Zai Lab Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 15 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's First Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, today's call is being recorded.

Operator

It is now my pleasure to turn the floor over to Billy Cho, Chief Financial Officer of Zai Lab, who will make introductory comments.

Speaker 1

Thank you, operator. Good morning, good evening, and welcome, everyone. Zai Lab recently issued a press release providing the details of the company's Q1 2023 financial results as well as some recent product highlights and corporate updates. The press release is available in the Investor Relations section of the company's website at ir. Zai laboratory.com.

Speaker 1

Today's call will be led by Doctor. Samantha Du, Zai Lab's Founder, Chief Executive Officer and Chairperson. She'll be joined by Josh Smiley, President and Chief Operating Officer Doctor. Rafael Amato, President and Head of Global Oncology Research and Development, who will discuss advances with our oncology product candidates Doctor. Harold Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases, who will speak about progress we have made in those 3 therapeutic areas.

Speaker 1

And I will discuss the performance of our market products and conclude with comments on our Q1 financial results. Additional executives will also be available to answer questions during the Q and A portion of the call. As a reminder, during today's call, Zai Lab will be making certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to our business plans and objectives, clinical trials, sales and revenue forecasts for our products and product candidates, regulatory applications and commercial launches. Such forward looking statements are not guarantees of future performance and therefore, we should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties, and actual results could differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings.

Speaker 1

At this time, it is my pleasure to turn the call over to Zai Lab's Founder, Chief Executive Officer and Chairperson, Doctor. Samantha Du.

Speaker 2

Thank you, Billy. Hello, everyone. Thank you all for joining us today. Our first quarter results and progress continue to demonstrate Skylab's potential global banking class portfolio and track record of execution. These past challenges from China's reopening at the beginning of the year.

Speaker 2

The positive top line results from the Phase 3 EMERGN-three trial of CAR T in schizophrenia and the positive interim analysis from Phase 2 INOVA TV207 study from TCEP in head and neck cancer further support our belief that this product provides important treatment options for patients in China and globally. We're very excited about the unanimous recommendation of the U. S. Food and Drug Administration's Advisory Committee in support approval of sebaptone and durabaptone, the 1st passenger targeted therapy for patients with severe and left threatening infections caused by a C Nivo vector. Recently, we expanded our lung cancer franchise and we reached our global oncology pipeline with a next generation CLL3 antibody drug conjugate or ADC program, CL-thirteen ten.

Speaker 2

This global ADC program demonstrates our continuous focus on the ADC space and our extension to the global market. This product complements our lung cancer franchise We will leverage our strong capabilities to develop CL-thirteen ten. We look forward to seeing results in patients. I look forward to leading Zai into its next transformational stage of growth, productivity and global opportunities. To better support me and help meet the strategic and operational needs of our business during the next phase of growth, we are happy to announce that we have promoted Jeff Smiley to President and Chief Operating Officer.

Speaker 2

Joss' rich experience and strategic vision will help us further grow as a leading global biopharmaceutical company and deliver on our mission to improve human health and on our corporate strategic goals for driving innovation in China and beyond. I would like now turn the call over to Josh. Josh?

Speaker 3

Thank you, Samantha. I look forward to taking on this new role for the company and continue to work with Samantha and the rest of our team to move our company forward. I'm very excited about what is in store for us for the next few years that positions Zai Lab to be a leader in biopharma innovation. We're pleased with the overall environment this year in China for companies like Zai Lab with innovative therapies meet significant unmet medical needs. As Samantha mentioned, as a result of the proactive steps taken by our team, Zai Lab has established a good foundation for future commercial execution and strong financial performance.

Speaker 3

Despite challenges from the COVID-nineteen reopening in China during the 1st 2 months of the quarter, Zai Lab continues to deliver solid growth in overall financial results. Our net loss in the Q1 of 2023 decreased 40% compared to the same period last year, primarily attributable to the increase in product revenue and non operating income. And we expect strong growth momentum to continue throughout the remainder of this year. Zejula continues to perform well with increased PARP sales for ovarian cancer, and we believe Zejula remains on track to become the leader in its asset class for ovarian cancer in China starting this year. For Optune, our team continued to improve market access by expanding commercial insurance and supplemental insurance coverage.

Speaker 3

As of March 31, 2023, Optune was covered by 96 municipal or provincial supplemental insurance plans, up from 37 as of March 31, 2022. We're pleased to have added Kinlok and NUZYRA to China's national reimbursement drug list effective in March 2023. As discussed earlier, we expect a strong revenue ramp up for these products as a result of their NRDL inclusion. For efgartigimod, the 1st and only U. S.

Speaker 3

Approved FcRn blocker with a pipeline and a product potential, we're getting ready for commercial launch later this year. As we communicated earlier, we plan to have a specialized and experienced team for EFCAR with approximately 100 employees at launch. We're excited about its potential in China. With respect to our 2023 strategic priorities, we've made progress towards the BLA approval of Efgartigimod for generalized myasthenia gravis or gMG and the BLA submission for subcutaneous efgartigimod for gMG in China. The initiation of a bridging study for CAR XT in schizophrenia in Greater China the initiation of a registrational study for bemerituzumab in first line gastric cancer in Greater China and a full data readout of the Tumor Treating Fields LUNAR Phase 3 study in non small cell lung cancer.

Speaker 3

We are also advancing our proprietary pipeline with global rights, including by initiating a global Phase I study for ZL-twelve eighteen or CCR8 and moving ZL-eleven oh two, our IL-seventeen human body into full global development. We recently released our 2022 ESG report that details our ESG strategy, which we call Trust for Life. It has 3 commitments: 1st, improve human health 2nd, create better outcomes and 3rd, act right now. We're benchmarking ourselves against commonly accepted standards and major indexes. We're continuing to reach more patients with our existing commercial products and are preparing to launch 8 additional products as we take this step to achieve overall corporate profitability by the end of 2025 and reach 1,000,000 patients by 2,030.

Speaker 3

And now I will turn the call over to Doctor. Amato. Rafael?

Speaker 4

Thank you, Josh. In the Q1 2023, DIA Labs Oncology franchise continued to make progress on all fronts, and we expect to have a very productive year. Recall that earlier this year, our partner Novocure announced that the LUNAR clinical trial met its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in overall survival when Viki field therapy was added to standard therapies compared to standard therapy alone in patients with prionine resistant non small cell lung cancer. We recently announced that the LUNAR data will be presented on the morning of Tuesday, June 6, as a late breaking abstract in ASCO's metastatic non small cell lung cancer session. We are pleased to have contributed and be part of the LUNAR study.

Speaker 4

In China, the incidence of non small cell lung cancer is well over 700,000 new cancers per year or 37% of all non small cell lung cancer diagnosed worldwide and it accounts for 39% of global deaths due to non small cell lung cancer each year. We look forward to the presentation of the data at ASCO and are excited about the potential of PTCL to address such enormous unmet need for patients with lung cancer as well as for patients with other tumor types as subsequent results readout. As Samantha mentioned, in April, our partner CGM presented encouraging efficacy results from the Phase II INNOVA TV207 study of TIFTAK in patients with treatment refractory head and neck cancer at the 2023 ASDR Annual Meeting. At the data cut off, the confirmed overall response rate was 40% with 1 complete response and 5 partial responses. The safety profile was generally consistent with that observed across this type monotherapy clinical studies.

Speaker 4

Treatments for head and neck cancer remain a significant unmet need in China with approximately 71,000 new cancers annually. Following progression on first line standard therapy, there are limited treatment options. Immunotherapy and chemotherapy have low objective response rates with poor outcomes. While more data are required to expand on these results, we believe this gap could be a promising treatment option for patients with recurrent and or metastatic head of neck cancer, and we are planning to pursue this indication in China in collaboration with Cision. Moving now to CRISADE or ADASASIS.

Speaker 4

Our partner, Mirati, presented updated Phase 2 data on the CRISPR-one study in patients with pancreatic adenocarcinoma, biliary tract cancer, another solid tumor, harboring KRAS G12C mutation at the plenary serious program of the April session of ASCO and subsequently published the results of the rapid communication in the Journal of Clinical Oncology. Results showed an objective response rate of 35% for the overall cohort. In patients with pancreatic cancer, the objective response rate was 33% and for patients with biliary tract cancer, it was 42%. Notably, the safety profile of adagrassib was aligned with that previously reported in patients with pre treated non small cell lung cancer and colorectal cancer. These findings demonstrate a meaningful improvement relative to the historically reported standard of care for these cancers.

Speaker 4

And we are very pleased to see the results of this Phase 2 study, which demonstrate a marked improvement on the current standard of care for patients with unresectable or metastatic KRAS P2C mutated solid tumors, including gastrointestinal cancers where huge treatment options exist. We look forward to closely working with Mirati to advance adagracis as a potential best in class treatment option for patients with tumors harboring KRAS T2C mutation. Moving to our internal global research and development programs, we presented new translation on clinical biomarker data from our global oncology program, VL-twelve eleven, an anti colliding 18.2 specific antibody at AACR showing that ZL-twelve eleven as monotherapy seems to be tolerated well and showed early signs of antitumor activity. In addition to TIPTAC, we're expanding our pipeline into the antibody drug conjugate or ABC space and building a portfolio of potential first and or best in class ABCs through both internal discovery and external collaboration. Last month, we increased our lung cancer franchise and enriched our global oncology pipeline with a next generation ADC program, GL-thirteen ten.

Speaker 4

This compound is an innovative DLL3 ADC discovered by using MediLink's proprietary SAMLINK platform. Tamlin is a next generation ADC platform designed to leverage the tumor microenvironment to overcome the challenges in current ADC drugs. DLL3 is an inhibitor of the Notch ligand that is overexpressed in small cell lung cancer and neuroendocrine tumors. We will leverage our global development capabilities to advance this product into clinical studies. We are on track to meet other milestones this year, including the initiation of the mirtuzumab gastric cancer trial in China and the filing of reputrectinib for RAS1 mutated non small cell lung cancer with an abundance of potentially best in class and first in class products, both in China and globally, we are very excited about our expanding oncology pipeline at ZylaM.

Speaker 4

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. Harald?

Speaker 5

Thank you, Rafael. I'm excited for the opportunity to share with you today progress across our autoimmune infectious diseases in neuroscience therapeutic areas. Let's start with KAI XT, the combination of xanomaline and TRASPIOM, which we are developing with our partner, Corona, in acute schizophrenia. Results from Corona's EMURGEON 3 trial were released in March 2023. This is now the 3rd positive registration trial that has met its primary endpoint with CAR XT demonstrating a reduction of 8.4 points in Penn's total score compared to placebo at week 5.

Speaker 5

CARDS T also demonstrated reductions in positive and negative symptoms of schizophrenia as measured by PANSS positive, PANSS negative and PANSS negative MARTA factor subscales, which are secondary endpoints in the trial. Karuna plans to submit a new drug application to the FDA in the Q3 of 2023 with launch in the second half of twenty twenty 4 if approved. As Samantha mentioned, CAR Xt could be a very important treatment option as a new class of medicine for schizophrenia patients in China and globally. Our proposed development plan for China has been accepted by the NMPA, and we are on track to start a clinical bridging trial in June. Regarding our infectious diseases portfolio, the FDA advisory committee recently unanimously voted in favor of approval of zulbactamdulubactam or ZULDUR.

Speaker 5

We are excited about the committee's strong vote of confidence. We submitted an NDA for the treatment of carbapenem resistant Acinetobacter baumannii infection to the NMPA in December 2022, with priority review granted 1 month later. And in February, the NDA was officially accepted by the NMPA. We look forward to bringing this novel drug to China and to Asia Pacific, where severe CRAB infections are frequent and often can no longer be adequately treated because of multi drug resistance. Much progress was made this past quarter in VIVGARD or efgartigimod.

Speaker 5

We submitted the BLA for efgartigimod IV for the treatment of patients with generalized myasthenia gravis or gMG in China in the Q2 of 2022 and expect approval in commercial launch this year. We also expect to submit a BLA for efgartigimod SC subq for gMG in mid-twenty 23. We continue to support our partner CL-eleven oh two, we are moving forward with preclinical and regulatory activities in preparation for our global Phase II trial. Let me now hand over to Billy, who will speak about progress with our commercial products and financial results. Billy?

Speaker 1

Thank you, Harold. Now I will discuss our Q1 of 2023 financial results compared to the prior year period. Total net product revenues for the Q1 of 2023 were $62,800,000 compared to $46,100,000 for the same period in 20.2, representing 36% year over year growth. This included net product revenue of $42,700,000 for Tejula, compared to $29,600,000 for the same period in 2022, representing 44% year over year growth. Dollars 13,300,000 for Optune compared to $12,800,000 for the same period in 2022, dollars 1,300,000 for Kinlok compared to $3,000,000 for the same period in 2022 and $5,500,000 for NUZYRA compared to $700,000 for the same period last year.

Speaker 1

Note that net product revenue in the Q1 of $7,300,000 included a negative $3,900,000 non recurring adjustment to compensate distributors for sales of Kinlok and NUZYRA at prices prior to the price reductions made in connection with their initial inclusion in the NRDL. Such sales rebates to distributors on previous purchased products are customary in our industry to compensate those distributors for the new NRDL Summit price. Research and development expenses were $48,500,000 for the Q1 of 2023 compared to $53,900,000 for the same period last year. The decrease in R and D expenses was primarily due to cost sharing compensation from collaboration partners related to our clinical trials, partly offset by higher payroll and payroll related expenses from increased R and D headcount.

Speaker 4

SG and

Speaker 1

A expenses were $62,500,000 for the Q1 of 2023 compared to $57,000,000 for the same period in 2022. The increase was primarily due to higher professional service fees and in connection with sales of our products in Greater China and higher payroll and payroll related expenses with increased commercial headcount as DIALA continues to expand and invest in its commercial operations in China and infrastructure in the United States in anticipation of substantial growth over the next few years. Diodes reported a net loss of $49,100,000 or a loss per share attributable to common stockholders of $0.05 for the Q1 of 2023, compared to a net loss of $82,400,000 for the same period in 2022 or a loss per share attributable to common stockholders of $0.09 The decrease in net loss was primarily due to product revenue growth faster than operational expenses and the increase in non operating income, including interest income and foreign currency gains. As of March 31, 2023, cash and cash equivalents, short term investments and restricted cash totaled $931,400,000 compared to $1,000,000,000 as of December 31, 2022. We would now like to turn the call back over to the operator to open up the line for questions.

Speaker 1

Operator?

Operator

Thank you. We would now like to open the line for questions. Our first question comes from the line of Michael Yee from Jefferies. Please ask your question, Michael.

Speaker 6

Thanks. Good morning. And we had two quick questions. 1, efgartigimod, I know that you guys are waiting for approval. Can you give us an update on your expected timing and ramifications or your expectations for getting that in for NRDL and what the timelines are for that and what our expectations should be for NRDL for 2024 and how that would work with the timing of approval?

Speaker 6

That would be our first question. And the second question is, obviously, there are a lot of focus on the TTF lung cancer data coming up at ASCO. You mentioned that in your prepared remarks. Can you help us understand the ramifications of that result for China, particularly as it relates to the strength of the data with combination PD-one, but not docetaxel and the use of PD-one in second line and how you expect that to be important for China? Thank you.

Speaker 3

Hi, Michael. It's Josh. Good to hear from you. I'm going to direct the questions to our executives this morning. So I'll start on efgartigimod and direct it to me.

Speaker 3

And then Rafael can talk a little bit about your question on LUNAR. On efgartigimod, as you know, there's not a PDUFA date in China for reviews or approvals. What I can say is the we're in discussions with the regulators that they're going well and we're looking forward to a potential approval. And once we have that, we're prepared to move quickly to launch. As we mentioned in my comments, we have planned to have about 100 sales reps at launch ready to promote the product and we'll be moving quickly then toward developing packages and strategies for NRDL.

Speaker 3

We need an approval sometime over the summer to I think fit into that window. But again, we'll keep you updated as we continue to go through. Everything's going well and we're excited about the opportunity. Rafael, maybe you could address LUNAR, please.

Speaker 4

Sure. Hi, Michael. So this is about the implications of the data for China. Clearly, this is a second line study. So the question is, have most patients receive checkpoint inhibitors in frontline and therefore, the data would data that is significant and clinically meaningful with IO applicable if patients have received an in first line.

Speaker 4

I think the answer to that is that not every patient actually receives checkpoint inhibitors in frontline, particularly patients with mutations, with EGFR mutations and resistant mutations. Oftentimes, physician checkpoints don't tend to add that much benefit and they may get it in the 2nd line. So there is some applicability there. There's also some evidence, I think, which is really demonstrated in this study of synergy between PTP field and checkpoint inhibitors. And I think we will be able to corroborate this in the frontline study with this KEYNOTE-b36.

Speaker 4

I think that study would really establish this synergy that we believe is observing in LUNAR. And as you know, the standard of care in non small cell lung cancer is really evolving. There will be new agents and different ways of treating patients as new entrants come in. So I think we are pretty excited and share the enthusiasm of NovoCure on this data set that really shows particularly the synergy with ICIs and PC fields. And based on the pattern of treatment in China, there will be patients that will definitely benefit from combination.

Speaker 6

Thank you. And just to be clear for Josh, we acknowledge we do want to get approval by summer and that there's a deadline that we need to hit for an ordeal. That's correct?

Speaker 3

Yes. I mean, we would like approval as quickly as possible for sure. And as I say, we're at reviews are going well. Yes, I think to be eligible for a 2024 negotiation, we would need to have an approval over the summer. Again, things are going well, but we don't know until we get it.

Speaker 3

So we'll keep everybody updated.

Speaker 6

Got it. Thank you, guys.

Speaker 3

Operator, next question please.

Operator

Thank you. Our next question comes from the line of Ygal Notionovitz from Citigroup. Please ask your question, Ygal.

Speaker 7

Hi. Yes, thank you. For Bema, can you just talk about the timelines for running the Phase 3 in first line gastric? When could that trial readout? And when is what is the current view on when that study when that drug could launch in China?

Speaker 7

And then you also mentioned in the press release that you're joining 2 global Phase III, FORTITUDE-one hundred and one and FORTITUDE-one hundred and two. Can you just explain the differences between those two trials, please, both in first line gastric?

Speaker 3

Sure. Yes. Thanks for the question. I think Rafael, these are both for you.

Speaker 4

Yes. So I'll start with the second part of the question, Yigal. There are 2 studies. In gastric cancer, the standard of care tends to be 446 plus a PD-one inhibitor, either Opdivo or pembrolizumab. That is really the way that most patients are treated.

Speaker 4

Some chemo variation of chemotherapy such as XERAVA is sometimes used. There has been studies that have not used PD-one because they started before these results really came about. So that's why we have 2 studies. 1, it uses FOLFOX6 with pemirtuzumab and the other uses pemirtuzumab with chemotherapy plus PD-one. The second one hasn't started.

Speaker 4

We're in the process of getting it going on both Amgen and ourselves, but we obviously have made the decision to participate on that trial. So the first approval will be with chemotherapy alone, and that trial is ongoing from Amgen. There's been some discussion about the level of expression of SCFR2 alpha and we will enter that study imminently actually. We're just automating issues having to do with the diagnostic, etcetera, but the study is ready to start and it will be shortly after followed by the PIKIT study, which is normal in China. So with regards to time lines, this study will follow its course and we'll have a filing sometime in 2025.

Speaker 7

Okay, great. Thank you very, very much.

Operator

Thank you. Well, our next question comes from the line of Anupam Rama from JPMorgan. Please ask your question, Anupam.

Speaker 8

Hi. This is Priyanka on for Anupam. We just have one question. Can you give us a preview on what to expect at the Investor Day? And if they're going to be more of a pipeline or development focused?

Speaker 8

Or is it more focused on commercial dynamics and potential for the pipeline products in China? Thanks.

Speaker 3

Hi Priyanka, it's Josh. I'll start and then Billy, please jump in. But we have not had an in person Investor Day for quite some time and thought this was a good time to do it, particularly coming out of ASCO and some of the updates that we'll have there. So we will focus on certainly on the pipeline on the 8 launches that are coming as well as a look into our discovery strategy and some of our earlier global developments. We will talk about commercial dynamics and outlook for the medium term for the firm.

Speaker 3

But really, I think our primary goal here is to give investors a little bit deeper insight into the breadth and depth of our pipeline and the things that are coming sometime soon. Billy, if you have anything to add, please do.

Speaker 1

No, that was well covered, Josh. We'll be sending out a Save the Date to all of our investors and sell side probably sometime this month and followed by some more details on the agenda. So stay tuned.

Operator

Thanks so much. Great. Thank you. Our next question comes from the line of Jonathan Chang from SVB Securities. Please go ahead, Jonathan.

Speaker 9

Hi, guys. Thanks for taking my questions and congrats to Josh and Christine. First question, in the context of a broad and expanding pipeline of commercial and clinical stage assets, what do you see as the most meaningful growth drivers for the company in 2023 beyond? And my second question, can you tell us more about ZL-thirteen ten, the construct itself and the timelines associated with the program and discuss your thoughts on pursuing DLL3 with an ADC versus a bispecific T cell engager? Thank you.

Speaker 3

Great. Thank you, Jonathan. Thanks for the congratulations. I think on growth drivers, I'll make a couple of comments, ask Samantha to weigh in and then we'll turn it to Rafael to talk about the DLL3. I think our growth drivers, obviously, we're quite excited about the launch upcoming launch hopefully of efgartigimod.

Speaker 3

And as I mentioned, we're well prepared to hit the ground running there. We've learned, I think, a lot from the very successful launch in the U. S. And I think a lot of the dynamics that led to success in the U. S.

Speaker 3

Actually can and should play out in China. So certainly, we're looking forward to that as a new growth driver. Zejula continues to perform well and we would expect, as we mentioned upfront, to continue to grow share in that class, secure a place as the market leader and continue to drive penetration, particularly in the first line setting. As we sort of then get and of course NUZYRA and Kinlok on NRDL beginning in March will drive good volume and good revenue growth for the remainder of 2023. I think as we get into 2024 then looking forward to the next wave of potential launches in that period, which could include TT fields for lung cancer, repotrectinib.

Speaker 3

And then we talked a little bit about that as we get a little bit farther out, bemirtuzumab, adagrassum, CAR XT. So there are a lot of growth drivers. I think again, for this year, it's execute on the 4 products that we have in the market and be ready to launch well with efgartigimod. Samantha, I don't know if you want to make any other comments on 2023 and beyond?

Speaker 2

Well, you have covered pretty well.

Speaker 3

Maybe we can go to Rafael to talk a little about our most recent deal with DLL3.

Speaker 4

Yes. Hi, Jonathan. So, yes, this is ZLL1310. We were pretty impressed with the preclinical activity of this product. And as you know, we have TIDDAC, so this is complement to our ADC pipeline.

Speaker 4

And as you know, AGCs are based on antibody, The specificity and ability of the antibody are quite good for the target DLL3. And then the payloads on linters tend to dictate the benefit risk of the product. This payload is a topoisomerase inhibitor, and it has really high potency and high clearance and better permeability. So we saw as a consequence very good efficacy and tolerability in preclinical studies as opposed to other ADCs that have less stable linkers that are not covalent. So this is again a covalent linker and it actually releases in the tumor microenvironment.

Speaker 4

There are other linkers that actually don't allow the payload to remain bound and therefore, are probably toxicity such as high toxicity, rash, mild suppression, etcetera. And here we could see a very stable PK and be able to increase the doses to a relatively higher level. So because of that and also because this company also has a more advanced product that they're also moving ahead with. And it seems like it was a technology that was superior to many other ADT technologies that we've seen out there. So that's how we chose it.

Speaker 4

We could have chosen perhaps a bispecific. Amgen has biotechnology there as they have demonstrated actually impressive activity in difficult settings such as refractory or type of line, small cell lung cancer. And we have our own bispecific in the CD20 space with Regeneron. But here, because of the potency and the potential higher benefit risk, given the stability of the linker and trying to affect the avoidance of CRS and other IO type toxicities from bispecifics, we opted to use an ADC. And then in terms of why we chose DLL3, well, it's a target that's been validated by Amgen's data and it's a real unmet medical need.

Speaker 4

I think also has the opportunity to expand to neuroendocrine tumors, which is an area where there hasn't been really a lot of progress. So I think this is a collection of information that led us to really choose this product as our next AEC to move into IND in the near future.

Speaker 9

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Li Chen from Goldman Sachs. Please ask your question, Li.

Speaker 10

Hi, thank you. Thank you for taking my questions. A couple of questions. Number one is, now you're running more than 15 assets in a clinical stage, while based on Q1 and also Q3, Q4, you have been controlling the budget pretty tight. So we're trying to understand that how would you allocate the resources properly to make sure the programs the progress of those programs could potentially make you ahead of peers in competition and how you're going to prioritize some of the key assets?

Speaker 10

Second question is more specific on alagracisib.

Speaker 3

Is there any updates on

Speaker 10

the regulatory timeline for alagracisib in China? When should we expect more visibility on the China filing strategy? Particularly what are the factors that management are considering while trying to determine the filing plan in China. A quick one also on the ADC is, this is probably the first time that we saw Zai Lab as partnering with 1 of the local players licensing their assets. So does that mean that you have been changing your strategies?

Speaker 10

You have been more looking into potentially domestic biotech company to collaborate with? Those are my three questions. Thank you.

Speaker 3

Thanks for the questions and we'll try to cover all three. Billy, maybe you could start on resource allocation. Rafael can talk about adagrassive. You can make any comments, Rafael, about the business development. And then Jonathan, maybe you can provide some broader context around our business development strategy.

Speaker 3

So I'll start with Billy.

Speaker 1

Hey, Steve. Thanks for the question. So I think at this point in DIAB's sort of what I would say relevant scale and organization's life cycle, we think that we have turned a corner whereby we're going to be able to make sure that we achieve our strategic priorities, I. E, we have about 8 anticipated drug launches over the next 2.5 years or so, very important to us clearly, while maintaining kind of a level of growth and productivity at the same time. So therefore, you have saw a snapshot of that in our quarterly results where they're a yes from some non operating items such as interest income and foreign currency gain.

Speaker 1

But if you actually see the operating line items, you would also see improvement profile, namely that revenue is growing faster than expenses. And you should expect that to continue from here on out. So year after year from here on out, we expect to see our financial profile on an operating basis look better and better. And that gave us the confidence and it felt like the time early on this year to make a commentary to the public that we expect to we hope to target to reach commercial profitability this year and overall profitability by end of 2025. So this was something that we expected and something that we're starting to see from here on out.

Speaker 1

Now there's going to be, of course, some quarterly quarter over quarter but year over year, we felt very comfortable that you're going to we're going to start to see improving financial picture. So that includes, right, that bakes in making sure that we execute on all of our priorities, including the anticipated launch we talked about.

Speaker 3

Rafael, maybe you could cover adagratib?

Speaker 4

Sure. Yes. So we obviously are pretty excited about Adagratis. The data in second line on small cell lung cancer, the data in colorectal, which we referred to at the previous earnings call and the data that I alluded to today in pancreatic as well as the IRI tract. This is across solid tumors with TOC.

Speaker 4

It's performing extremely well. So we are very eager to get this product approved as soon as possible, obviously. We are participating on a number of pivotal trials. And in lung cancer, we are on K-twelve, which is the 2nd line study against docetaxel. And we will participate in the frontline and we're also in the colorectal cancer study as well.

Speaker 4

Our filing was based in getting data from PFS on K-twelve And that would be something towards the end of 2024. But we are always looking for ways to accelerate the filing. Obviously, we can't really control the approval because of lack of PDUFA timelines, but we can control whether or not we can, working with CDE, accelerate the filing. So we are we will try to leverage K-twelve data from Chinese patients to see whether we can file earlier. Obviously, no promises, stay tuned and we'll see whether that's the case.

Speaker 4

But right now, the base case is end of 2024 and hopefully, it will be sooner. And I'll just make the comment that Sutrasive apparently won't be approved in China and there are some domestic products that one of them has breakthrough designation and they obviously have Chinese patients, so they have an advantage over alagrassa. That's why we're eager to leverage K-twelve. But these products really are very early. They have response rates.

Speaker 4

They don't have a lot of durability. They don't have a lot of PFS follow-up and or survival. So we don't believe that we are behind in this field. There's really competition, but we will do our very best to try to make this available as soon as possible. And the last comment I'll make, I don't think we made any comment to this last time, but we did start a PK study, which again is required for the filing, and we finished it already actually.

Speaker 4

And so when we go to CDE to discuss these timelines, we would have more data from Chinese patients VK. So hope this helps. Stay tuned and hopefully we'll be able to give you more granular data as we continue our discussion. Jonathan, I think you can make perhaps a comment about the BiO3 deal.

Speaker 11

Yes. So thank you for the question on the BD strategy. First of all, it's not a changing strategy. I like to see it as an evolution in our BD strategy. In fact, I think our BD strategy is multi pronged.

Speaker 11

So

Speaker 4

there are a

Speaker 11

couple of elements to it. Number 1, I think we'll continue to do those type of deals, which maybe we are more well known for, the Miradis, the Edgartigeimod, the late stage assets with regional rights. The latest one is FDAC, obviously, with Seattle Genetics. In this PL3, it's the 2nd part of our strategy, which is to help the company apply global rights and complement our in house discovery strategy. I think if you look at the success in BD, as I, it really comes from the rigor in our scientific evaluation.

Speaker 11

And our scientific team is very good at picking assets. So we want to leverage the strength and extend these regional right deals to global rights in selected areas such as ADCs, synthetic lease salaries and others where we're already building a portfolio of various synergistic assets. And today, whether those assets come from globally or come from China, in the case of ADCs, I think China is actually making a lot of positive progress in this particular company, in particular assets, has shown or demonstrated very promising early data. So we're very excited by it. And I think we may see more deals with these type of profile going forward.

Speaker 11

And I think as we evolve as a company, certainly TV will continue to evolve and there will be other plans and elements. And hopefully, you'll see more about other types of creative deals that we'll do in the near future. Thank you.

Speaker 3

Thanks, Jonathan. Next question, operator, please.

Operator

Certainly. Our next question comes from the line of Seamus Fernandez from Guggenheim Securities. Please ask your question.

Speaker 12

Great. Thanks, everybody. Just a couple of quick questions. So first, just on CAR XT. Can you just help us understand what kind of commercial presence is likely to be necessary for the launch to really capitalize on the size of the overall market opportunity?

Speaker 12

Can you just sort of remind us how the sort of relative generic utilization is in country versus kind of the undiagnosed patient population? Just trying to get a better sense of how we should be thinking about the commercial launch of CAR XT post approval. And then second question is really just on how you're thinking about the opportunity for another topical agent in the treatment of psoriasis. That area has been relatively slow to come on with 2 new agents in the space. Those agents have good efficacy, but what we continue to see across the board are challenges as it relates growth to net dynamics in that market and reimbursement coverage.

Speaker 12

So just how are you thinking about that opportunity for the topical IL-seventeen and the spend that you'll be pursuing associated with it? Is it perhaps an opportunity to pursue HS or other potential opportunities outside of purely psoriasis? Thanks.

Speaker 3

Thanks, Seamus. It's Josh. I'll make a brief comment on sort of commercialization, but I really want Harold to dive in on both of the topics. I think as it relates to CAR XT and the commercialization opportunity, our estimates are there about 8,000,000 patients with schizophrenia across China, at least 4,000,000 of whom are seeking actively seeking care in equivalent of psychiatric wings or psychiatric hospitals in major settings. So I think our view at launch is probably somewhere in the range of 200 sales reps or so can cover the heavy treatment centers.

Speaker 3

Generics are prevalent. I think certainly thinking about olanzapine and others, I think are well utilized in China today. But I think Harold can talk about the opportunity that CarXT presents in terms of either patients who aren't responding well to current therapies or the benefits from compliance and otherwise that may come. And then Harold, you can talk a little bit about why we're excited about IL-seven.

Speaker 5

Yes. Thank you. First, Karuna and the KAIXT compound, it's so different from existing antipsychotics, anteschizophrenia treatments, so that we really see this as a great opportunity to either complement existing regimens as an adjunct or as a standalone. The efficacy was clearly shown in the lab studies. The E3 is just another, with the confirmational trial that's already shown the efficacy of this drug in this patient population with a similar kind of efficacy signal that we've seen in E1 and E2.

Speaker 5

So with that said, I think this is a new area in the market. And in China, as we've already told in previous meetings, there is a lot of undiagnosed schizophrenia. There is an effort by the government to activate more schizophrenia treatment in the country. So we see this as a great commercial opportunity. And regarding the second part of your question about 1102 and the use of topicals in psoriasis where there are already quite a number of treatment options.

Speaker 5

Recently, tepinorov was added and reflumilast, both of those drugs are quite different from ours. And I just would like to bring out again the uniqueness of 1102, which is an IL-seventeen mimetic basically or a blocker that works similar to the most active drug class for this disease. So we see this as a way to bring what is currently the best treatment by subcu treatment or IV treatment directly to the skin. And our proof of concept study has clearly shown that we achieved penetration and early success in clinical markers of benefit. So we see ourselves as in a very unique situation, one in which, yes, other topical treatments exist, but they have systemic absorption, they have other issues and the overall results are well documented.

Speaker 5

However, they are not IL-seventeen mimetics that are currently really the leading drug class for psoriasis. I hope I addressed your question.

Speaker 3

Thank you, Harold. Next question, please.

Operator

Thank you. Our next question comes from the line of Yang Huang from Credit Suisse. Please ask your question, Yang.

Speaker 13

Yang. Hi, everyone. Thank you for taking my questions. I have 2 quick ones. First is, 1st quarter commercialization progress.

Speaker 13

So we saw year over year product revenue increase by 36%, look pretty strong. And then considering Q1, there are still some COVID impact in January and also NIDL kind of just effective for 1 month. So my question is first question is for the remaining quarters of the year, should we expect to kind of accelerated kind of commercial progress, given there will be no COVID impact and the 2 drugs in NRDL potentially should be more volume momentum? That's the first question. 2nd question is on CAR XT.

Speaker 13

So you mentioned you are going to initiate a bridging study pretty soon this year. So can you give us more color on the design and the scale and the potential kind of timeline when also the office of bridging study for CAR XT?

Speaker 3

Thank you for the question. Samantha, if you can cover the first one, which is sort of commercial outlook for the year and COVID impacts and other things that are going on. And then obviously, Harold, you can talk about Caruna or CarXT.

Speaker 2

Sure. Thanks, Ying, for the question. The 1st 2 months in China, we do experience the COVID impact. And also, like you said, NRDL inclusion last month. However, going forward, we start from March, we have seen the much lesser COVID effect.

Speaker 2

We are very optimistic about to continually deliver our goals for the rest of the year.

Speaker 3

Great. Thanks. Harold, do you want to?

Speaker 5

Yes. The question was about the clinical study for CAR XT in China, which is about to start. It's actually almost imminent to start out with a design very similar, almost identical to the emergent program studies that were conducted by Corona. It has the same kind of dose ramping schedule that you've seen there. So we will try to mimic the design, the duration, the details in the same way as it was seen in the global program.

Speaker 5

As far as the time lines, as I said, this study is about to start. We just finished our PK study, which was also on track, which allows us to feel confident about the clinical trial overall. And I think that was your question, unless I missed some piece.

Speaker 13

Thank you. So when do we expect that we can finish that bridge and sorry?

Speaker 5

There is, at this point in time, no clear understanding how long it will take. This is the first study in a long time with a new drug. So we have certain expectations. We think we have the centers lined up. So we do believe this can be done rather expeditiously, but I think this will be for a future conference call to get more clarity on.

Speaker 13

Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Rebecca Liang from Bernstein. Please ask your question, Rebecca.

Speaker 14

Hi. Thanks for taking my question. So specifically on the 2 products that are already covered by NRDL, we saw that Novara had a lot of growth in Q1, but the other one, Kinlok, had negative growth and even after we adjust for the $3,900,000 rebate, there's still a net decline. So could you help me understand better what's actually going on with TIMLOG? And when will when do you expect the volume release effect from NRDL to take place?

Speaker 14

Thank you.

Speaker 3

Thanks, Rebecca. It's Josh. Just to remind everybody that those two products were added effective March 1. So in Q1, you're really not seeing a real effect of the NRDL listing. We're making good progress in terms of pulling that through to the local hospitals.

Speaker 3

So you should expect to see good Kinloch volume and net sales growth over the next three quarters. Yes, as Samantha mentioned, I think across all of our products, we saw

Speaker 1

a little bit of

Speaker 3

challenges in the Q1 just related to COVID. Again, not different than what you're seeing across China based sales and marketing efforts. But we're quite confident that the volumes will efforts. But we're quite confident that the volumes will you'll see them beginning in Q2 from both NUZYRA and Kinloch. Thank you.

Operator

Thank you. I'm showing no further questions at this time. I'll now turn the call back to Zai Lab's CEO, Samantha Du 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 and look forward to updating you again after the Q2 of 2023. Operator, you may now disconnect this call.

Operator

Thank you. That concludes today's conference call. Thank you for participating. Goodbye.

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Earnings Conference Call
Zai Lab Q1 2023
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