Hello, ladies and gentlemen, thank you for standing by, and welcome to Zai Lab's First Quarter 2025 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. Hello, and welcome, everyone. Today's earnings 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 Research and Development; 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 a variety of factors, including those discussed in our SEC filings. We will also refer to adjusted loss from operations, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on May 8, 2025, 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.

Thanks, Christine. Good morning, and good evening, everyone. Thank you for joining us today. We entered 2025 with a conviction that this will be a pivotal year for Zai Lab, a year where strong execution, disciplined growth, and scientific innovation would begin to shape our long-term trajectory. Let me be clear, our conviction in the strength of our business fundamentals and strategic direction remains strong. As we close out the first quarter, we're reaffirming our full year revenue guidance of between $560 million to $590 million. We anticipate accelerating sales growth in the next three quarters, which will translate into significant operating leverage and keep us on track to achieve profitability by Q4 of this year. Before I turn the call over to Josh to discuss our Q1 performance, I want to share my excitement for the road ahead. Zai Lab has a differentiated and highly potential portfolio, including multiple regional first or best-in-class assets that are poised to deliver significant long-term value. This includes a pipeline of product opportunities like VYVGART and povetacicept as well as other potential blockbusters like bemarituzumab in gastric cancer, KarXT in schizophrenia and TTFields in pancreatic cancer. We are confident in delivering our 2025 revenue targets and surpassing $2 billion by 2028, with the strong momentum carrying well into the 2030s. Our original business is already commercially profitable with a clear growth runway, and we will continue to add new assets with discipline and focus. At the same time, we have made bold investments to accelerate our global R&D pipeline. Our lead global asset, ZL-1310, is a potential first and best-in-class DLL3 ADC. We'll present updated Phase I data in small cell lung cancer at ASCO in June and outline our broader development strategy across multiple indications, including a registrational trial that positions us for a potential FDA approval in 2027, a milestone that would elevate our position on the global stage. Beyond 1310, we're advancing our next wave of innovation. ZL-6201, our novel LRRC15 ADC for solid tumors, and ZL-1503, a first-in-class IL-13/IL-31 bispecific for atopic dermatitis are both expected to enter the clinic this year, further expanding our global oncology immunology pipeline. Looking ahead, we see clear drivers of margin expansion, increased scale with VYVGART, efficient new launches that leverage our existing infrastructure, manufacturing localization and the ramp-up of high-value global assets. These efforts are building Zai Lab into a profitable, high-growth business with global impact. We're just getting started, and I look forward to updating you on our progress throughout the year. Now I'll turn the call over to Josh.

Thank you, Samantha, and good morning and good evening to everyone. Let's start with VYVGART. Following an exceptional 2024, we expect another strong year in 2025 with VYVGART sales growth expected to outpace total revenue growth, driven by increased patient demand, improved treatment continuity, and expanded access. First quarter sales reflected seasonal trends with Chinese New Year driving a temporary decline in patients in January and February. As an IV treatment for a chronic disease, VYVGART is more susceptible to this type of seasonality. That said, patient volumes rebounded in March and April, and we anticipate a return to strong sequential growth throughout the rest of the year. Inventory dynamics also influenced quarterly sales growth. In preparation for the launch of VYVGART Hytrulo, we had some inventory build in Q4. The timing of these movements had a notable impact on reported sales growth. Looking ahead, we are seeing early positive results from our ongoing strategic initiatives to extend treatment duration. In addition, the first expert recommendations for the clinical application of FcRn antagonist in the treatment of gMG were published in February, and a similar update to the national gMG treatment guidelines is expected later this year. Together, these developments provide additional momentum for continued sequential growth and an acceleration in the second half of this year. We're also preparing for the upcoming NRDL cycle, targeting IV renewal for gMG and initial listing of the SC formulation, both of which would take effect on January 1, 2026. Now let me turn to our broader commercial portfolio. All other products, including ZEJULA and NUZYRA, delivered sequential growth supported by NRDL access. We also saw early contributions from AUGTYRO and XACDURO. In particular, XACDURO is showing strong initial demand. Physician feedback has been highly positive, citing XACDURO's rapid efficacy and favorable safety profile in treating CRAB infections, a serious unmet need in China, where an estimated 300,000 Acinetobacter cases occur annually with limited treatment options and poor outcomes. Turning to our financial position. We continue to strengthen efficiency and operating leverage. For the first quarter of 2025, operating loss improved by 20% to $56.3 million and by 25% to $37.1 million on an adjusted basis, keeping us firmly on track to reach profitability in the fourth quarter. Looking ahead, we have a robust set of late-stage opportunities to drive substantial growth. Three regulatory reviews are currently underway, including KarXT for schizophrenia and TIVDAK for cervical cancer, and we anticipate at least three additional submissions this year, including bemarituzumab for gastric cancer, TTFields for pancreatic cancer, and VYVGART's prefilled syringe for gMG and CIDP. We expect to optimize our commercial footprint by leveraging our existing commercial infrastructure to efficiently support future launches. For example, deploying our ZEJULA team to support TIVDAK and our QINLOCK team for bemarituzumab. For targeted opportunities like KarXT, we can effectively reach over 85% of the market with a focused team of approximately 150 sales representatives. In parallel, we are advancing further operational efficiencies as VYVGART scales and as we localize manufacturing for key products to more cost-effectively support our regional portfolio. These efforts are central to our strategy for achieving profitability alongside long-term revenue growth. With a fast-growing Greater China business, a deepening global pipeline and disciplined financial execution, we are well positioned to deliver substantial value for our shareholders in 2025 and beyond. And with that, I'll pass the call over to Rafael to discuss the great progress within our pipeline.

Thank you, Josh. I'll start by highlighting the key progress updates in our global pipeline since our last earnings call, along with our next steps. Starting with ZL-1310, our potential first and best-in-class DLL3 ADC for small cell lung cancer. Last year, we shared promising preliminary monotherapy results from the Phase 1 dose escalation cohort, demonstrating antitumor responses in the majority of patients with extensive stage small cell lung cancer, including in brain lesions with good tolerability. We completed enrollment in the dose escalation monotherapy cohort. Enrollment in the ongoing monotherapy dose optimization cohort is progressing rapidly, and we look forward to presenting updated data from both cohorts of the global Phase 1 study at the ASCO meeting in June this year. We're also pleased with ongoing regulatory discussions with the FDA, and we are on track to initiate a pivotal study in small cell lung cancer later this year, positioning us for a potential accelerated approval in 2027. We're also assessing potential combinations in the first-line setting, and we expect to provide data in the second half of this year. As DLL3 is also highly expressed in other neuroendocrine tumors, we're exploring its therapeutic potential beyond small cell lung cancer. A global Phase 1/2 study was initiated in April to explore ZL-1310 in this indication. Next, on our other global oncology assets. At the American Association for Cancer Research meeting, we presented new data for two of our internally developed oncology therapies, ZL-6201 and ZL-1222. ZL-6201 is a novel ADC with an internally developed high affinity and specificity for LRRC15 antibody and next-generation payload linker. LRRC15 is an attractive target for cancer therapy due to its overexpression in multiple solid tumors such as sarcoma, glioblastoma and melanoma as well as its expression in fibroblasts in the tumor microenvironment of multiple tumors such as breast, lung and colorectal cancer. The payload linker system releases the payload by cleavage both extracellularly in the tumor microenvironment and intracellularly within the cellular lysosomes once the antibody is internalized. We are advancing ZL-6201 into a global Phase 1 study this year. ZL-1222 is a PD-1 targeted next-generation IL-12 immunocytokine designed to leverage the antitumor potential of IL-12 while lowering the associated systemic toxicity. The IL-12 mutant is engineered to remain in a less potent state, reducing systemic IL-12 induced toxicity. A Cis-mediated signaling process is initiated when ZL-1222 binds to PD-1. Findings from its preclinical studies demonstrate potent antitumor activity in both anti-PD-1 sensitive and resistant tumor models with improved systemic safety. These results suggest a potential role in patients who are unresponsive or resistant to current immuno-oncology therapies. We also expect to advance ZL-1503, an IL-13/IL-31 bispecific antibody for atopic dermatitis into Phase 1 development this year, and we'll present a progress update in June. We are committed to expanding our global pipeline and progressing at least one global product to IND submission stage every year. Now moving on to our key late-stage regional programs, and starting with immunology. Our partner, argenx, announced in April that the U.S. FDA approved VYVGART Hytrulo prefilled syringe, or PFS, for self-injection in generalized myasthenia gravis and chronic inflammatory demyelinating polyneuropathy. It is the third administration option, providing additional flexibility and convenience for patients, and we're planning a CMC submission in China later this year. We'll continue to explore the potential of efgartigimod to treat other IgG-mediated autoimmune indications, including thyroid eye disease, myositis, seronegative gMG, ocular MG and lupus nephritis. In 2025, we expect top line results from the global Phase 3 study in seronegative gMG and the Phase 2 of lupus nephritis. In January this year, we strengthened our regional immunology franchise with a pipeline in a product opportunity with povetacicept, a novel dual B-cell activating factor, or BAFF, and a proliferation-inducing ligand or APRIL antagonist. We're leveraging our regional expertise and established footprint with efgartigimod to accelerate its development in renal diseases, namely IgAN and primary membranous nephropathy. China has already joined the global Phase 3 RAINIER trial in IgAN and enrollment of the interim analysis cohort has completed. Our partner, Vertex, will conduct an interim analysis once this cohort reaches 36 weeks of treatment with the potential to file for accelerated approval in the U.S. in the first half of 2026. We also plan to join the global pivotal Phase 2/3 study in PMN this year. There are no approved therapies targeting the underlying cause of the disease, and current treatments rely on immunosuppressants or anti-CD20 monoclonal antibodies, which are associated with infection and myelosuppression. In addition, a subset of these patients experiences progressive kidney function impairment despite available therapies. In neuroscience, KarXT for schizophrenia is under review by China's NMPA since the acceptance of the NDA earlier this year, and we are awaiting the data readout from the global Phase 3 ADAPT-2 study in Alzheimer's disease psychosis later this year. In oncology, for bemarituzumab, our first-in-class FGFR2b targeting therapy for gastric cancer, we expect the data readout from the global Phase 3 FORTITUDE-101 study in the second quarter of this year. Gastric cancer poses a significant threat in China with over 350,000 new cases each year and a five-year survival rate of less than 10% in advanced stages. There are currently no approved therapies specifically targeting FGFR2b overexpression in gastric cancer, and we look forward to bringing this potentially transformative therapy to patients as quickly as possible. We continue to make great progress across our global pipeline, and we will continue to enrich it and execute existing programs with speed and precision. I look forward to sharing further updates in the coming quarters. And now Yajing will give an overview of our financial results.

Thank you, Rafael. Now I will discuss highlights from our first quarter 2025 financial results compared to the prior year period. Total revenue grew 22% year-over-year to $106.5 million in the first quarter, driven by increased sales for VYVGART, ZEJULA, and NUZYRA. Our base business remains strong, and we began to see early contributions from our newly launched products. Our focus on financial discipline and efficiency efforts was also reflected on the expense side. R&D and SG&A as a percentage of revenue declined significantly year-over-year. R&D expenses for the first quarter increased 11% year-over-year due to upfront fees totaling $20 million for our license and collaboration agreements. Other R&D expenses decreased as a result of resource prioritization and efficiency efforts. SG&A expenses for the first quarter decreased 8% year-over-year, mainly due to strategic resource allocation and efficiency improvements. As a result of the operating leverage we are building into our business, our loss from operations decreased 20% for the first quarter to $56.3 million. When you adjust our loss from operations to exclude certain non-cash items, specifically depreciation, amortization and share based compensation, we had an adjusted loss from operations of $37.1 million in the first quarter, reflecting year-over-year improvement of 25%. Based on our operating plan and our anticipated revenue growth, we expect to achieve profitability on an adjusted basis by the fourth quarter of this year. Looking ahead, we expect to deliver a quarter-over-quarter total revenue growth in 2025 with a meaningful acceleration anticipated in the later part of the year. We remain confident in reaffirming our full year 2025 total revenue guidance in the range of $560 million to $590 million. This revenue forecast reflects strong growth for the VYVGART franchise, continued growth from our base business, including NUZYRA and ZEJULA and contributions from our newly launched products, including AUGTYRO and XACDURO. We are in a strong financial position, ending the quarter with a cash position of $857.3 million. And with that, I would now like to turn the call back over to the operator to open up the line for questions.

Our first question comes from Michael Yee from Jefferies. Please go ahead.

Thank you. Good morning. Congrats on the results and the outlook for the year. We had two questions. First, just on VYVGART, maybe the team could add a little bit more color. Obviously, the number was sequentially down and would be eye opening. But can you just maybe describe was a lot of the sequential change inventory changes or just seasonality of purchasing? And is your confidence in the guidance based specifically on your awareness of what's going on in April and into May? And then the second question is a strategic question, maybe for Samantha. Obviously, you're seeking to become more of a global company. Are you seeking to bring in more Chinese assets to be wholly owned this year? And how should we think about some more deals in terms of a wholly owned pipeline? Thank you.

Thanks, Mike. It's Josh. I'll start with VYVGART and then hand it over to Samantha to make some comments on your second question. First on VYVGART, I would say, as you heard in the call and in our press release, we're reiterating our total sales guidance for the year, $560 million to $590 million. That implies a growth rate in the mid to high 40s depending on the range. And we are also reiterating that we expect VYVGART itself to grow faster than the overall sales growth. So I think if you look at Q1, to your question, we did see seasonality in January and February and patient utilization was affected. Of course, all products experience this to some degree in China given Chinese New Year, particularly IV products like VYVGART, which require, when you're in a cycle, a weekly trip to the hospital for an infusion. As probably anticipated, we saw some of those visits being delayed. We observed a good recovery of patient volumes and utilization in March and really a strong April. If we look at our April patient utilization and patient numbers, it's our highest ever and at least 10% better than anything we've seen to date. So we're quite confident about the progress for the year for VYVGART. I believe that the utilization piece was an issue in January and February and not totally unexpected given what we know about China. Hopefully, in future years, this will be less of an issue as we have products or formulations like subcutaneous and the prefilled syringe, which wouldn't require hospital visits per se. We did have some inventory moves as well as you asked. As you remember from Q4, we got approval for Hytrulo last year. We did ship Hytrulo to get it into the channel. Until we get NRDL listing, which we're pursuing for 2026, we're going to see limited usage there. So there was some inventory move there. But again, I'd say we're quite confident about the outlook for the year for VYVGART to see really good progress in terms of new patients and patient duration, and we're seeing that in April and May, as you suggested. For your question about overall strategic direction, how we're thinking about the company, I'll ask Samantha to make some comments.

Hi, thank you, Josh. Thank you, Michael, for the question. As you know, we focus on regional rights in China as well as global rights. We have a strong business development team with extensive coverage in China and worldwide. We have high standards, but if we identify opportunities with significant potential for unique products, we will pursue them. Thank you, Michael.

Thank you for the question. One moment for the next question. Our next question comes from the line of Louise Chen from Scotiabank. Please ask your question.

Hi, thank you for taking my questions here. So I wanted to ask you a few questions here. First of all, are you comfortable with where consensus is today for VYVGART and then for the fiscal year revenues? And then also wanted to ask you on bema 101 study, we would have expected to see something here. Has there been any delay or anything to read into this? Thank you.

Thanks, Louise. It's Josh. I'll do the first piece and then Rafael can talk about bema. I think first, as it relates to overall consensus, as I mentioned, we're reaffirming $560 million to $590 million for the year. We feel good about that range. And we're not giving specific product level guidance. But I think if you look at VYVGART, I think the consensus is sort of in line with what I mentioned in the last question, which is VYVGART sales for the full year growing at faster than the overall implied business rate. So I think that puts us in range with what I see for consensus now. Again, we're off to a really good start for the second quarter and feel good about the progress for VYVGART and for the business overall. Rafael, you can talk about bema, please?

Sure. So bema for the FORTITUDE-101 study, which is the chemotherapy plus/minus bema in FGFR2b expressing tumors, the data is expected in the second quarter of this year. I would not really read anything into whether or not it has been released yet or not. It's an interim analysis, and we're pretty excited both about the design of the study and also the potential for this drug to really impact the lives of patients with these tumors with this alteration, particularly based on the results of the Phase 2 study, which was quite large compared to what we've been seeing with nivolumab and claudin and some of the other products that have been added to gastric cancer. So I would just say stay tuned, and I'm confident that we will get this data in the second quarter.

Thank you.

Thank you for the question. One moment for the next question. Your next question comes from the line of Jonathan Chang from Leerink Partners. Please go ahead.

Hi, good morning. This is Yen-Der Li on for Jonathan Chang. Thanks for taking my question. So I have two questions. The first one, can you provide some color on how the recent change in the FDA and also maybe tariff might impact Zai Lab going forward? And how do you estimate these risks in the current financial guidance? Thank you.

I'll start with the tariff piece and then ask Rafael to make some comments on FDA. First on tariffs, we don't see any impact to our business today or anticipated in the future. Obviously, tariffs are sort of a fluid situation. But if you look at where we sell product today in China, we have local rights to manufacture product. Any of our regional deals we can manufacture in China, we do that, for example, with ZEJULA and are in the process for our big new launches like bema and KarXT to bring that manufacturing locally. Other products today that we don't make locally like VYVGART are sourced out of Europe and Asia, not out of the U.S. So we really anticipate no impact on tariffs today for our revenue base. As we think about going forward and products like DLL3, which we anticipate launching in the U.S. in 2027, we'll manufacture that locally from a commercial perspective. So we won't be exposed to tariffs coming into the U.S. there either. Rafael, if you want to make some comments about recent FDA interactions?

Yes. Briefly, I would say that most of our products involve interactions with CDER at the FDA. We recently had discussions with the FDA regarding 1310 and did not notice any differences based on my experience with drug development concerning the nature of those interactions. This is a broader question regarding how the FDA will develop in the future with the new commissioner and the appointments of leaders for both CBER and CDER, but we will see how that unfolds. So far, we have not observed any impact on their guidance or the manner in which we have been able to engage with them, including timelines.

Understood. Very helpful. Thank you. And my second question is about a study design. Thank you.

Our interactions with the FDA have been very productive. We have generated a significant amount of monotherapy data. The current plan is to launch a randomized pivotal trial for registration. We have reasons to believe that the accelerated approval pathway remains viable and that we can achieve this in a randomized trial by comparing response rates. The final post-approval commitment will be included in the same study, focusing on overall survival. Thus, the study will be designed to assess overall survival, and response rate will serve as an interim analysis for accelerated approval. This is our current plan, and we intend to initiate that study this year once we determine the appropriate dose.

Understood. Thank you so much.

Thank you for the questions. One moment for the next question. Next question comes from the line of Li Watsek from Cantor. Please go ahead.

Hi, guys. Thanks for taking our questions. Maybe a couple here. Just wondering on VYVGART, can you talk a little bit about the competitive landscape of gMG in China, given there are some other therapies that might get approval in the near term, how do you see the sort of competitive dynamics playing out in the near and longer term? And the second question is on the BD efforts. Just given the uncertainty of tariffs and geopolitical tensions, what are you seeing in terms of big pharma's appetite to outlicensing the commercial rights in China? And just in general, anything from the macro side have shifted your thinking around in-licensing?

Thanks, Li. It's Josh. I'll do VYVGART and ask Jonathan to make some comments on business development. I think on VYVGART, first, I'd just remind everybody, there's a very substantial opportunity in China for gMG, about 170,000 patients. While we're really happy with where we are today, we still have less than 10% of patients who are getting a newer biologic therapy. So in one sense, having more newer agents approved and in the market is going to be good for everyone, and it will be good for VYVGART as we continue to educate physicians and get them to adopt the new and best therapies. Then as we compare where we are with VYVGART to other recent approvals or anticipated approvals, we love the position we're in. We've got a comprehensive data set. I think if you look at the results around activities of daily living or getting back to as much normalcy as possible, our data is strong, compelling and stacks up well against any of the FcRns or other newer agents that are either approved or headed towards approval. We obviously have this year as the only newer agent on NRDL, and we'll continue to build our experience and expertise there. But I think longer term, between efficacy, and if you look at safety across the FcRns and other agents, again, we feel very good about where we are from that perspective. So we welcome new approvals. And again, I think it's going to be good for patients and good for treating physicians to have options and to have more education in the market. And it doesn't change our view in terms of how we see progress this year. As I've said, we're quite excited about what we're seeing today in the market with VYVGART. Of course, we have a series of new indications coming as well that will help, I think, bolster our competitiveness versus anticipated new approvals. We've got CIDP, new formulations coming that we'll be pursuing for NRDL, and over the course of the next few years, we'll have more supplemental indications for MG. We also anticipate other indications, including things like thyroid eye disease where we're running trials in conjunction with argenx today. I think the future is very bright for VYVGART and for patients in China with gMG. Jonathan, if you want to address the business development question?

Sure. Thanks, Josh, and thanks for the question. On the business development sort of impact from the geopolitical situation, I think the first is that so far, there have been no suggestions, no sort of regulatory prohibition from the administration regarding any licensing transactions between life sciences companies. So far, I think it's business as usual. We have been doing deals earlier this year as well. So we continue to evaluate deals. In fact, sometimes I think volatility creates opportunities. Multinational companies are increasingly looking to China for innovation and looking to China for commercial opportunities. There has been a lot of visits, increasing number of visits by multinational business development heads as well as CEOs. Just today, actually, Samantha and I met several multinational CEOs here. So we expect to continue to do deals in this environment. And obviously, as Samantha earlier said, I think the bar is always very high for us. Quality is the most important. But I don't think current situations will prohibit us certainly not from doing any deals. Thank you.

Great. Thanks guys.

Thank you for the questions. Our next question comes from the line of Yigal Nochomovitz from Citi. Please go ahead.

Hi, thank you. I have one for Josh and two for Rafael. Josh, could you just outline the scenarios regarding how NRDL will help with the negotiation of the price for VYVGART? I'm just curious, is there some sort of a cap in terms of how much you can get negotiated down? Or is there a floor? And will this apply to both IV and subcutaneous pricing terms? For Rafael, with the FORTITUDE-101 and FORTITUDE-102, I'm just curious how you're thinking about the competitive dynamics and whether the Jazz trial with zanidatamab chemo and the BeiGene PD-1 impacts your thinking about the competitive landscape or maybe not so much considering you're focused on FGFR2b patients? Lastly, with the ADCs, the DLL3 and the LRRC15, just curious about the antibody engineering there and whether you've tuned these antibodies to cleave mainly intracellularly or if there's also extracellular cleavage. Thank you.

Thanks, Yigal. We've got Jonathan on the phone. Jonathan leads our pricing work in China. So I'll ask him to comment on the NRDL process for VYVGART for 2026, and then we can pass it on to Rafael.

Sure. You know, Yigal, I think for VYVGART, we have two formulations, first of all. Each of these formulations, the subcutaneous and IV will be treated as different products. So we have a lot of flexibility when it comes to pricing. Of course, the NRDL negotiation will happen potentially earlier this year as well. So as they do this, sort of the timelines are brought forward. They also look at the sales from last year in quarter one of this year. But we expect potential modest discounts to the price, obviously, subject to negotiations. It's too early to comment on the precise pricing, but we would expect probably some discount there.

Yes, I'll take the R&D question. So yes, there is some competition in gastric cancer. It is generally for HER2-negative disease. We still have yet to see what effect these new products will have. Clearly, they've been promising in other settings, as this is specific for an alteration that is present in about one-third of patients, and we're looking at least 10% expression. So these are patients where their tumors are driven by this oncogene and we are silencing this oncogene. We feel pretty positive about it. Our second study also includes a PD-1 inhibitor, as you know, nivolumab. So we will have to see what happens with the competition, but we think these studies are pretty well designed and they're targeted to the alteration that the disease manifests. With regards to the antibodies, DLL3 was engineered to have picomolar activity, and I think that's bearing out in some of the results we're seeing in the clinic. LRRC15 is internally developed, and they both are conjugated with a system whereby there's a release of the payload after internalization of the intact molecule as well as cleavage in the extracellular matrix. So that's why with LRRC15, we're excited about the fact that the target may just be a flag, and whether it's in the tumor or it's in the malignant fibroblast, there will still be a strong bystander effect. So we don't see high levels at all of the payload in circulation, but it is in the tumor microenvironment, and I think it's due to the second-generation payload linker system.

Thank you.

Thank you for the question. Our next question comes from Anupam Rama from JPMorgan. Please go ahead.

Hi guys, thanks so much for taking the question. Quick one for me, just what's going to be the size and scope of the 1310 ASCO update? And what would you have us focus on in the data at ASCO? Thanks so much.

The 1310 data presented involved 25 patients, with 19 eligible for efficacy assessment during dose escalation. Since then, we have finished the dose escalation with additional patients and ensured that all had the chance for a confirmatory scan. We will have the entire data set for dose escalation available. Additionally, we will present new information regarding dose optimization, focusing on which dose or doses appear most promising for inclusion in the pivotal trial for the Phase 3 study. In terms of numbers, we have enrolled a few more patients since the ENA presentation in the dose escalation, and we anticipate adding around 50 patients for the dose optimization. My emphasis will be on identifying the dose that provides the broadest therapeutic benefit, as we continue our dose optimization with the knowledge we have gathered quickly, while ensuring that follow-up times are manageable. Nonetheless, we will have response data and evidence of response durability from the earliest patients we enroll.

Thanks so much for taking our questions.

Thank you for the question. One moment for the next question. Our next question comes from the line of Jack Lin from Morgan Stanley. Please go ahead.

Hi, good morning. Are you able to hear me?

Yes.

Hi, thank you for taking my question. I have two quick ones. First, I'm curious about the significant improvement in SG&A. Could you share more about the initiatives taken this quarter to achieve this reduction? How much of this will continue in the following quarters? Are many of these efforts one-time actions? It would be helpful to understand how this was accomplished. Secondly, I’d like to know our current status regarding CTF. I see that you are presenting pancreatic cancer data at ASCO, so I am wondering about our current focus and how our strategy is evolving moving forward. Thank you.

Thanks for the question. On the financial results and SG&A specifically, I think if you look at our Q1, I think it's representative of what you should expect through the year. Obviously, we have ups and downs as it relates to marketing programs. But our fixed resource base to support the products that we have today and to prepare for launches for the big things coming like COVEMTI and bemarituzumab are pretty stable. So I think this year, SG&A should be modest, very modest growth versus last year. And I think we're happy with where we've started the year from a cost base and from a profitability perspective. As Yajing mentioned, if you look at our adjusted net loss, taking out non-cash charges, we were at a $37 million loss. That includes though $20 million of R&D upfront payments for the two new assets we brought in, in Q1. So if you take that out, we're at about a $17 million loss. As we've mentioned, we see sales accelerating through the year. As they do on a relatively fixed SG&A base and R&D, which should be pretty stable as well, we feel quite confident about our ability to achieve profitability this year. So SG&A is rightsizing the organization to optimize the launches and products we have today. We've taken a lot of actions in the last few years to try to get to that point, which is why we have a lot of confidence in profitability later this year and expanding operating margins as we get into the 2026 to 2028 timeframe. Rafael, you can address the second part of the question.

Yes. So with regards to the TTF, as you correctly said, there will be an oral presentation on the PANOVA-3 study, which is in locally advanced pancreatic cancer. So these are inoperable patients that don't have metastatic disease, and it was announced that it was positive for overall survival, which is a really important outcome given that this is a very difficult and unmet need in that there hasn't been any intervention that improved survival in this setting. So we plan to file this year with our partner, Novocure. We've started the regulatory discussions in China, and we think that we are well on our way to do this. With regards to LUNAR, we've deprioritized this given the fact that PANOVA-3 is an important indication for us. Together with gastric cancer, as well as GIST, it positions us well in the GI setting in China with transformational products. This is our plan this year, and we're working very well with Novocure to ensure that this submission can go into this year.

Understood. Thank you both.

Thank you for the question. One moment for the next question. It comes from Rebecca Liang from Bernstein. Please go ahead.

Hi, thank you for taking my question. My first question is on R&D. So it seems that you've highlighted quite a few in-house developed assets. Are you shifting the strategy from more in-licensing to more in-house focus? And if so, are we expecting to see more in-house developed assets to enter into the clinical phase in the coming years? If so, could you provide some guidance as to the pace of such assets? And my second question is on the topic of the FDA changes recently. There's been a new appointment of CDER Head as well as the job cuts from FDA. So how do you expect these to impact the approval process, for example, the upcoming talks regarding DLL3 and the whole accelerated track that you mentioned? Thank you.

Thanks for the question. It's Josh. First, I think we're really excited about the progress of the internal pipeline. So we'll give Rafael a chance to talk about that. I think you should expect us to continue to be balanced as we move forward, looking at both really good internal assets as well as opportunities to bring in best-in-class products for both the globe and for China over the coming years. But with that introduction, Rafael, why don't you talk a little bit about the internal pipeline and then the FDA question.

Yes. With regards to the new agents that we will bring forward in development, I think it will be a blend of internally discovered products as well as BD products, and it will match our strategy. For instance, in oncology, we will focus on ADCs and immuno-oncology with improved checkpoint inhibitors as well as in the future T-cell engagers. So relatively sort of confined area where we have these agents already made or in development, we will utilize them, and where we find high-quality products, we will utilize our BD capabilities to do this. As I said, our goal is to have one IND, whether internally sourced or externally sourced every year. This year, we plan to have two, LRRC15 or 6201 and 1503, which is IL13/31 for atopic dermatitis. It just so happened that these two are internally discovered, but that doesn't mean that will be the exclusive path going forward. With regards to the FDA, I made some comments before about the experience that we’ve had so far. Of course, it’s early as FDA begins to reshape itself with new leaders coming in. Again, we deal with CDER, where we’ve yet to see the appointment there. With CBER, there have been some comments about accelerated approval, but I think those comments were made more in the context of accelerated approvals based on single arms. There hasn’t been any indication that I’ve heard of regarding accelerated approval in the context of randomized trials. In our case with 1310, that shouldn’t be the case since our pathway forward for accelerated approval will be an interim analysis on a randomized study against standard of care. That’s all I have to say for now, as it is early in the reshaping of the agency, and we will have to see how it evolves. But so far, we have seen no changes with regards to our history of developing drugs in the past.

Thank you. Very clear.

Our final question comes from the line once again from Linhai Zhao from Goldman Sachs. Please go ahead.

Hi, thanks for taking my question. This is Linhai from Goldman. My question is on KarXT, particularly regarding the recent top line on the Phase 3 ARISE trial, what would be the read across the China market, I know that Zai Lab is not participating.

Yes. ARISE was a study where KarXT was used as an adjunctive therapy to standard therapy in schizophrenia. It didn't meet the primary endpoint. But with regards to the indication of schizophrenia in China, it really has no impact. Our regulatory submission was based on a study that mimicked the EMERGENT studies, and it was positive in all endpoints. More than 80% of patients with schizophrenia in China are treated with single agent. Clearly, there are some clear advantages of this product with regards to toxicity over the classical antipsychotics. The patients that require adjuvant therapy are difficult to treat patients, and this is not a practice that occurs in China. So there’s no impact with regard to that. Likewise, we see no impact with regard to ADP, where obviously, those patients were not included in the ARISE study, and we're just awaiting the results of ADEPT-2 in the second half of this year where we participated together with Karuna and BMS.

Great. Thank you. A quick follow-up on that would be, since you mentioned that the majority of schizophrenia patients in China are primarily treated with a single agent. If that's the case, what's your perspective based on the communications with the KOLs in China? What would be the potential treatment position for KarXT? Do you see it being used as an initial usage for patients when they were at the initial acute stage, or more possibly used as a longer-term maintenance stage while the patients are having better control over the positive symptoms while they are trying to get more prepared when getting back to their normal life?

Yes. My impression is that this is an agent that will be used novel in patients with schizophrenia. I think the differences with regards to toxicity are really stark in favor of this drug. It's also a drug that has the potential to be effective in multiple other indications. We will see other indications coming through as BMS develops this drug, and we will partner with them on other indications. But with regards to schizophrenia, we think that this will be used de novo. There is really data that goes now beyond 52 weeks showing that this safety profile is maintained over the long term. The logical conclusion is that it should become the treatment of choice.

Got it. Thanks for the very comprehensive answers. That concludes my question. Thank you.

Thank you for the question. There are no more questions on the line. I'd like to hand the call back to management for closing.

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 second quarter of 2025. Operator, you may now disconnect this call.

That concludes today's conference call. Thank you all for participating. You may now disconnect your lines.