may now disconnect.