Zai Lab Limited Q3 FY2025 earnings call

Vision and Strategy

• Zai Lab's vision is to bring global innovation to patients in China and develop new innovations for global competition. The global pipeline is a key growth chapter.

R&D Highlights

• Zoci (ZL-1310) is in pivotal stage for SCLC, with strong efficacy in pretreated patients, starting registrational Phase III. Other pipelines: ZL-1503 (IL-13xIL-31R bispecific) in Phase I, ZL-6201 (LRRC15 ADC) on track for IND, ZL-1222 (PD-1 IL-12 immunocytokine) in IND-enabling.

Commercial Highlights

• Total revenues up 14% YOY. VYVGART has ~12% penetration in gMG, with 21,000 patients treated, and growth driven by patient demand and treatment duration. KarXT is in regulatory review with potential to redefine schizophrenia treatment in China.

Total revenues were $116 million, representing 14% growth year-over-year. VYVGART and VYVGART Hytrulo contributed $27.7 million, including a $2.4 million reduction due to a price adjustment. VYVGART has ~12% penetration in gMG with nearly 21,000 patients treated to date, and the average vials per patient have increased over 30% year-to-date. ZEJULA had sequential growth but year-over-year decline. XACDURO faces supply constraints. Revenue contribution: VYVGART and related products are key contributors, with other products like ZEJULA and XACDURO also part of the segment.

Revenue Guidance

• Updated total revenue guidance to at least $460 million.

Profitability

• Expect profitability to shift beyond Q4 2025, driven by growth in China business. Focus on launch of KarXT, potential approval of TIVDAK, and progress in global pipeline like Zoci's registrational trials.

Commercial Risks

• Complex commercial environment in China affecting growth pace of products like VYVGART.

Pipeline Risks

• Supply constraints for XACDURO. Regulatory and market uncertainties for global pipeline products like Zoci and others.

Financial Risks

• Potential challenges in achieving revenue targets and profitability milestones as per revised guidance.

Q: On the revised revenue guidance, how should we be thinking about the key drivers for growth and the path to profitability?

A: Growth drivers include VYVGART (new patient additions and treatment duration growth), ZEJULA (share gain as Lynparza goes generic), and portfolio growth. Profitability is driven by growth in the China business, which is currently profitable.

Q: Can you help set expectations for the initial data readout expected in 2026 for ZL-1503? And how are you guys seeing the opportunity in atopic dermatitis?

A: ZL-1503 is a dual IL-13/31 inhibitor in Phase I, with first-in-human study planned. Data expected mid-2026. Atopic dermatitis is a large opportunity with high unmet need, and the product's dual mechanism and long half-life offer potential for fast and sustained effects.

Q: Is this a shift in how you're thinking about the resource allocation in terms of your prior focus on external BD versus now the internal pipeline?

A: Prioritize advancing the internal global pipeline, but still have a strong balance sheet to pursue targeted external opportunities for novel mechanisms.

Q: Where you're seeing the greatest opportunity and greatest likelihood for success for your internal global pipeline among LRRC and PD-1, IL-2 and others?

A: Zoci is the most immediate opportunity with strong efficacy and safety in SCLC. Others like ZL-1503 (IL-13xIL-31R bispecific) and ZL-6201 (LRRC15 ADC) also have promising potential.

Q: What are you doing to set yourself up for a strong KarXT launch? And what more have you learned about the schizophrenia market in China to best position KarXT in the marketplace?

A: KarXT has regulatory review ongoing, with targeted sales force and education program. Schizophrenia market in China has large unmet need for new mechanisms, and KarXT's dual efficacy on symptoms and cognition positions it well.

Q: Can you provide your updated views on the $2 billion revenue target by 2028?

A: Positive on portfolio growth, with Zoci's potential for global sales by 2028 and China business growth supplemented by new indications.

Q: I wonder if you can just talk a little bit about the pathway to approval and what would be the bar for ZL1310 in neuroendocrine tumors?

A: Path involves single-arm trial in neuroendocrine carcinomas, with response rate >30-40% being key for potential accelerated approval due to high unmet need.

Q: Could you elaborate a bit more on compared to the expectations set in any guidance previously, in which areas has the company encountered deeper than anticipated challenges in China environment, particularly for VYVGART and ZEJULA? And is the fourth quarter cash breakeven target still intact?

A: VYVGART ramp slower than expected due to commercial dynamics; ZEJULA faced delays in share gain. Cash breakeven target is still in the path via continued growth.

Q: Could you provide a bit more color on the portfolio strategy when you're deciding what to go after and what not to do?

A: Focus on oncology ADCs, immunocytokines, autoimmunity, neuroscience with novel mechanisms of action, differentiation, and patient impact.

Q: I was just curious what kind of visibility or leading indicators you may have for Q4 and 2026 for VYVGART? And on Bema in the context of the Amgen announcement, is there a path forward for just China based on the trials you're running or the data you have in hand?

A: VYVGART visibility includes sequential volume growth mid-teens Q3 and continued growth in cycles. For Bema, data from Amgen's studies make China approval challenging, and resources will be redirected to the pipeline.