Zai Lab Limited
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Hello, ladies and gentlemen, thank you for standing by, and welcome to Zai Lab's First Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to Billy Cho, Chief Financial Officer of Zai Lab, who will make introduction -- introductory comments.

[Billy Cho:]

Good morning, and welcome to Zai Lab's first quarter 2021 financial results and corporate update conference call. Earlier this morning, Zai Lab issued a press release providing the details of the company's financial results for the three months ended March 31, 2021, as well as product highlights and corporate update. The press release is available in the Investor Relations section of the company's corporate website at ir.zailaboratory.com. Today's call will be led by Dr. Samantha Du, Zai Lab's Founder, Chairperson and Chief Executive Officer. She will be joined by Tao Fu, Chief Strategy Officer, who will provide more details on our recent commercial and pipeline progress; Jonathan Wang, Head of Business Development; Dr. Alan Sandler, President, Head of Global Development, Oncology; and Dr. Harald Reinhart, Chief Medical Officer for Autoimmune and Infectious Diseases, we'll also be available to answer questions during the Q&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 our business plans and objectives and timing and success of our clinical trials, regulatory applications and commercial launches. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. I refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today. At this time, it is my pleasure to turn the call over to Zai Lab's Founder, Chairperson and Chief Executive Officer, Dr. Samantha Du.

[Samantha Du:]

Thank you, Billy. Hello, everyone, and thank you all for joining us. On this call, I'll discuss some of the highlights from the first quarter to provide remarks as to why we believe Zai Lab's future has never been brighter. We are off to a great start this year and believe 2021 will be another strong year of execution with quality and speed that Zai Lab has been known to deliver; therefore to become a leading global pharmaceutical company by executing our growth strategy. Since Zai Lab was founded in 2014, we have quickly expanded to create a portfolio of 21 innovative products across more than 30 indications. We have now commercialized the first two of these products in China with four indications. In March 2021, we gained approval for QINLOCK, our third oncology product approved within the last 15 months in China. In addition, we recently received encouraging news on several of our key assets from our customers, BLA filing for Efgartigimod in gMG was accepted by the FDA with a PDUFA date of December 17, 2021. The Phase III pivotal LUNAR trial of tumor treating fields in non-small cell lung cancers was recommended to continue with reduced sample size based on an accelerated interim analysis. Bemarituzumab was granted breakthrough therapy designation by the FDA as first-line treatment for gastric cancer patients who overexpress FGFR2b.

[Tao Fu:]

Thank you, Samantha. I will comment on the performance of our ongoing launches and discuss recent product highlights. First, I'd like to touch on ZEJULA. As a reminder, ZEJULA is approved in China for first- and second-line ovarian cancer and is the only PARP inhibitor approved for all-comers in first-line. In comparison, Lynparza has a label restricting its use to patients with gBRCA mutation, which comprised only about 15% of overall patients in this study. No other PARP inhibitors have been approved for either first- or second-line. The results of the PRIMA study conducted by GSK globally and of the NORA study sponsored by Zai in China demonstrated that an individualized starting dose regimen of ZEJULA preserved efficacy while improving the product side effect profile. This further differentiates ZEJULA from other PARP inhibitors. This quarter, we achieved an important milestone. Our team was successful in gaining inclusion on the National Reimbursement Drug List for second-line ovarian cancer within the same year of our launch. This further underscores ZEJULA's significant clinical value for a broad range of ovarian cancer patients. The rapid NRDL inclusion provides patients much greater access, and we're already starting to see strong volume growth. In addition, our team has also been successful in gaining coverage for commercial health insurance, with coverage currently being provided by 67 commercial health insurance plans and 52 supplemental insurance plans. We're very pleased with our launch performance so far. And over time, we believe that ZEJULA will become the leading PARP inhibitor in China. Moving to Optune. As you recall, we launched Optune in China in the second half of 2020. The product is the first novel treatment in GBM approved by the NMPA in the last 15 years. It was highly anticipated by the medical community, and it was already recommended by the China's national glioma guideline prior to launch. With our team's efforts, Optune became the first innovative medical device supported by commercial health insurance in China, and is also covered in 13 supplemental insurance plans. We deployed innovative strategy to support patient access and rapid uptake, including establishing 28 direct-to-patient centers in China. Importantly, we're working with our partner, Novocure, to potentially expand the indications of tumor treating fields in areas of large unmet medical need. Additional late-stage studies are underway in tumor types potentially affecting over 1.5 million new patients a year in China, including in non-small cell lung cancer where that have been an important development.

[Billy Cho:]

Thank you, Tao. I will give a brief summary of our recent financing and review of our financial results for the first quarter of 2021. Last month, we closed on a global offering of both American depository shares and ordinary shares with gross proceeds to Zai Lab of approximately $857.5 million. This offering was the first ever dual-tranche offering in both NASDAQ and the Hong Kong Stock Exchange. As mentioned before, this new strategic capital will allow us to expand our pipeline through additional collaboration agreements, accelerate the clinical development of our product portfolio and scale of the R&D and commercial organizations to drive strong revenue growth and enhance our global pipeline for years to come.

[Operator:]

Our first question comes from the line of Yigal Nochomovitz from Citigroup.

[Yigal Nochomovitz:]

Tao, you mentioned that the BD pipeline remains very strong. So what should we expect in terms of the pace of new business development initiatives over the near-term? And is the plan to continue to expand into these areas where you already have exposure, such as oncology, autoimmune and infectious disease? Or would you consider branching out perhaps into new areas such as rare disease and into additional treatment modalities, for example, cell therapy, where you currently don't have exposure?

[Samantha Du:]

Thank you, Yigal. Jonathan, do you want to address that question?

[Jonathan Wang:]

Sure. Thanks for the question, Yigal. So I think over the last few years, we have really established a very sustainable platform as a company. And I think really to our development, commercialization, regulatory team's combined efforts, we've built up scale, we've built up leadership in China and demonstrated through track record. And as a result of that, these days, as Tao mentioned, we're getting a lot of inbound interest from potential partners as well as some existing partners across very diverse areas and products. For us, always, we aspire to bring in global quality, best-in-class, first-in-class assets. The quality is always the most important. And I think if you looked at our track record over the last couple of years, I think our track record speaks to itself. And I think as we continue to build, our BD strategy is always to support the company's growth. And our ambition is ultimately to be a global biopharmaceutical company. And so your question also asked about therapeutic areas. I think if you look at, especially, for example, in the last 12 months, we've done a number of deals, which actually expanded our therapeutic areas. For example, the Regeneron deal as well as the argenx deal. And we got into two areas in hematology as well as for the autoimmune diseases, which we did not have strong presence in beforehand. And very quickly through these anchor assets, we're able to build a pretty nice pipeline in those new areas. So going forward, I think we definitely continue to strengthen existing disease strongholds in oncology, for example, in lung, in gastric, in areas like these, it's very important for us. But also potentially to get into new therapeutic areas like what we've done with argenx, with Regeneron, and potentially also to enter into collaborations that would further accelerate our global ambition. So hopefully, that answers your question, Yigal.

[Operator:]

Our next question is from the line of Seamus Fernandez of Guggenheim.

[Seamus Fernandez:]

On targeted therapy. Just hoping you could help us understand in -- amongst the U.S. companies, there are some concerns raised about the pace of targeted therapy and patient identification in the market today. I was hoping to just understand better, given your broad targeted therapy portfolio, how this might differ in China? Or if you just think that the market is misinterpreting the pace of uptake relative to the U.S. market and some other developed markets of these targeted therapies that you have partnered relative to COVID? So, I'm just trying to maybe ask if you guys can tease out a little bit more of the strategy and optionality with the broad targeted portfolio. And if you see that having significant advantages in China or if you just think that the concerns that are being raised today by investors around the pace of targeted therapy update and patient identification, if that's really more of a COVID-related issue in your view?

[Samantha Du:]

We, actually, as you said, we have target therapies. We have immunotherapies. We also have tumor treating fields. All three offers a functional approaches for combo opportunities. Specifically to target therapies, we have, for example, even in lung cancer and gastric cancer, a special targeted therapy addressing different patient population. And I don't think COVID has much impact to our business from last year and this year, pretty much based on that you can see from our revenue and from other clinical development perspective. And also I think China right now is more and more close to the developed countries treatment options -- treatment standards diagnostics -- companion diagnostics companies are also growing very well. Together with these global diagnostic companies, we don't see much issue with patient segmentation or finding the right patient population. Having said so, if you look at our platform, the current three approved products, they are all-comers status. For example, for ZEJULA, is the only first-line all-comers monotherapy ovarian cancer patient. And second-line -- in the first-line and second-line. And for the QINLOCK also is the only all-comer status -- so all -- for later line, this patient population. And also for Optune, it's also the -- there's no diagnostic requirement. So for us, right now, we're in a very good position and to -- we're able to kind of broader coverage to the patient populations, which each one of them have a much greater patient population than in the other countries. Seamus, did I answer your questions?

[Seamus Fernandez:]

Yes. I mean, that makes sense. I guess as you move forward and it was more a question of, are there opportunities to kind of utilize your broader portfolio to optimize patient identification for the targeted therapies. I know that, that's something that's unique to Zai Lab relative to others. But that -- I think you answered my question.

[Samantha Du:]

Thank you. Yes. again, let me just -- you brought a very good point because in each strong disease cohorts, we have multiple target therapies with -- so when we go to a doctor, we can also many different test partners, the different options for treatment based on the mutation type. Thank you.

[Operator:]

Our next question is from the line of Ziyi Chen of Goldman Sachs.

[Ziyi Chen:]

Congratulations on a strong quarter. With the recent public offering, I think Zai Lab now have a very strong cash position, about like $1.8 billion. So it will be great that management could share with us more color on how you're going to spend that money? What would that be -- are you going to accelerate the pace for the BD deals? Or you're going to spend more efforts on in-house discovery team build up? Or any color on building out the significant bigger commercial team. So trying to understand how you're going to allocate the resources and beef-up the in-house pipeline and also the commercial strength?

[Samantha Du:]

Yes, that's a very good question, Ziyi. I'll ask Billy to address the questions.

[Billy Cho:]

Sure. Ziyi, thanks for the question. So you're right. Right now, if you add in the capital raise for -- during April, we do have a little over $1.8 billion in cash if you combine that with the March close balance. But specifically to the capital raising from last month, it is based on our fundamental strategic need. So to your question, the answer is yes, in terms of the strategic capital being applied to accelerate the timeline to scale the trial further. And breaking down further into specific areas within the functional departments, a good part of it will go to fund new business opportunities, in terms of BD, corporate development and licensing opportunities that we were talking about on the -- in the call as well as the earnings release, both. And then also, we've identified opportunities to complete additional clinical trials, advance these drug candidates and just overall scale up our R&D platform. And the same goes to our commercial efforts. We have a very significant schedule, not only ramping up the three innovative products we have right now, but we have many more Q4 potential approval launch over the next few years, as you know, like over 10, with just the current pipeline in the medium term, so making sure that we can absorb that type of growth is going to be important. So we want to allocate some funding to expand our commercialization efforts. And then last but not least, also to enhance our global pipeline. So these are the four broad areas where we see we're going to deploy this capital and create additional shareholders value.

[Operator:]

Our next question is from the line of Anupam Rama of JPM.

[Anupam Rama:]

Congrats on all the progress. Maybe I can ask a quick one on QINLOCK here. I know it's early days and the GIST launch is expected later this month. But just wondering how we should be thinking about that launch curve here, say, relative to ZEJULA?

[Samantha Du:]

Thank you for your questions. Billy, do you want to address that?

[Billy Cho:]

Yes, sure. Anupam, thanks for the question. You're right. It's pretty exciting times right now. We're going to have our first launch in gastric cancer franchise with QINLOCK in advance GIST. We expect to launch this month in May. And we think that we have an opportunity here to establish a new standard of care for treating patients with advantages in China. And of course, later this year, we also have tech line data coming out. So we're anticipating that outcome as well so we'll see so. As you know, Anupam, there's approximately 30,000 GIST patients newly diagnosed in China every year. So it's a quite significant number, quite as many as U.S. and Europe combined. So we have a pretty significant opportunity. And we have already built a commercial team in our gastric cancer franchise to launch QINLOCK well, and we're ready to go. So we're not giving guidance just yet, but it's pretty exciting.

[Operator:]

Next question is from the line of Jonathan Chang of SVB Leerink.

[Jonathan Chang:]

Congrats on the progress. With the recent approvals of anti-PD-1 drugs in frontline gastric cancer, can you talk about how this impacts your gastric cancer strategy with multiple partner programs in this space?

[Samantha Du:]

Thank you for the question. Alan, do you want to address the question?

[Alan Sandler:]

Sure. Thank you very much. And thanks for the question. Of course, as you know, gastric cancer is the second largest cancer in China, both in terms of incidents and mortality and their significance unmet need. Fortunately, more and more treatment options are available. We've -- Tao had mentioned bema earlier. And the FGFR2b expression appears to be orthogonal in that it appears to occur in those patients not necessarily expressing HER2, for example. So there continues to be a -- definitely an unmet need and opportunity there as well. With respect to HER2 and the recent accelerated approval for pemetrexed. We still believe, as does our partners, MacroGenics, that there's definite opportunity there and continue to evaluate margetuximab with PD-1 checkpoint blockades, and believe that this may create synergistic antitumor activities to enhance tumor-specific T cell immunity. So we still believe there are considerable opportunities in this important area. Did I address your question?

[Jonathan Chang:]

Yes, partially. Maybe I can just sneak in a follow-up then on bemarituzumab, specifically. How should we be thinking about next regulatory and development steps? What could a potential Phase III study look like in the context of this evolving gastric cancer landscape?

[Samantha Du:]

Jonathan, definitely can...

[Alan Sandler:]

Sure. So -- sorry.

[Samantha Du:]

Go ahead. Go ahead, Alan.

[Alan Sandler:]

I think that we are -- I think it's safe to say we're working with our partners, Amgen, in evaluating the recent changes that have occurred in this particular area. And we'll be working towards the optimal design of that Phase III study moving forward.

[Operator:]

Next question is from the line of Michael Yee of Jefferies.

[Michael Yee:]

Congrats on a great quarter of progress. Going back to the follow-up about the recent significant capital raise. I was wondering about your consistent stated goal to become a global pharmaceutical company. But wondering if that specifically means that you would be interested in expanding more so into other geographies, Asia, East or West? And thinking about what that means to become a global pharmaceutical company beyond China? And how the capital raise may play a role in that, if at all?

[Samantha Du:]

Michael, thank you. It's early morning for you, right, in the West Coast. And I think, as we mentioned earlier, we definitely aspire to be a global biopharma company. And in the next three to four years, we're planning to have additional 10 more products launched without taking into account any new partnerships, indication expansions or combo status. And what I also like to highlight is, China is now the second largest global market. And going forward, it's going to continue with double-digit growth. So we're doing well in China and we're doing well globally. And we also, as I mentioned earlier, we have a very strong pipeline. On top of what we talked about, we have three products, already they are approved. With one more to be approved this year and 10 more to be approved over the next three to four years, we believe our commercial position is very strong in Greater China and Asia. However, we also have a very strong pipeline, not only at later stage but early stage with -- we talked about seven in terms of discovered pipeline with global rights, including three in global Phase I products. We do believe by the next three to four years, we will have some of them entering into pivotal stage. And of course, in addition, we have a very strong BD team. And our BD teams continue to seek strategic collaborations to bring more promising assets that address unmet medical needs to our portfolio. Some can be of global rights, some can be of China rights based on the stage and also based on the patient population. And this is also to revolve along our strategy to supplement our own internal pipeline. Accordingly, and we have over the last few years expanding R&D footprint and our R&D team globally. We have now teams, not only in China, in Shanghai, in Beijing in R&D. But also, we have teams in Boston and San Francisco focusing on R&D as well. And we believe that all of these approaches, we are well positioned to realize our ambition in the near future.

[Operator:]

We have Yang Huang of Crédit Suisse for the next question.

[Yang Huang:]

So my question is on tumor treating Fields commercialization progress in China. So we understand it's already almost a year since we commercially launched the product in China. Can you give us kind of more color on commercial progress? For example, if compared to developed countries, I mean, do China patients -- they're on a device longer or shorter or we have various collaboration with supplemental insurance in China. And how does those insurance plan increase our new patients who are using our devices? And yes, any color on commercialization would be helpful.

[Samantha Du:]

Sure. I'll let Billy to address your question.

[Billy Cho:]

Yang, thanks for the question. So the sales of Optune in China has been robust. So you saw from our earnings release that first quarter 2021 came in $7.1 million compared to $1.9 million in the same period last year, and the momentum is quite strong as we continue on in second quarter and beyond. So we're not yet giving full year guidance. But I'll just also as you know that, given the momentum, we did double the number of sales teams from about 50 at launch to about 100 now. And to your point, also, you specifically mentioned other payer types that we've been able to leverage and to adoption . And you're exactly right. So there are 13 supplemental insurance plans that we were added to, and there's additional commercial plans as well. It's mostly still driven by private pay, but we think that over the longer term, these additional payer pools, if you will, is going to be quite favorable long-term and the contribution should increase. So those are all trending in the right direction. So, hopefully -- and oh, yes, you also asked about sort of the experience we've had specifically with Chinese patients and how they compare to sort of ex-China patients. So we're not giving specifics on that, partly because the launches both from the U.S. as well. It's really kind of in the back half of second half -- kind of back half to second half last year, where Optune kind of was -- kind of we were actually kind of in the initial stages of the current launch curves. But we see strong uptick, as I previously mentioned before, new patients and we're collecting good data right now on a monthly basis. And is definitely trending on the right path, and we think that we're going to set a new benchmark in terms of first 12 months scripts.

[Operator:]

We have David Ng from Macquarie.

[David Ng:]

It's David from Macquarie. If I may, I can just focus on ZEJULA and Optune again. So for first quarter, very strong year-over-year sales. Can you tell a little bit about the quarter-over-quarter trend for ZEJULA? And then, I guess, specifically after March, when the new price and NRDL coverage kicks in. Can you share with us what you noticed on the ground, especially in terms of volume expansion, is the speed satisfactory? And entering into April and May, has the ramp-up continue? So that's ZEJULA. And again, maybe also comparing against the two new competitors. Of course, their indications are not the same as you guys, but I noticed that their price is also quite comparable with, I guess, BeiGene also just recently launch theirs. So any thoughts along that line in terms of further pricing strategy for the rest of this year? So even post-NRDL inclusion, any thinking of offering some more kind of PAP program on top of NRDL to be competitive on ZEJULA? So sorry, a couple of questions on ZEJULA. On Optune, basically, I guess, a strategic question in the next three to four years. With much fewer competitive threat in China, does it make sense not to go after NRDL like on a national level? And if that's the case, does it mean that it can afford your team more time to ramp it up more gradually? And then achieve maybe potentially even higher peak sales rather than compared to some of the other innovative drugs in China where they have to really go intensive in the first two years after NRDL inclusion? So that's kind of my question on the two products.

[Samantha Du:]

Yes. David, I think you asked a lot of questions. For the interest of time, I would like Billy to give some answers from your questions to address. Billy?

[Billy Cho:]

Sure. Thanks, Samantha. Thanks, David, for the question. So let me go through one by one, but I'll backwards and then address it the earlier ones. So in terms to Optune and your question is about sort of optimizing the private pay channel with the comprehensive strategy. The short answer is, yes. And we've always said that for Optune, for GBM, that's going to be the base strategy. And that there are other indications, larger indications, progressing quite well, especially what we can use. So we'll kind of revise our strategy once those get finalized and ultimately approved and launched. So our fingers crossed, and that's going to be a great position to be. Can we -- what can we do above and beyond sort of the current comprehensive private pay strategy with not only out-of-pocket for the calling plans, commercial payers, supplemental insurance, et cetera. Because, David, to your point, really that approach, if you do it well, achieve the rational pricing as well as increase adoption. So to layer on something above that, we think it will be a positive, but to be continued. To your first group of questions on ZEJULA, I believe you were talking about sort of competitive landscape and then our first quarter ramp. So in terms of the competitive landscape, you're right. The -- I think the best way to -- the way we will characterize it is we part asset class we're becoming quite important to address not only ovarian cancer patients, but even beyond that in China. And that's great to see. The awareness building up in this asset class because we believe that we have already positioned ZEJULA as a best-in-class PARP inhibitor. And we see that in our -- although we're not giving guidance and specific kind of KPI, but we already see that. And in third quarter, when the NRDL was implemented, we saw a clear kind of volume ramp up. And of course, it's going to continue in terms of kind of adopting and sort of absorbing and transitioning to an NRDL drug, right, because you have to now go out and get on all the hospital listings. But of course, the number of hospital listings has kind of noted upwards, trending up nicely into the second quarter and beyond. And of course, that's the reason why we've also doubled the number of sales team from 150 at launch to 300 as of right now, and we'll continue to invest because we see good momentum. And yes, so hopefully, those -- hopefully, I did a good job in answering your question.

[Samantha Du:]

Yes, I think David, regarding your competitive landscape for ZEJULA, where we're right now are the only entity who has all-comer status approved. Any all-comer status approved for ovarian cancer. And we'll also -- on a second-line, we got -- (inaudible) NRDL end last year. So the two competitors you mentioned, we don't view them as our competitors because they are in BRCA and the later line, and they just launched this year. So we don't feel we need to address -- we don't, at least, for now or near term we see any justification for us to modify our strategy because of those latest comers for later line patients.

[Operator:]

I'm showing no further questions at this time. I will now turn the call back over to Zai Lab's CEO, Samantha Du, for closing remarks.

[Samantha Du:]

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 periodically on our progress throughout the year. Operator, you may now disconnect this call. Thank you, all.

[Operator:]

Thank you. And this concludes today's conference call. And thank you for participating. You may now disconnect.