Zai Lab Limited Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Reaffirmed full-year revenue guidance of USD 560 million to USD 590 million and expect profitability in the fourth quarter.
• Regional business momentum building with multiple near-term launches, including VYVGART in autoimmune indications and Povetacicept. Anticipates approvals for KarXT in schizophrenia and TIVDAK in cervical cancer. Preparing for submissions of other later-stage assets.
• Global R&D advancing innovative programs like ZL-1310 DLL3 ADC showing first-in-class potential in small cell lung cancer, and ZL-1503, ZL-6201 entering clinic. Leveraging AI across the organization for clinical trials and commercial analytics.
• Executing profitability plan with disciplined spending, operating loss improved in Q2 2025, and on track to reach adjusted profitability in Q4 2025.
• Focused commercialization approach for products like AUGTYRO, leveraging scalable model and repurposing teams.

Segment Performance:

• VYVGART: In the second quarter, saw record patient utilization in gMG with strong commercial execution. Has potential for over $1 billion in peak sales. Momentum supported by new patient starts, increasing treatment duration, and upcoming NRDL listing and prefilled syringe submission. Revenue contribution from VYVGART is growing due to these factors.
• ZEJULA: Had a softer quarter due to competitive dynamics in the PARP class but expected to stabilize and grow later in the year, especially in first-line ovarian cancer where it has a differentiated safety and efficacy profile.
• XACDURO: Sees robust demand for treating CRAB infections but supply constraints may modestly limit near-term growth in 2025, though underlying demand remains strong.
• AUGTYRO: Near-term revenue is limited, but has a best-in-class clinical profile in ROS1-positive non-small cell lung cancer, positioning it as an important treatment option for patients.

Guidance:

• Reaffirmed full-year 2025 total revenue guidance of $560 million to $590 million.
• Expect to achieve profitability on an adjusted basis in the fourth quarter of 2025.
• Anticipate quarter-over-quarter total revenue growth in 2025 with acceleration in the later part of the year.
• Confident in the trajectory of growth for products like VYVGART, ZEJULA, XACDURO, and AUGTYRO in the second half of the year.

Risks:

• Supply constraints may modestly limit near-term growth for XACDURO in 2025.
• Regulatory uncertainties related to approvals of various assets like KarXT, TIVDAK, etc.
• Competitive dynamics in the PARP class impacting ZEJULA's performance in the short term.

Question and Answer: Q: Congrats on the positive FORTITUDE-101 study results. Can you help us understand the potential opportunity for bema in frontline gastric cancer? What biomarker status and FGFR2b threshold would patients need for treatment with bema? And can you help us characterize the safety profile observed in the 101 study?

A: Josh Smiley mentioned over 450,000 patients with gastric cancer in China, about 1/3 overexpressing FGFR2b, with potential $1 billion sales opportunity. Rafael Amado noted biomarker is overexpression of FGFR2b (2+ to 3+ at least 10% of cells), toxicity included myelosuppression and ocular toxicity which was reversible.

Q: You talked about the second half growth levers with VYVGART and you talked about the stabilization of ZEJULA looking to the second half. But just wondering if there's any outsized growth expected from the broader commercial franchise in terms of NUZYRA or XACDURO that might contribute meaningfully to getting to the guidance and profitability by the end of the year?

A: Josh Smiley said XACDURO has strong demand but supply constraints may limit near-term growth in 2025, AUGTYRO has a focused commercial approach with good potential, and NUZYRA continues to be a strong growth driver.

Q: I had a bunch of questions on the bema topic. So obviously, you can't tell us the data, but you have said that it's statistically significant and clinically meaningful. And obviously, in FIGHT -- in the Phase II FIGHT trial, the OS delta was over 13 months. So, can you just help put in perspective what the expectation should be around the OS data for FORTITUDE-101 in terms of the expected delta? And then for 102, given that it's with nivo, I'm also curious whether you would expect the delta would be less because you have nivo on both sides of the equation? And then also in China, what's going to be the regimen that is more likely to get the uptake in gastric? Is it with the chemo or also with the nivo? And then I have another one on DLL3.

A: Rafael Amado said it's premature to comment on exact OS delta magnitude as data is embargoed, difference in survival with nivo is difficult to speculate, and chemotherapy plus bema is perceived as important advance in China.

Q: Two questions from me. The first one is for VYVGART. I understand that management mentioned in first quarter, there has been some inventory management that linked to weaker sales. And I'm wondering, was VYVGART still under this type of inventory management in the second quarter? And how should we look into the second half, and particularly in July, what has been the momentum versus previous months in the first half? And also, we look at argenx, they observed very strong subcu formulation uptake. And what will be the strategy in China between subcu and IV formulation for VYVGART from your perspective? And my second question is regarding the DLL3 ADC. Now the asset is going to be moving into pivotal study pretty soon. So, at this juncture, we're trying to understand a bit more about the company strategy in the U.S. market. Are you still actively looking for a partner for clinical development? Or the strategy is going to be pivoting towards self-sponsoring the pivotal study and potentially future commercialization to capture all the economics?

A: Josh Smiley said VYVGART managed inventory closely in first half, second half expects normal build, strategy is to pursue NRDL and prefilled syringe submission. Rafael Amado said DLL3 ADC is on track to initiate pivotal trial, initial pursuit is to go ahead and launch trial ourselves.

Q: I have 2 pipeline questions. First on bema, just wondering what steps are left to file in China. And is it possible to get NRDL listing in 2027? Or should we assume it's more of a 2028 event? And then for DLL3 ADC, how are you guys thinking about the data from [ Henry DLL3 ] program next month? Any read-through to your own on program and for data update later this year, what additional information do you hope to share relative to the ASCO update?

A: Joshua Smiley said focus is on submitting and getting bema approved quickly, NRDL timing depends on approval. Rafael Amado said on DLL3 ADC, will provide updated data with more patients and follow-up, first-line data likely next year.

Q: Two pipeline questions. First on bema, just wondering what steps are left to file in China. And is it possible to get NRDL listing in 2027? Or should we assume it's more of a 2028 event? And then for DLL3 ADC, how are you guys thinking about the data from [ Henry DLL3 ] program next month? Any read-through to your own on program and for data update later this year, what additional information do you hope to share relative to the ASCO update?

A: Joshua Smiley said focus is on submitting and getting bema approved quickly, NRDL timing depends on approval. Rafael Amado said on DLL3 ADC, will provide updated data with more patients and follow-up, first-line data likely next year.

Q: I have 2 brief questions. First one regarding the DLL3. I just would hope to, I think, clarify a bit on the catalyst [indiscernible] data timeline. So, if I could confirm, again, in terms of when we might expect the next data update from the second-line treatment and especially, I think, on the expansion cohort. And also, I think it was mentioned previously at the ASCO call, we also have first-line data upcoming. I'd just like to reconfirm on the timeline to expect for that. And the second one, I think, briefly on whether the company has review or update in terms of some of the policy news update regarding the commercial insurance ramp-up and if there's any implications or changes to our commercial strategy for products like Optune?

A: Rafael Amado said expect update on second-line DLL3 ADC by end of year with more patients and follow-up, first-line data likely next year. Joshua Smiley said encouraged by commercial insurance policy changes, which benefit new product launches in the stub period between approval and NRDL listing.