Hi.
Hello, everyone. Thanks for joining us. My name is Jonathan Chang. I'm part of the Lyric Partners' equity research team. It's my pleasure to host the management team of Zai Lab. And we have with us today President and COO Josh Smiley. Thanks for joining us, Josh.
Thank you, Jonathan.
Let's get started. Would you please briefly introduce the company?
Sure. Yeah. Zai Lab, we're actually into our second decade. We were founded in 2014. Our founder, Samantha Du, was a founding member at HUTCHMED and worked in venture capital and saw an opportunity with the opening in China for innovative drugs with the inclusion of things like NRDL and IP harmonization. An opportunity to form a new company to serve two purposes. First, to help Western biotechs bring their innovation to China and navigate the regulatory and commercial environment. Then to leverage our own capabilities to bring innovation out of our labs and out of China into the rest of the world. Ten years in, we've made a tremendous amount of progress. We've talked about this year being an inflection point for the company. In China, we now have 10 products that are either on the market or in the last stages of regulatory review.
We've guided this year to sales in China between $560 million and $590 million. Our biggest product is Zejula, a PARP inhibitor. It's the market share leader for ovarian cancer in China. Our fastest growing is VYVGART for myasthenia gravis. Sold $94 million last year. Its first full year of launch and first year on NRDL, which we think is one of the best immunology launches in China since the inclusion of NRDL. We just submitted earlier this, or at the end of last year, Cobenfy for schizophrenia in conjunction with our partner, BMS. We're looking forward. There's a huge opportunity in China for that medicine. We're waiting for data very soon on bemarituzumab, which is for first-line gastric cancer. Gastric cancer is significantly overrepresented in Asian patients. That's a big opportunity as well. The business in China is profitable today.
The commercial organization is up and humming. We're looking forward to multiple launches over the next number of years. In 2024, we had a really exciting year as it relates to the pipeline, the global part of the pipeline, or the second piece, Jonathan, that I mentioned. In October, we had five projects that are either in clinical development with global applications or rights or close to starting in a phase I trial, the most prominent of which is a DLL3 ADC for small cell lung cancer. Last year at Barcelona at the ENA Triple Meeting, we presented data on the initial dose expansion phase of patients with second-line, later, and later small cell lung cancer. I think this was really well received, ORR of over 70%, good safety profile.
What we have said is we'll start a pivotal trial this year, second half of this year, in second-line small cell lung cancer with an opportunity to generate data in 2026 and submit and launch in the U.S. in 2027. Our first U.S. opportunity to commercialize will be in 2027. This is followed by other products in development. I think one of the most exciting, which is an IL-13/31 bispecific for atopic dermatitis. We'll put that into atopic dermatitis patients in a phase I trial later this year.
Great. Thank you for the introduction. Can you talk about how the healthcare landscape is evolving in China and how Zai Lab is positioned in that landscape?
Yeah. As I mentioned, the company was sort of founded with the idea or the tailwind of the changes and opening in China for innovative drugs. This started with sort of universal healthcare through the NRDL. About 95% of patients today in China are covered through a national government reimbursement system. That includes drugs. We saw harmonization of regulatory paths. Now in China, you're able to leverage data from global trials to submit, where in the past, of course, there were usually somewhere in the range of 3-5-10 year difference lags between when a Western drug was approved in the U.S. and when it was approved in China. I think strong, consistent IP protection. The NRDL, which is the mechanism for reimbursement for innovative drugs, was launched and has had a tendency to push drug prices down pretty low relative to the West.
We've seen, I think, a lot of very good incremental improvements over the last few years. I would just point to the drug I mentioned earlier, Vyvgart, which got NRDL listing last year and was listed at an annual cost of about $32,000 per year, which we, and I think investors, all felt really good. I mean, I think a good signal of the value that China is placing on innovative drugs for targeted conditions where you're meeting a really significant unmet need. There have been incremental changes to the NRDL over the last few years, including something called simplified renewal, which gives more predictability in pricing over time. I think it's much closer to what I'm accustomed to seeing in Japan, for example.
Most recently, there was a new category that was developed called category C, which provides different kinds of incentives and opportunities for very innovative drugs before or if they're not on NRDL. Lots of incremental moves to, I think, support innovative pricing. I mean, of course, we would love it to be on an absolute basis closer to the U.S. I think on a relative basis, we're seeing good policy moves and good support for innovative drugs in China.
Great. On tariffs and the potential impact of those. It's in the headlines these days. I'm not sure if you're thinking about that.
Sure. Yeah. Of course, in our business, I mean, the majority of our employees and our global headquarters are in Shanghai. We are seen as a China biotech, although I'm based in Cambridge and we've got a global footprint for sure. We have to follow all these kind of legislations and other things. I think tariffs for us, I would say, is a non-issue right now. Most of what we do to generate revenue today or all of what we do to generate revenue and most of our cost base is based in China, so not subject to the U.S. tariffs. At least as of now, I don't think subject to any reciprocal tariffs or otherwise. I think as the U.S. piece is implemented, it really does not have an impact on us.
I mean, at some point, it may impact clinical trial materials or other things that we bring over. The cost of those relative to our overall cost base are minuscule. I'd say it's a non-event and operationally won't be an issue for us.
Understood. Now, business development has been a key part of the Zai Lab story. What are you looking for in future business development deals? What should investors be expecting on this front in 2025?
Sure. As I mentioned, we have two key areas of focus in terms of strategy for the company. One is the regional, what we call the regional business. That is China. The global piece is U.S. and everything else. We point our business development activities at both. I think in China, we will continue to look for assets that complement the franchises that we have today. As I mentioned, we have 10 products that are either on the market or close to being on the market in three therapeutic areas: oncology, immunology, and neuroscience, or neuropsych when we launch Cobenfy. We will look for assets that can add some depth and synergy in those areas. We announced two deals at the beginning of this year that add some depth in our immunology franchise.
One from Amgen for eye gan, POVE, and then another from Viridian for TED for thyroid eye disease. I think that gives you an idea and that those will complement what we do with Vyvgart. I think we'll probably look to do one or two deals a year in China to continue to build out that commercial engine. I think always with an eye now towards either huge unmet need or synergies in the therapeutic areas that we're in. On the global side, I think oncology and immunology are the places we have true global capabilities and we'll continue to look for good opportunities there. I think one of the things that's been really exciting for me over the few years that I've been associated with Zai is the emergence of true innovative medicines in China.
Of course, we look around the world and do partnerships with companies sort of irrespective of where they're based. We have a home field advantage in China. We've got very strong social networks, good insights, and otherwise. I think we'll look for oncology and immunology products. Probably our sweet spot is in late preclinical, early clinical, where we have some insights, can add value to the development program, and are not trying to outbid a Merck or Roche or someone. Probably increasingly looking for those things that come from China just because in those areas there's really good innovation there. Maybe one or two deals a year. Your firm helped us last year raise a little bit more money. We have $880 million on the balance sheet. We will be profitable on a cash basis in Q4 of this year.
We've got plenty of money to put against the right kinds of opportunities in business development.
Understood. Just following up on that last point you made, discuss your confidence that Zai Lab will achieve corporate profitability by the end of 2025 this year. Maybe if you could provide any color in terms of what's embedded in that goal.
Sure. Yeah. I mean, very confident. We laid out this goal just about two years ago. In June 2023, we gave a long-range vision at an investor event in New York. That was the first time we said we would see ourselves profitable at Q4 2025. We have been planning and working toward that for quite some time. It is really driven by a couple of factors. I mean, the first is the top line and sales growth. As I mentioned, we are profitable in China today. The faster we can drive the sales line, the more profit sort of accrues to put against the corporate expenses, including R&D. We ended last year at a 50% growth rate for 2024. The guidance we have given this year puts us up near 50%, depending on where in that range you get to.
I think as long as we're within the range that we guided to, and I have every reason to be confident about that. That's why we gave it. I think Q4 profitability follows. It follows because we'll be able to keep R&D flat versus last year. No growth in R&D. I can talk about why that's the case. SG&A will grow at a very modest rate. We've really already made the investments to launch the kind of drugs and to support the commercial organization that I've talked about already. Our G&A, our corporate expenses, will be flat to down versus last year. We've worked on that cost structure piece quite a bit over the last few years, including, like many people in the industry, we've taken some targeted headcount structuring actions and otherwise. That's all in place.
This year, it's really a matter of drive the commercial performance like we can and should, manage expenses closely like we have been doing. I think those things yield cash profitability in Q4. Of course, that's not like a one-time thing. That's the beginning then of what we would see as over the remainder of the decade, a growth towards there's no reason we shouldn't be at 30%+ operating margins by the end of the decade in total on a global basis.
Got it. Maybe before I get into specific items on the pipeline, let me check to see if there are any questions from the audience.
I do want to ask, there are some recent policy announcements from the Chinese government in terms of supporting even within drug pricing. Do you think there's any actionable through, or is it just more policy noise?
Yeah. I think first, I think the policy leanings are good, right? I mean, I think that's real and it's sincere. I think your question about how directly does that translate into an actual price for the drugs that we're launching or have launched or otherwise, I think some of that's yet to be seen. What I can say is from the last few years, there was an announcement that the NRDL would get simpler, more transparent. That did happen with simplified renewal. We saw the impact of that last year with Zejula. Zejula is now four or five years into its launch or life cycle. Our renewal for Zejula was at less than 5%. I think if you look back, historically, we've seen things like 10%-15%-20% reductions on those biannual cycles. That was announced as a policy thing.
It was implemented, and it did show up. I think the category C thing, I think that's real. Again, how beneficial that'll be to companies like Zai Lab is, I think, yet to be seen. What I would say is there are two pieces. There's what does the policy sort of what direction does that sort of push? I think it does certainly continue to indicate that there is a receptivity to innovation in China. Again, I think the best example I can give is Vyvgart launching at $32,000 per year, which I think is about, when you look at the sort of net price in the U.S., it's somewhere in the range of 15% or so of the U.S.
I think for the kind of drugs that we're launching and supporting, if we can maintain somewhere in that 15% of the U.S. thing, we can be very, it's a great business. I think, again, we'd like it to be higher, but I think it's pretty good.
All right. Maybe switching over to the global pipeline. On ZL-1310, this is your DLL3 ADC in phase I development. How do you see the opportunity for this drug?
Yeah. I think, as I mentioned, priority one is to get the pivotal trial up and running in the second half of this year so that we can generate data in 2026, launch in 2027 on an accelerated approval pathway in the U.S. I think if you look at the opportunity here, I think it's pretty significant. I mean, certainly in the U.S., it's over $1 billion annual potential per year. There's a huge unmet need here, right? I think patients with small cell lung cancer, five-year survival, between 5%-10%, right? Jonathan, you guys have done a lot of work in this space, so you know this. I think the treatment options today are not very good. Tarlatamab is the most recent approval.
I think ORR in the 40% range and some pretty significant safety liabilities that make it basically not accessible to probably about half the population in the U.S. I think a pretty significant opportunity here. There are other mechanisms that are being explored as well. I think the good thing is, at least my experience thinking back to non-small cell lung cancer is the more mechanisms, the better. They tend to grow the pie, not carve it up even smaller. I think we're pretty confident that if we can get this trial going and generate the kind of data that we saw in the early phase I studies, and we have no reason to believe we won't, I think we should be able to launch and generate somewhere on an annual basis of something over $1 billion. Now, we're also studying the drug in a first-line setting.
Think about that. It's just relative to other tumors and otherwise. I think first-line setting is probably twice the opportunity there. We also will start a basket trial in neuroendocrine tumors this year. Also, we'll look at other places where DLL3 is overexpressed. I mean, I'm sort of talking long-term here, but there's no reason this couldn't be a multi-billion dollar annual sales opportunity in the U.S. alone. Of course, think about Europe and China and otherwise.
Got it. How is 1310 positioned in the competitive landscape? You mentioned Imdelltra just now. How about versus other ADCs targeting whether it's B7H3 or maybe even DLL3?
Yeah. I'll start with the DLL3. I think our data in Barcelona sort of validated the approach, right? We see fast followers. I think we're at least a year, probably a year and a half to two years ahead of any of the other ADCs that are targeting DLL3. I think that's probably a good lead. I don't think there's any reason that we can't maintain or extend that lead as we move quickly into the second-line pivotal trial that I have referred to. I think in terms of the data comparison between those, the other two that have gotten some press recently with deals with IDEAYA and Roche, there's not a lot of data to compare, right?
I think we really like the data set that we have and that we will present more fully at a major medical meeting sometime in the first half of this year. I think relative then to the B7H3 opportunities, which I think are in some cases probably pretty close to us in terms of timing or sort of development plans. Of course, sometimes it's hard to compare across trials and otherwise. I think from what we've seen, the thing we do know is we believe we've got the broadest sort of application. DLL3 is overexpressed in like 90%-95% of or expressed in 90%-95% of small cell lung cancer. I think B7H3 is more like 60%. I think first you've got an opportunity there. I think our safety profile looks really good.
I think from that standpoint, we feel like we've got the best mechanism, the broadest therapeutic window and opportunity. I think the one thing we know from our phase I study as well, though, is there doesn't seem to be any cross resistance to these mechanisms. Again, as I mentioned earlier, you can see the different mechanisms actually working together and growing the pie and otherwise. Again, we're full speed ahead. I think the opportunity for us is to get that second-line approval, move into the first line as we're doing, and then go from there. Again, I think a lot of this now, next 24 months-36 months, it's going to be clinical trial execution. We like our chances there.
Understood. Now, you've also guided to multiple 1310 data updates this year. Can you help set expectations ahead of these updates?
Yeah. I think the biggest one in terms of data disclosure would be in the second-line small cell lung cancer setting. We've said we'll present an update on the data at a major medical meeting the first half of this year. I mean, as you can guess, that's either AACR or ASCO. Once the agendas are set and everything, we'll give more details on that. What we can say is we'll have two key components to that data. First will be the full data set from the initial 28 patients in the dose optimization phase. This is the updated data set we presented in Barcelona at the end of October, where I mentioned we had an ORR of 74%. Given when the data cutoff was, some of that was or much of it was unconfirmed. We'll have the full confirmed responses.
We'll have obviously longer data to follow. We'll be able to look at duration and safety over time in that cohort of patients. In some cases, we've already said we've had patients on drug for over a year. I think that'll be an important and welcome update. We also, though, have moved into the optimization phase. We've selected two doses. We'll have somewhere in the range of about 50 patients there where we'll be able to show data. I think in total, somewhere in the range of 70-75 patients, some of which with pretty long, compelling data. I think that's probably the most prominent of the data disclosures this year.
We've said in the second half of the year, we'll have an opportunity to present data on the initial first-line study where we're looking at ZL-1310 in combination with the atezo and chemo. We'll have safety data there and all the normal things you can see in terms of response and otherwise with a relatively early data set. I think milestone-wise, the big pieces will be the pivotal trial that I mentioned will start in the second half of the year. The protocol and number of patients and all the things around that, I think we'll look for an announcement on that pretty soon because we've got to get it up and running.
Just following up on the first half data set. Do you like Chicago more? Do you like Chicago?
I think, and again, we're cautious until it's announced, right? I think either of those meetings would be good.
Meetings would be good.
Yes, would be good, right? Yeah, we've got our hotel rooms booked for Chicago for a period of time, right? As soon as we can, we'll announce that, of course.
Understood. Maybe switching over to other programs in the pipeline where you have China rights, bemarituzumab. There's a program partnered with Amgen in phase III development for gastric cancer. How should we think about the opportunity for bemarituzumab and the upcoming, I think, global phase III data readout?
Yeah. We're in readouts.[crosstalk] Read outs, right? Yeah. We're in two phase III studies with Amgen, our partner. This is a drug that was originally developed by Five Prime, and that's when we partnered with them. There are two first-line studies in gastric cancer, the first of which should read out any time now. I mean, we're just waiting for events. They're both overall survival trials. We're just waiting for enough events to accrue. We're very close on the first trial, which is bemarituzumab. This is the Fortitude 101 trial. It's bemarituzumab plus chemo versus chemo. Chemo in the first-line setting is a standard of care right now in China. This is an important trial for us. China is one of the biggest markets here for this drug for gastric cancer.
Just as a quick reminder, we're going back a few years, but this is really replicating the phase two trial that gave us the impetus to partner with Five Prime. I think in that study in patients who overexpressed FGFR2b at a rate of 10% or more, we saw an overall survival of around 30 months, okay, versus, I think, 11 months or 12 months in the chemo arm. A huge difference. Again, I think we have a lot of confidence based on that study that we're going to see something compelling in this imminent readout. Just to put in context, I think there's in the range of about 120,000 patients in China who would fit that category, okay? It's quite big. Big and hopefully long duration, right, if this works.
The second study then that'll read out in the second half of this year is bemarituzumab plus chemo plus PD-1 versus a PD-1 and chemo in the control arm. This is the emerging standard of care. I'd say this is probably the standard of care in the U.S. and some of the other markets. We have lots of reasons to be confident about that, even though we don't have a phase II study to reference. If you look at what PD-1, Nevo, tends to do in these settings, it's not a lot. It's a couple of months survival benefit on top of chemo. I think, again, just leveraging what we know about the benefit on top of chemo that bemarituzumab presents, I think there's lots of reasons to be hopeful and excited about this trial readout, which will be in the second half of the year.
Our strategy will be, once we have that first study, to submit very quickly with the opportunity to have this drug approved in China in 2026. Again, I think in terms of total opportunity, when you add up the patients and the duration, we have said we see this over time as being an opportunity to be a billion-dollar type of drug in China.
Understood. Maybe switching over to tumor treating fields partnered with Novocure. How are you thinking about the pancreatic cancer and lung cancer opportunities following the PANOVA and LUNAR study results?
Yeah. I think we've had the LUNAR results now for, I guess we're coming up on two years or maybe ASCO two years ago, right? I think in that second-line setting, the data were pretty compelling. I think the challenge for China is twofold. The biggest is that tumor treating fields, maybe back to the earlier question about the pricing environment and policy environment in China, tumor treating fields is classified as a medical device. It's not eligible for NRDL listing. It can only be accessed by patients who have either the economic wherewithal to pay out of pocket or commercial or supplemental insurance. That probably restricts it to about a fifth or so of the patient population. We know this because we sell TTFields for glioblastoma. We've done that for a few years. I think we understand this market pretty well.
It's a smaller market opportunity. There are so many options for non-small cell lung cancer in China. Compelling results, but probably a challenging commercial opportunity that we'll have to work through. I think on the pancreatic side, though, it's different. This is pretty, I think, compelling data in a first-line setting. There aren't good options. Patients are desperate. I'm sure you all know people who've had pancreatic cancer. I think anything that has a chance of working, people are going to use. We hear this from investigators and thought leaders in China. Of course, pancreatic cancer is a big killer, I think, over 100,000 patients per year in China. I think we see the bigger immediate commercial opportunity in pancreatic cancer. We will work to get both of those, both LUNAR and PANOVA, submitted this year and approved hopefully in 2026. I see a lot of excitement around PANOVA.
Understood. We're almost out of time. Let me do a final check with the audience, see if anybody has any questions for you. All right. Maybe just in our final minute then, what would you highlight as the key 2025 catalysts and milestones that we should be focused on?
I think we talked about I think first, yes, watch VYVGART. We need that drug to continue to grow. And there's such an unmet need and opportunity in China. So I think from a commercial perspective, VYVGART sales growth, DLL3 data in Chicago at some meeting, and then getting that trial up and running, and then profitability in Q4. I mean, again, there's lots of components that sit underneath those. But I think if we can get those three things going and report them out and everything, I think it's going to be a really exciting year for Zai.
Great. Thank you very much for joining us.
Okay. Thanks, Jonathan.
Okay.
Okay. Thank you. Thanks.