Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab Full Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. As a reminder, today's call is being recorded. It's 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, everyone, to Zai Lab's full year 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 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 be making certain forward-looking statements based on our 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 various factors. We will also refer to product revenue growth rate on a constant exchange rate basis, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC for additional information on this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du.

Thank you, Christine. In 2023, we had another year of significant achievements for Zai Lab. We grew our top line by 31% on a constant exchange rate basis. We progressed several key late-stage programs. We added new global assets into our pipeline. Today, we're in a fundamentally stronger position than we have ever been, with a growing base of revenues, a path to profitability, and a strong balance sheet with over US$800 million in cash. We are now entering a period of high growth, and we are focused on three key corporate objectives to substantially grow revenues, achieve profitability, and build our global pipeline. Late last year, we launched VYVGART and it's already off to an excellent start with sales expected to exceed US$70 million this year in generalized myasthenia gravis. Beyond this, we have a series of other potential approvals, including repotrectinib and SUL-DUR later this year, followed by a series of other new product indications, including efgartigimod in chronic inflammatory demyelinating polyneuropathy, bemarituzumab, and KarXT. Each of these products has the potential to meaningfully enhance the growth of our business. We are also deeply committed to building our global pipeline by adding new assets through both our internal discovery efforts and external opportunities, and I look forward to providing updates on our progress in this regard throughout the year. Of course, we'll maintain disciplined capital allocation practices as we strive to achieve profitability. As we execute on these corporate objectives, we expect to deliver value not only to patients but also to our shareholders. Thank you for your support as we continue on our journey of innovation and growth together. And with that, I'll pass the call over to Josh.

Thank you, Samantha, and thank you everyone for joining the call today. Zai Lab delivered strong full year revenue growth of 25% year-over-year and 31% on a constant exchange rate basis, driven by robust volume growth across our existing product portfolio and the launch of VYVGART. These revenue increases were partially offset by an increase in sales rebates. A pivotal achievement for us was the approval and subsequent launch of VYVGART in September, followed by its inclusion in the National Reimbursement Drug List, which became effective at the beginning of this year. Throughout the fourth quarter, we implemented comprehensive commercial strategies to drive awareness and adoption of VYVGART, and we entered 2024 with considerable momentum. I'm also pleased to announce that in 2023, we achieved our goal of having net product revenue exceed the cost of sales and sales and marketing expenses for our commercial products, which we refer to as commercial profitability. Our commitment to financial prudence remains steadfast as we work towards achieving and maintaining profitability. Lastly, we made substantial progress on key clinical development programs such as efgartigimod in CIDP and KarXT in schizophrenia, while further enriching our global pipeline with the introduction of a next-generation DLL3 antibody-drug conjugate. In 2023, we announced our five-year strategic plan aimed at positioning Zai Lab as a leading global biopharmaceutical company characterized by substantial revenue growth, achievement of profitability, and a strong global pipeline. This strategic vision is underpinned by three corporate objectives. We anticipate substantial revenue growth in the coming years, focusing on both new product approvals and label expansions within our existing portfolio. By 2028, we aim to have a significantly larger commercial portfolio with the launch of potential blockbusters. Our goal is to advance at least one global IND into clinical trials annually as we continue to evaluate and pursue synergistic global and regional business development opportunities. As we continue to grow and develop our commercial portfolio and pipeline, we remain focused on scaling with purpose, and this brings us to our third objective, which is to achieve corporate profitability by the end of 2025. To realize this objective, we will enhance efficiency and productivity, prioritize research and development initiatives, and execute cost optimization strategies. Our existing infrastructure is agile and sized to support multiple new launches. We maintained a robust reserve of cash and cash equivalents of $807.6 million, providing ample financial resources to sustain our operations through profitability and beyond. Now, I will briefly review the performance of each of our commercial products and our expectations for 2024.

Thank you, Josh. Let me begin by highlighting some of the key progress updates in our oncology pipeline since our last earnings call, along with our next steps. Starting with bemarituzumab, our FGFR2b inhibitor in collaboration with Amgen. We are enrolling in both FORTITUDE-101 and FORTITUDE-102 Phase 3 study. We estimate an incidence of 126,000 FGFR2b-positive gastric cancer patients each year. Our Tumor Treating Fields franchise has made significant progress with the FDA accepting the filing of their pre-market approval application for TTFields in non-small cell lung cancer. In China, we expect to file a marketing authorization application for TTFields later this year. We are eagerly awaiting pivotal readouts for Tumor Treating Fields in brain metastases from non-small cell lung cancer and in pancreatic cancer. Repotrectinib is under priority review for the treatment of adult patients with locally advanced or metastatic ROS1-positive non-small cell lung cancer in China. We look forward to a potential regulatory approval and launch this year. We will continue to accelerate the regulatory pathway for adagrasib in second-line non-small lung cancer monotherapy. For TIVDAK, we have participated in the confirmatory Phase 3 trial in second-line cervical cancer and continue to extend the trial portion in China, and we intend to file a new drug application in China this year. Additionally, our DLL3 ADC ZL-1310 is progressing through a global Phase 1 study. We anticipate presenting preclinical data at the European Lung Cancer Congress in Prague. We're committed to assessing external opportunities to introduce new products in development this year.

Thank you, Rafael. This is truly a very exciting time for our neuroscience, autoimmune, and infectious diseases portfolio, as we made significant progress in the past year advancing our pipeline. Starting with VYVGART or efgartigimod, we are excited about the positive data for treating patients with chronic inflammatory demyelinating polyneuropathy. The majority of patients continue to be burdened with symptoms that can have a debilitating impact on quality of life. Our partner, argenx, announced that the FDA had accepted for priority review the supplemental Biologics License Application for subcutaneous administered VYVGART in CIDP. We also see significant potential for efgartigimod across multiple additional indications. Turning to KarXT, we continue to enroll patients in the registrational bridging study in Mainland China. We believe that KarXT could become an important new treatment option in China for patients living with schizophrenia. Our NDA for KarXT is under regulatory review in China with a PDUFA goal date of September 26, 2024. Regarding our infectious diseases portfolio, we are looking forward to a potential approval later this year for our treatment of hospital-acquired and ventilator-associated bacterial pneumonia caused by Acinetobacter baumannii. Additionally, we intend to initiate a global Phase II dose-finding trial for ZL-1102, our IL-17 Humabody for the treatment of chronic plaque psoriasis, in mid-2024. So plenty of exciting progress within our pipeline, and I look forward to providing updates at our next earnings call.

Thank you, Harald. Now, I will discuss our full year financial results compared to the prior year. In 2023, total net product revenues grew to $266.7 million. This represents year-over-year growth of 25% or 31% on a constant currency basis. Our revenue growth was driven by increased sales volumes and the launch of VYVGART, partially offset by an increase in our sales rebates to distributors resulting from price reductions. Sales rebates in connection with NRDL listings rose to $13 million for 2023. Growth was also negatively impacted by the temporary effects on the hospital and physician practices resulting from industry-wide anti-corruption enforcement efforts in China in the second half of the year. ZEJULA net product revenue increased 16% year-over-year to $168.8 million in its third year under NRDL. VYVGART net product revenue was $10 million following the launch in China in September 2023. We expect this positive momentum to continue, supplemented by the additional listing for the oral formulation of NUZYRA in January 2024. Our net loss improved by $108 million versus the prior year, reflecting our continued progress towards profitability. We are in a strong financial position, ending the year with a cash position of $807.6 million compared to $1 billion as of December 31, 2022. Based on our operating plan and our anticipated revenue growth, we expect to be able to fund our business through profitability.

We would now like to open the line for questions. Our first question comes from the line of Michael Yee from Jefferies. Please go ahead. Your line is open.

Hi. This is Jiajun Wen on the line for Michael Yee. Thanks for taking my questions and giving great VYVGART guidance, which is obviously above the consensus. I have a couple of questions. Maybe first, can you comment on what your assumptions are for the $70 million in 2024 VYVGART sales guidance? And what visibility you have to be able to guide the $70 million? And for the 1,000 new patients added in January, were they a bonus waiting for the NRDL price to be treated or due to other factors in play? My second question is about the recent investor concerns and rhetoric in Washington, DC about the committee of CCP. Maybe can you comment on what your confidence level is that you believe this won't impact biotech at all and what you're seeing out there? Thank you.

Thank you for the question. It's Josh. I'll address the leadership team regarding the questions, but for the first two, I will respond myself. Regarding VYVGART, we are encouraged by the uptake we've observed. We’re keeping an eye on all the usual indicators for the launch, with new patient starts being particularly crucial. Our confidence in reaching $70 million or more in 2024 stems from the rate of new patient starts and our focus on the top 600 hospitals, which account for about 80% of the sales opportunity. We plan to extend our efforts to 1,000 hospitals in the first half of the year now that we have the NRDL listing. One key factor we monitor is how quickly these hospitals incorporate the NRDL national listing into their local formularies. We have made a strong start, with 1,000 patients in January being a good indicator. We'll provide updates as the year progresses. Overall, we are quite satisfied with the number. Regarding the second question about the political climate in the US and the Biosecure Act or other similar legislation, we have closely reviewed these bills and their implications. They do not affect our operations, and we are confident that, as they are currently proposed, these activities will not influence our work as a biotech company dedicated to delivering innovative medications to patients in China and eventually to the global market.

This is great. Thank you.

Thank you. We will now move on to our next question. Our next question comes from the line of Anupam Rama from JPMorgan. Please go ahead. Your line is open.

Hey, guys. Thanks so much for taking my question. Maybe just a broader question for me. So what evidence or anecdotes do you have that some of the anti-corruption efforts in China have kind of played out and won't have a lingering impact moving forward? Thanks so much.

Thanks, Anupam. It's Josh again. First, we look at how our sales reps are able to interact with their customers. What we see now is we've got good access, we're able to communicate the medical benefits of our products in a way that's helpful to physicians and patients. For now, we feel good about the environment we're operating in, and certainly, our sales and marketing practices are of the highest standards.

Thanks so much for taking my question.

Thank you. We will now move on to our next question. Please standby. Our next question comes from the line of Louise Chen from Cantor. Please go ahead. Your line is open.

Hi, thanks for taking my questions here. So I wanted to ask you about CIDP. If you do get approval, how do you think the uptake will be relative to what you've seen right now for myasthenia gravis? And then what's the bigger opportunity for you, MG or CIDP? Thank you.

Thanks, Louise. I'm going to ask Harald to talk a little bit about the CIDP and answer your question. And if there's anything to wrap up on, I'll come back at the end. Please go ahead, Harald.

Yes. Thank you for the question. The CIDP indication is rather unique. It is an unmet medical need situation here much more so than in many other indications for autoimmune diseases. We see a very, very important role for efgartigimod in that population. Treatment here is just steroids, and many patients end up in wheelchairs. This treatment has a major impact on our financials. Thank you.

I would just add, as Harald mentioned, there's a significant unmet need here. We're looking forward to progressing the CIDP approval process and be ready to go there.

Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Yigal Nochomovitz from Citigroup. Please go ahead. Your line is open.

Yes, hi. Thanks very much. On the VYVGART, I think, Josh, you mentioned it was $32,000 per year based on clinical study usage. How is that syncing up with what you're seeing in the real world? Is that fairly consistent with the clinical trial experience so far? Thanks.

Thanks, Yigal. I'll ask Harald to comment. It's early in the launch, but we have no reason to believe that we're going to see things that are vastly different than what we're seeing around the world.

Not really. We are still too early in the use and the pattern and the numbers of cycles that we would expect to see right now. Given the same labeling as in the U.S., we assume a very similar uptake.

Okay. Thanks. And then, Josh, you referenced that the year-on-year growth for the four products in the market, not including VYVGART, would be comparable to 2023 year-on-year growth. However, could you just kind of expand a little bit on how you're thinking about that year-on-year growth number considering the trajectory in 2023?

Thanks, Yigal. I think first, for Q4, the growth rate for ZEJULA is certainly impacted by rebates associated with NRDL. Overall, we expect the overall sales growth we saw in 2023 can be replicated in 2024.

Okay. Thanks.

Regarding the global study in plaque psoriasis, we are happy to go into Phase 2 with this program. As far as the question about partnering, I think we are always open to partnering offers.

We will evaluate as the data comes in, but it's probably too early at this stage to think about partnering.

Thank you. We'll now move on to our next question. Our next question comes from the line of Linhai Zhao from Goldman Sachs. Please go ahead. Your line is open.

Hi. Thanks for taking my question. I am just wondering for Optune. We know that there are indication expansion opportunities. Could the management share a bit more on the indication expansions?

Rafael, why don't you address that question, please?

Yes. Thank you. We are considering participating in ongoing trials with checkpoint inhibitors, and we're eagerly awaiting the results of pivotal trials. Our intention is to file this year.

As it relates to the 2028 revenue composition, we anticipate strong contributions from our upcoming products, particularly VYVGART, as we navigate through various outcomes.

Thank you.

We would now like to open the line for questions. Our next question comes from the line of Jonathan Chang from Leerink Partners. Please go ahead. Your line is open.

Hey, guys. This is Matt Cowper on for Jonathan. I was just wondering if you can discuss how you see the pricing of VYVGART evolving over time, particularly in the context of NRDL renewal cycles.

I think we achieved a good price at the end of last year in NRDL negotiation. We do expect to maintain good price moving forward.

Hi. Good morning, everyone. Thank you for taking my question. I have a couple of quick questions about VYVGART's patient background since the fourth quarter and also in January. What's the breakdown of refractory patients?

Harald, can you talk about patient backgrounds a bit?

The patient background that we've seen thus far is primarily those who were prior to NRDL reimbursement. This will normalize as NRDL pricing takes effect, and we should start seeing a more predictable patient population going forward.

Regarding commercialization efforts, we expanded our rep team from 100 to 150. We are on track to finalize this expansion over the first half of the year. Our focus remains precise with our chosen target hospitals.

The description for medical devices is evolving rapidly, and we wait for guidelines. If we achieve success, we will look at reimbursement coverage in relation to broader patient demographics.

Thank you. 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 first quarter of 2024.

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