Zai Lab Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 12 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by. Welcome to Zai Lab's Third 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.

Operator

As a reminder, today's conference is being recorded. It is now my pleasure to turn the floor over to Christian Cho, Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Good morning, good evening, and welcome to Zai Lab's Q3 2023 earnings call. Today's call will be led by Doctor. Samantha Du, Zai Lab's Founder, CEO and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer Doctor.

Speaker 1

Rafael Amato, President and Head of Global Oncology Research and Development Doctor. Harold Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases and Doctor. Yajing Chen, Chief Financial Officer. Jonathan Wang, our Chief Business Officer, will also be available to answer questions during the Q and 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.

Speaker 1

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 November 7, 2023 for certain disclosures regarding this non GAAP financial measure. At this time, it is my pleasure to turn the call over to Doctor. Samantha Du.

Speaker 2

Thank you, Christine. Hello, everyone, and thank you all for joining us today. Throughout the year, we have continued to successfully advance our pipeline, including several important developments for key late stage programs such as BMO, CAR XT, Sodor and Escottismot. In the Q3, we were especially excited about the launch of our 5th commercial product, Vistar, following months of strategic preparation. Although still early in the launch, we are encouraged by the initial demand for V Guard and by the positive feedback from both physicians and patients.

Speaker 2

Josh will provide more details on the progress of this very important product launch. We are well positioned to execute on our corporate strategic goals, including the launch of multiple new products and new indications over the next few years. Our pipeline of potential 1st in class and best in class products has significant potential to meaningfully improve the lives of patients. And we expect these product candidates to contribute to our long term growth and drive shareholder value. With that, I'll pass it to Josh.

Speaker 2

Josh?

Speaker 3

Thank you, Samantha. It is an exciting time at Zai Lab as we launch VIVGARD, the first FcRn blocker approved for the treatment of generalized myasthenia gravis in China. There are over 170,000 patients in China living with gMG, many of whom continue to suffer from symptoms such as decreased muscle strength and mobility despite receiving treatment. ZIVGARD is an important new treatment option for gMG and has the potential to significantly change the way patients are treated today. We've already made significant progress through our outreach efforts, having engaged around 75% of our top 200 hospitals since launch in September.

Speaker 3

And while we are still in very early stages of the launch of VIVGART, we are encouraged by the positive feedback from neurologists and patients. We are seeing physicians gain experiences on VIVGART and impressively nearly 70% of our top 100 MG specialists have already prescribed VIVGAR to a patient. Furthermore, many are repeat prescribers and we are seeing the depth and breadth of prescribing continue to increase. We are focused on increasing awareness, providing education on the benefits of this important therapy and building a strong support network for physicians and patients. Importantly, we're also working hard to increase patient access and we're in the negotiation process for VIVGARTH inclusion on the NRDL, which would allow many more patients to be able to benefit from this therapy.

Speaker 3

We're very excited by the potential of VIVGAR and not just in gMG, but across a wide range of new Earlier this year, we saw positive pivotal data in CIDP and by the end of 2023, we expect pivotal data in ITP and PV. Next year, we're expecting the approval of subcutaneous ZivGuard in gMG, and we believe that being able to provide alternative dosing options, both IV and subcutaneous, is beneficial for patients and caregivers. These are just some of the near term opportunities for Vibgar to add additional layers of growth to the franchise. Now turning to the rest of the commercial portfolio. We delivered year over year product revenue growth in the 3rd quarter 22% on a reported basis and 27% on a constant currency basis.

Speaker 3

In addition to the launch of VIBGART, Zejula hospital sales grew and it continued to be the leading PARP inhibitor in hospital sales for ovarian cancer in China. Kinlok and NUZYRA continued to benefit from their inclusion in the NRDL and our team was able to expand supplemental insurance coverage for Optune. Looking ahead, we'll continue to focus on the execution of our strategic goals. First, we are seeking to accelerate our medicines in the market and drive revenue growth. Over the next 12 to 18 months, we anticipate several important registrational data readouts, including for efgartigimod and tumor treating fields in pancreatic cancer.

Speaker 3

And we expect to initiate several important trials, including FORTITUDE-one hundred and two, a trial evaluating beveratuzumab in first line gastric cancer. Next year, we could see 3 or more NMPA approvals and 4 NDA or supplemental NDA submissions in China. 2nd, we are focused on driving profitability by leveraging our existing capabilities and platforms and by increasing productivity across the organization. And third, we continue to focus on expanding our pipeline through internal discovery and through regional and global collaborations. We entered into a strategic partnership with MEDALINK in April for a next generation DLL3 program, which we are currently advancing to a global Phase 1 trial.

Speaker 3

And we also have our topical IL-seventeen human body, which is entering global Phase 2 development. In parallel, we will continue to look for meaningful new external opportunities in strategic areas to further expand our pipeline. We are very excited by the depth and breadth of our portfolio and we are confident that our commercial organization will be able to drive significant revenue growth over the next few years. We are well positioned financially with a cash position of $822,000,000 as of September 30, which we believe will support our business and operations until we reach profitability. And now I will turn the call over to Doctor.

Speaker 3

Amato. Rafael?

Speaker 4

Thank you, Josh. Within oncology, our R and D teams are focused on the development of our late stage pipeline, and we have had several updates during the Q3, which I will briefly highlight. In August, reproductive net received its 4th breakthrough therapy designation in China for the treatment of patients with advanced solid tumors that have a neurotrophic tyrosine receptor kinase or NTRIC gene fusion and have progressed following treatment with tyrosine kinase inhibitors. In addition, for potential treatment of Fros1 positive non small cell lung cancer, newly disclosed results from the registrational TRITON1 study showed median duration of response of 34.1 months and median progression free survival of 35.7 months in tyrosine kinase inhibitor naive patients. This impressive durability has the potential to be a major differentiating factor.

Speaker 4

The National Medical Products Administration has accepted our new drug application for repotrectinib in ROS1 positive non small cell lung cancer with priority review, and we look forward to bringing this important medicine to patients in need in China as early as feasible. Additionally, for CRISADE or Adagraca, our partner, Mirati, presented 2 year follow-up data from the CRISPR-one study in September. In the pooled analysis, Adagrassa demonstrated durable efficacy with a median overall survival of 14.1 months, up from 12.6 months previously reported and a 2 year overall survival rate of 31% in patients with previously treated KRAS G12C mutated non pulsatile lung cancer. Exploratory analysis suggested clinical benefit in patients with treated stable central nervous system metastasis at baseline with responses noted across most baseline communications, highlighting the potential differentiation for adagracif in KRAS T2XC mutated non small cell lung cancer. We await the results of the PRISIL12 trial of adagracis against docetaxel, which is the ongoing confirmatory Phase III study and which will form the basis for our submission in China in 2024.

Speaker 4

In October, our partner, Cision, announced that CITAC demonstrated superior overall survival, progression free survival and objective response rate versus chemotherapy at a prespecified interim analysis of the confirmatory Phase III INNOVA TV-one global trial in recurrentormelostatic cervical cancer patients with disease progression on or after frontline therapy. We have participated in this study and continue an extension portion in China. Moving to our internal global research and development programs, regarding our DLL3 antibody drug conjugate ZL1310, we just submitted an IND in the U. S. And are targeting to initiate a global Phase 1 study in the Q1 of 2024.

Speaker 4

Looking ahead over the next 6 to 12 months, we expect several important updates from some of our key oncology programs. As we continue to expand and advance our oncology pipeline, I am pleased to announce that Doctor. Robert Brown has joined Zai Lab as our Chief Medical Officer of Oncology. Robert's impressive medical and drug development background will further strengthen our global oncology research and development team. Doctor.

Speaker 4

Brown will report to me and he will provide strategic leadership and support with respect to the clinical development of our oncology pipeline. And now I will turn the floor over to Doctor. Harald Reinhart to discuss the progress in our autoimmune infectious disease and neuroscience therapeutic areas. Arl?

Speaker 5

Thank you, Rafael. We have made excellent progress across our autoimmune infectious diseases and neuroscience therapeutic areas this last quarter. Starting with VifGuard or efgartigimod, we launched the product for its first indication in gMG in mid September and already see significant market uptick. We're also very excited about its potential in treating patients with CIDP or chronic inflammatory demyelinating polyneuropathy. Data from the global trial we participated in showed a highly significant statistical and clinical benefit for patients, including the China subset.

Speaker 5

Indeed, in September, the CDE granted breakthrough therapy designation for SC subq efgartigimod for the treatment of patients with CIDP. Existing treatment options are quite limited and problematic given the general reliance on long term steroids or chronic immunoglobulin therapy. We have seen how efgartietimod subcu can meaningfully improve and stabilize disease symptoms in these patients. We look forward to working with regulatory authorities in China to bring this important medicine to patients as soon as possible. We also see significant potential of efgartigimod across multiple additional indications, and we will continue to work with our partner, argenx, on indication expansion.

Speaker 5

Turning now to CAR XT. We are on track enrolling patients in the clinical bridging study to support our China registration. CAR T is the combination of Phenomelin and TRASPIUM, which we are developing with our partner Karuna for acute schizophrenia. In September, Karuna submitted a new drug application to the FDA for this indication. As a new class antipsychotic, we believe that CAR XT could become an important new treatment option for schizophrenia patients in China.

Speaker 5

For Alzheimer's disease associated psychosis or ADP, corona initiated the Phase 3 ADEPT clinical trial program in the Q3, and we plan to participate in these studies in Greater China next year. And now, Yijing will speak about progress with our commercial products and financial results. Yijing?

Speaker 6

Thank you, Harold. Now I will discuss our Q3 2023 financial results compared to the prior year period. Total net product revenues for the Q3 of 2023 were $69,200,000 compared to $57,000,000 for the same period in 2022, representing year over year growth of 22%. On a constant currency basis, growth year over year was 27%. This increase was primarily driven by increased sales volumes, the launch of VIDIGAR and the decreased negative effects from the COVID pandemic.

Speaker 6

Our revenue growth was lowered by the effects on the hospital and physician practices on the recent industry wide anti corruption enforcement efforts in China. Our total net product revenues included $41,600,000 for Zejula, which increased 6% from $39,200,000 as Zejula, which is in the 3rd year on NARDL continued to be the leading PARP inhibitor in hospital cells for ovarian cancer in China $11,600,000 for Optune, which increased 8% from $10,700,000 supported by increased patient access to this product in the private pay market. Dollars 5,700,000 for ChinLock, which increased from $5,500,000 supported by the NRDL listing in March 2023. $5,500,000 for NUZYRA, which increased $1,500,000 supported by NRDL listing in March 2023 and $4,900,000 for ViviGuard, which launched in September 2023. Research and development expenses were $58,800,000 for the Q3 of 2023, compared to $99,500,000 for the same period in 2022.

Speaker 6

This decrease was primarily due to a decrease in license fees for our licensed and collaboration agreement. Selling, general and administrative expenses were $68,600,000 for the Q3 of 2023 compared to $66,600,000 for the same period in 2022. The slight increase was primarily due to higher general selling expenses to support new product launches, partially offset by a decrease in professional services fees. Zai Lab reported a net loss of $69,200,000 or a loss per ordinary share of $0.07 for the Q3 of 2023 compared to a net loss of $161,200,000 for the same period in 2022 or a loss per ordinary share of $0.17 This decrease in net loss was primarily due to increase of product revenue, the decrease of licensing fees and the shift from foreign currency loss to gain. We are in a strong financial position, ending the quarter with $822,200,000 in cash and cash equivalents, short term investments and restricted cash, compared to $876,400,000 as of June 30, 2023.

Speaker 6

Based on our operating plan and our anticipated revenue growth, we expect to be able to fund our business through profitability. And with that, I would now like to turn the call back over to the operator to open up the line for questions. Operator?

Operator

Thank you. We will now like to open the lines for questions. First question comes from the line of Louise Chen from Cantor. Please go ahead.

Speaker 7

Hi, congratulations on the quarter and thanks for taking my questions. So I wanted to ask you on the NRDL, if you've seen any efforts to promote innovation? And then also where is private insurance today or commercial insurance? And where do you think that will be over time? And then the second question I wanted to ask you is on VIVGAR and what additional indications that you plan to move forward in the near term and what your next steps are there?

Speaker 7

Thank you.

Speaker 2

Hi, Louis. This is Amanda Zhu. We're happy to answer your question. I think overall in terms of the government on NRDL, we have seen they have made several very serious measures, the improved health of the healthcare industry, including multiple updates to NRDL over the last 2 years. Recently NRDL updates continued to support innovative medicine, especially in support medicines to address unmet medical needs and with the price with a reasonable pricing.

Speaker 2

Of course, how reasonable we are all going to see very soon, right? Specifically, they increased increasing the visibility and transparency on pricing, providing long term stability of prices. So all of this give us more visible roadmap for subsequent price cost for novel, novel drugs and also drugs like us, which treats patients with unmet medical needs. That's what I owe about, right? On the anti corruption, I would say short term, I think that impact the whole industry.

Speaker 2

But medium, long term, I think anti corruption is a very positive force in the long run, in the medium and long term run, especially for companies that like Zai Life have innovative, differentiated assets and address unmet medical needs. I'll stop here and Luis, sorry. Thank you for asking the question.

Speaker 3

Thanks, Samantha. It's Josh. Good morning, Luis, and thanks for the questions. I'll touch on the commercial insurance question briefly. I think this is probably an underappreciated positive also in the China market over the last few years.

Speaker 3

I think if you look back to end of 2020, I think about 40,000,000 people were covered through some form of supplemental or commercial insurance. By the end of 2022, that number was 100 and 50,000,000 I mean, yes, about $150,000,000 We do see Louisa growing to somewhere above 200,000,000 I mean, it's been growing this year and growing somewhere above 200,000,000 by the middle of the decade. I think industry reports put that projection somewhere in the range of 200,000,000 to 300,000,000 people. Of course, that size is as big as many of the bigger Western countries. And the supplemental insurance then supports reimbursement at rates for innovative drugs that are closer to U.

Speaker 3

S. Or Western prices. So it's an important segment and it's growing. For us, it's important for Optune. Optune is not eligible for NRDL listing because it's categorized as a medical device now.

Speaker 3

And we've had very good experience with supplemental insurance. We're covered on nearly 100 different supplemental insurance plans. That's grown from 73 a year ago. And by our account, we're second only to KEYTRUDA in terms of the number of plans we're covered by. So while we think for our portfolio overall, the NRDL listing is the primary sort of focus given the important unmet needs we're addressing with our drug that Samantha referenced, this supplemental insurance market does provide an important backstop and supplemental sort of coverage for drugs while they're in the pre NRDL phase or for things like Optune that aren't eligible yet.

Speaker 3

So thanks for that question. I think Harold you can cover the I think the question Louise you had about next indications for ZipGuard.

Speaker 5

Yes. Thank you, Josh, and thanks for the question. There is indeed a lineup of new indications coming up in this year and next year for submission and later on, obviously, approval. You know, we've already spoken about the subcutaneous formulation of EfgAR, which is in gMG, not really a new indication, but one with a new formulation. Following that is CIDP.

Speaker 5

It's a very important indication for us. It's a large market in China, 3 times larger than in the U. S, if I may say. And as such, it is a study also that has shown incredible benefit from efgartigimod treatment in a patient population that is not well served currently with only IVIg. Following that, there are 2 other indications.

Speaker 5

1 is ITP, the thrombocytopenia indication, for which you've already seen study results earlier this year with the FCDs from argenx. And following that, roughly at the same time, there should be pemphigus vulgaris foliotis. This is our 3rd one that is coming through. And the results for ITP and the PV study are supposed to come the end of this year. So this is our lineup.

Speaker 5

There's also one new indication that we want to start next year, which is in TED thyroid eye disease, another exciting way of showing and highlighting the efficacy of efgartigimod. And that is, at least in the foreseeable future, a lineup. Thank you.

Speaker 2

Thank you. Yes. Also, I just want to add a quick point, Luis. And commercial insurance actually has been in discussion for a few years. And this year, it has to be more and more putting into agenda.

Speaker 2

But of course, when will be effective, we'll see. But I think that's not somewhere has been ignored or not being lobbied. I think there is there are quite a strong group of people and a very influential group trying to lobby for the benefits of patients. So I'm very hopeful for that.

Speaker 6

Thank

Operator

you. Thank you for the questions. Next question comes from the line of Michael Yih of Jefferies. Please go ahead.

Speaker 8

Hi, thanks for taking the question. This is Xiaojing Wen on the line for Michael Yee. I have two questions. First, can you tell us about the ongoing China anti corruption campaign? And what do you see there?

Speaker 8

Did you expect any kind of aftermath impact during Q4 and so forth? And secondly, I think I have a couple on VIVGARD. First, I guess you have mentioned 5,000,000 sales in just 2 weeks after the September launch. So I wonder how much VIVEGARD is actually in demand versus stocking inventory? And I guess you also mentioned that 70% of the top 100 specialists have already prescribed.

Speaker 8

So how would you characterize the penetration there? Thanks.

Speaker 6

So, can I ask you, do you

Speaker 2

want me to take the first question? Yes. Oh, you go ahead. Go ahead.

Speaker 3

Okay. Well, Samantha provided some broader comments on anti corruption. I think to get to the specific question around impacts for the remainder of the year. First, as we've stated and as Samantha has talked about, I think from a long term perspective, focus on anti corruption in healthcare is good for everyone, patients and companies and providers. And certainly for a company like us that focuses on bringing innovative drugs for unmet needs.

Speaker 3

But in the short term, there's no doubt in Q3, it had an impact on prescribing patterns and on healthcare utilization. We see that in our results and I think all companies to varying degrees are seeing that. I think now there have been these focuses in the past in China. I think this one given the sort of quick way it was rolling out, I think the generalities that were in it as opposed to very specific pieces did cause some challenges in utilization in Q3 resulting in fewer patients being seen, fewer procedures. We saw health care practitioners who otherwise would have attended educational events and other things who didn't do that in Q3 to the same degree.

Speaker 3

And we did have an impact on sales rep access where hospitals were sort of blocking access to rep. Now we've seen much of that now begin to normalize as we're hearing into the Q4. So we expect and hope that by the end of this year, we're back to sort of normal practices and again, good for long term for the industry and certainly for Xi. But we will see some lingering effect, I think, in the Q4, relatively modest for the things that we're focused on, particularly the Vivcart launch, and I'll transition into that for your question. I think we while it has been challenging, given those factors that I mentioned, we've been able to get off to, I think, a really good start in terms of the launch and launch activities.

Speaker 3

As you mentioned, our sales in the Q3 for BibGart really represent just a few weeks of commercial activity. Just a reminder to everybody, we were approved right at the end of June. We shipped product from Suzhou in early September. So just a little bit more than 60 days from approval. By our account, that is small of a gap between approval and shipping as we have seen.

Speaker 3

So we're quite proud of that. But again, it only represents a few weeks of utilization from a commercial perspective in Q3. So of course, a decent amount of those sales represent initial stocking. But now that we're through the end of October, we're seeing really good physician acceptance and patient prescribing and utilization of VIVGARD. As you referenced, if you look at just our top 100 prescribers, more than 70% have already written prescription or used VIVGART for their patients.

Speaker 3

And of those physicians, I think approximately half have already become repeat prescribers. So for launch metrics, these are really good and exciting, I think, indicators of overall demand and certainly we will expect as we get into the Q4 that utilization to continue and we'll see certainly restocking. So we do expect to record sales in the Q4 for sure as the patients continue to use and get the benefits of VIVGART. The one thing I would say for the Q4 is that we are in the middle of NRDL negotiations now for potential listing next year. And to the extent that that leads to a favorable result, we have a couple of things that could impact 4th quarter sales for VIBGAR.

Speaker 3

One would be to the extent that there is channel inventory, we would make a pricing adjustment in line with whatever that NRDL price is that's negotiated at the end. We also have seen in prior years, as we had a lot of experience with drugs gaining NRDL access, I think if you have physicians who are ready to start a patient impact the Q4 utilization a little bit. But I think those things could impact the Q4 utilization a little bit. But overall, I think all the initial operational metrics and leading indicators are really positive for ZipGard. We're really excited about the launch of this drug.

Speaker 5

Got it. That's very helpful. Thank you.

Operator

Thank you for the questions. One moment for the next question. Next question comes from the line of Yigal Nochomovitz from Citigroup. Please go ahead.

Speaker 9

Hi Samantha, Josh and team. Thanks for the questions. Just a few more on the VIVGAR launch. Can you comment on whether these early adopters were community or academic centers? And then were the patients new to therapy for MG or had they previously been on IV, IG?

Speaker 9

And then if you could comment overall in terms of how many patients are currently on VIVGAR and what the overall prescribing account number is? I know you mentioned the 100 top accounts, but how many total prescriber accounts are you focused on in China overall? Thank you.

Speaker 3

Thanks, DeGul. It's Josh. I'll try to cover some of that as much as I can. I think first in terms of the accounts and how we're focused. There are about 600 hospitals that so just a reminder, there's like 200,000 patients with MG in China that are diagnosed and then some form of treatment, about 170,000 of those have gMG.

Speaker 3

So that's the universe we're looking at. Of that 170,000, about 80% of those patients are treated at 1 of about 600 or about somewhere between 506 100 hospitals. So that's what we're really targeting over time is that 80% of the business. If you then look and you sort of get down to prescribers, it's coincidentally about the same. So we've got about 600 prescribers that are really our core focus.

Speaker 3

And again, they're spread across about 600 hospitals. So it's very concentrated. We've got about 80 reps right now that are focused on those accounts. We'll grow that number to about 150 post NRDL and that will cover again 80 plus percent of the prescribing universe. So when we talk about top 100 hospitals, that's or top 100 prescribers, that's a pretty concentrated group.

Speaker 3

In terms of patient numbers, again, I would just say that we're seeing really good utilization and prescribing patterns among our physicians. I think even given the challenges we've seen with anti corruption in the Q3, if you look at just the top 200 hospitals of that, about 600 that I mentioned, I think at least 75% of those hospitals we have reps that are able to get in and have in person discussions and education with physicians. So I think we're off to a good start there. In terms of the use what those patients who are getting efgartigimod look like, most of them have had some kind of treatment in for gMG. It's a mix of IVIG steroids and other sort of older treatments.

Speaker 3

Again, I think the thing that we've said historically here is this is a well diagnosed population and they are treated just with older therapy. So I think it's fair to assume that most of the patients who are getting VIVGAR today are getting it and have had other treatments for gMG for sure. So I think that's and that's really our focus with the initial patient group is to get those patients who are in not responding well to current therapies and in many cases could be in an acute phase of gMG. So sort of by almost by definition, I think these are patients who have tried other and have been on other therapies before. Thanks, Yigal.

Speaker 9

Okay. Thanks. And then if I could just one quick follow-up, Josh, you mentioned with respect to the inventory, once you've had the negotiations with NDRL that you take a pricing adjustment. But if that inventory flowed into the market before 2024, then it would reflect the NDRL price or would it not? Could you just clarify how that works mechanically?

Speaker 3

Yes. It would represent channel inventory that had been shipped in that's already in the market and just would adjust the price to whatever the NRDL piece is. So you've seen this with Zejula over the last few years when we've had a new price either as a function of an initial listing or subsequent negotiation. We look at the channel inventory and make a price adjustment for that piece. So it will be whatever is in the market at the time.

Speaker 3

Again, I say that just to say that that is just a common effect. We'll describe that when we if and when this happens when we report our next quarter sales. Again, though, what I would say is we're seeing good patient utilization today. So we expect there's going to be a decent amount of patients who have already been on accessed and utilized VIVGAR by the end of this year.

Speaker 9

All right. Thanks.

Operator

Thank you for the questions. One moment for the next questions. Next question comes from the line of Adupam Rama from JPMorgan. Please go ahead.

Speaker 10

Hey, guys. Thanks so much for taking the question. So on this Viscard launch for in gMG, how should we be thinking about reimbursement dynamics going into next year NRDL, self pay, any sort of private insurance contribution? And how do you expect that to change over the next couple of years? Thanks so much.

Speaker 3

Thanks, Anupam. This is Josh. First, we're in the middle of NRDL negotiations for 2024 listing. As you recall, our big focus was to try to get an approval in the first half of twenty twenty three, so that we'd be eligible to roll right into these negotiations. We're in the middle of those now, so not going to comment on potential price.

Speaker 3

But if we end up with a mutually acceptable price and are able to move to a listing for NRDL for 2024. In the past, that generally happens in January of the calendar year, so January of 2024. And once then that happens, that would then supersede or take out any commercial or supplemental insurance or private pay. So, of course, that's why we're focused on making that happen because it opens up the market for the 170,000 patients who we believe can benefit from this therapy. So I think what's the next important milestone is to conclude that negotiation and see where we end up on price.

Speaker 3

And if that's the case, then it becomes a matter in 2024 of getting that listing and then getting that access pushed down to the, as I mentioned, the 500 to 600 hospitals that are critical to our patient base. And that should based on historical experiences that over time takes a couple of quarters to get that all the way pulled through to all the hospitals. But again, with an acceptable price and NRDL listing in 2024, that then we have basically open access for all of those patients who are suffering from gMG today. And of course, then that's subject to the normal every 2 year negotiation. But as Samantha mentioned in the upfront question, there's been a lot of positive developments in how you renew price and go through these pieces.

Speaker 3

This is the transparency automatic renewal piece. So we're really focused on getting a good price reflective of the value that Vibgar can bring to patients to get that for NRDL listing in 2024. And of course, we can't say much more than that at this point, but more to come there as we proceed through the negotiations.

Speaker 10

Thanks so much for taking our question.

Operator

Thank you for the questions. One moment for the next question. Next question comes from the line of Ziyi Chen from Goldman Sachs. Please go ahead.

Speaker 11

Thank you for taking my questions. Just two questions. One is on the full year guidance because I remember that you previously earlier the year you gave the guidance of US300 $1,000,000 revenue target this year. Now with all those anti corruption disruptions in Q3, well, of course, there has been foreign exchange impact. How should we think about the sales target for this year?

Speaker 11

And what kind of level is really achievable? My second question is really on the margin because in the past few quarters, margin has been relatively stable, but into the Q3 this year, on the year over year basis and a quarter over quarter basis, the margin has been declined by 2% to 3%. So trying to understand whether that was really because of the runoff of the Africa Taj Mod. If that's the case, then how should we think about Efgartigimod gross margin and profit margin going forward? And particularly, this is going to be a really new drug, still need a lot of investment into sales and marketing commercialization.

Speaker 11

So how think about the return on these assets? Is there any estimates on how big the drug could be to make it profitable? Thank you.

Speaker 3

Thanks. I'll start with a question on sort of outlook for the year and then Yijing, you can comment on the second question. Yes, when we did our Investor Day in June, what we said was consensus at the time for 2023 was approximately 300,000,000 dollars We weren't giving guidance. We said that we were comfortable with that outlook. I think the two things that have changed and you mentioned them since then have been the sort of the full year effect of the currency decline, basically the weakening versus the U.

Speaker 3

S. Dollar. So that's now fully, of course, reflected in our Q3 results and expected in Q4. And then the impact from the anti corruption efforts, which again, I think will be mostly concentrated in Q3 with, as I mentioned, a little lingering effect into Q4. I think if you put both of those together, I think we're I think if I look at and I know consensus is not fully updated, but I think if I see a consensus today that's in maybe in that $270,000,000 range, I think probably reflects those two events.

Speaker 3

Of course, we're focused on, as I say, getting back to full strength as it relates to sales reps in front of physicians, driving VIVGART uptake, continuing to drive outperformance for Zejula relative to the class. So I think all those all the underlying dynamics that we talked about over the summer in our Investor Day, all feel good. We're just dealing with the currency effect, which is what it is. And then the impact that we saw in Q3 with that abating, I think, in Q4, but probably a little bit of an effect. So I think those things probably put us on a reasonable long term trend, but we are absorbing those two impacts in Q3 and Q4.

Speaker 3

Yijing, you can comment on the profitability question.

Speaker 6

Yes. Thanks for the question. So first of all, I'm going down to the question about the gross margin in the Q3. So our gross margin usually got impacted by the product mix and sometimes one time adjustment in the quarter, so timing of it. So we are going to see some variability quarter over quarter.

Speaker 6

So for Q3, it is not because of Agafemka. So I just want to know that. And then I think you can focus on year to date gross margin would be better than just picking up for 1 quarter. And then over the next couple of years, we are going to see a few new products launching, right, which is going to drive significant revenue growth. So it's our gross margin for the long run will continue to increase over time as the volume picks up.

Speaker 6

And coming to specific question about EPYCAR. EPYCAR, it will be the same, the trend, right, the volume is going to increase. And our I think the partner and us working on the manufacturing process, the scaling up to 20,000 meters. And that will drive the cost, the unit cost very, very dramatically downwards. So we are going to continue to see EFCA gross margin to increase significantly over time.

Speaker 6

And then sales marketing efforts for EPRA, as Josh mentioned, is a very concentrated effort, right? We're talking about 600 hospitals, like just a limited number of specialty physicians. So we're talking about 150 reps, not a huge scale of reps. And so in my case, we're very confident that we are on the trajectory to achieve the profitability very soon for EPRA and also for the company as a whole.

Speaker 5

Thank you.

Operator

The questions? Our next question comes from the line of Jonathan Chang from Leerink Partners. Please go ahead. Mr. Chang, your line is open.

Operator

You may unmute locally. I'm showing no further questions at this time. I'll now turn the call back over to Zai Lab's CEO, Sabeta Tu, for closing remarks.

Speaker 2

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 update you again after Q4 of 2023. We are very optimistic about the future of Zai Lab and we'll work hard towards achieving our 3 our end goal as we all know what they are.

Speaker 2

Operator, you may now disconnect this call.

Operator

Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you

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Key Takeaways

  • Strong launch of VIVGARD, the first FcRn blocker in China for generalized myasthenia gravis, engaging 75% of top 200 hospitals and 70% of top 100 specialists, and negotiating NRDL listing to broaden access.
  • Q3 product revenues increased 22% year over year (27% constant currency) to $69.2 million, led by growth in Zejula, Optune, Kinlok, Nuzyra and the initial VIVGARD launch.
  • Key pipeline advances include repotrectinib earning a 4th Breakthrough Therapy designation and priority review, a US IND submission for a DLL3 antibody‐drug conjugate, and positive data for adagrasib and CITAC.
  • Net loss narrowed to $69.2 million (loss per share $0.07) versus $161.2 million a year ago, and with $822.2 million in cash and equivalents, management expects funding through profitability.
  • Q3 performance was affected by China’s healthcare anti‐corruption enforcement, which reduced hospital access and utilization, though normalization is anticipated in Q4.
AI Generated. May Contain Errors.
Earnings Conference Call
Zai Lab Q3 2023
00:00 / 00:00