Zai Lab Ltd

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our 2023 Annual Report and our unaudited condensed consolidated financial statements and the accompanying notes for the first quarter of 2024 included in Item 1. Financial Statements.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our 2023 Annual Report and our unaudited condensed consolidated financial statements and the accompanying notes for the three and six months ended June 30, 2024 included in Item 1. Financial Statements.

Previous wording

We are a patient-focused, innovative, commercial-stage, global biopharmaceutical company with a substantial presence in both Greater China and the United States. We are focused on discovering, developing, and commercializing products that address medical conditions with significant unmet needs in the areas of oncology, autoimmune disorders, infectious disease, and neuroscience. We intend to leverage our competencies and resources to positively impact human health in Greater China and worldwide. We currently have five commercial products – ZEJULA®, OPTUNE, QINLOCK®, NUZYRA®, and VYVGART® – that have received marketing approval and that we have commercially launched in one or more territories in Greater China. OPTUNE refers to Tumor Treating Fields devices marketed under various brand names, including OPTUNE GIO® for glioblastoma multiforme (“GBM”). We also have multiple programs in late-stage product development and a number of ongoing pivotal trials across our portfolio.

Current wording

We are a patient-focused, innovative, commercial-stage, global biopharmaceutical company with a substantial presence in both Greater China and the United States. We are focused on discovering, developing, and commercializing products that address medical conditions with significant unmet needs in the areas of oncology, immunology, neuroscience, and infectious disease. We intend to leverage our competencies and resources to positively impact human health in Greater China and worldwide. We currently have five commercial products – ZEJULA®, OPTUNE, QINLOCK®, NUZYRA®, and VYVGART® – that have received marketing approval and that we have commercially launched in one or more territories in Greater China. OPTUNE refers to Tumor Treating Fields devices marketed under various brand names, including OPTUNE GIO® for glioblastoma multiforme (“GBM”). We also have multiple programs in late-stage product development and a number of ongoing pivotal trials across our portfolio.

Previous wording

As we pursue our corporate strategic goals, we anticipate that our financial results will fluctuate from quarter to quarter and year to year depending in part on the balance between the success of our commercial products and the level of our research and development expenses. We cannot predict whether or when our product candidates will receive regulatory approval. Further, if we receive such regulatory approval, we cannot predict whether or when we may be able to successfully commercialize such product or whether or when such product may become profitable.

Current wording

As we pursue our corporate strategic goals, we anticipate that our financial results will fluctuate from quarter to quarter and year to year depending in part on the balance between the success of our commercial products and the level of our research and development expenses. We cannot predict whether or when our product candidates will receive regulatory approval. Further, if we receive such regulatory approval, we cannot predict whether or when we may be able to successfully commercialize such products or whether or when such products may become profitable.

Previous wording

•Tisotumab Vedotin: In April 2024, our partner Pfizer Inc. and Genmab A/S announced that the U.S. Food and Drug Administration approved the supplemental Biologics License Application granting full approval for tisotumab vedotin (or TIVDAK®) for the treatment of patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. We are participating in the global Phase III innovaTV 301 trial and extension study in Greater China.

Current wording

•Tisotumab Vedotin: In April 2024, our partner Pfizer Inc. and Genmab A/S announced that the FDA approved the supplemental Biologics License Application granting full approval for tisotumab vedotin (or TIVDAK®) for the treatment of patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. We are participating in the global Phase III innovaTV 301 trial and extension study in Greater China.

Previous wording

•Efgartigimod: In April 2024, we submitted a supplemental Biologics License Application to the NMPA for efgartigimod alfa injection (subcutaneous injection) (“efgartigimod SC”) for the treatment of patients with chronic inflammatory demyelinating polyneuropathy (“CIDP”).

Current wording

•Efgartigimod: In May 2024, the NMPA accepted for priority review a supplemental Biologics License Application for efgartigimod alfa injection (subcutaneous injection) (“efgartigimod SC”) for the treatment of patients with chronic inflammatory demyelinating polyneuropathy (“CIDP”). In June 2024, our partner argenx announced that the FDA approved efgartigimod SC, under the brand name VYVGART® Hytrulo, for this indication.

Previous wording

•Xanomeline-Trospium (KarXT): In April 2024, our partner Bristol Myers Squibb(“BMS”)presented new interim long-term data from the Phase III EMERGENT program for the treatment of schizophrenia. In the new interim analysisof long-term efficacy data from the Phase 3 EMERGENT-4 open-label extension trial, KarXT was associated with significant improvement in symptoms of schizophrenia across all efficacy measures at 52 weeks, and in the new pooled interim long-term safety and metabolic outcomes from the Phase III EMERGENT-4 and EMERGENT-5 trials, KarXT demonstrated a favorable long-term metabolic profile where most patients experienced stability or improvements on metabolic parameters over 52 weeks of treatment. We are conducting a registrational bridging study in mainland China.

Current wording

•Xanomeline-Trospium (KarXT): In April 2024, our partner BMSpresented new interim long-term data from the Phase III EMERGENT program for the treatment of schizophrenia. In the new interim analysisof long-term efficacy data from the Phase 3 EMERGENT-4 open-label extension trial, KarXT was associated with significant improvement in symptoms of schizophrenia across all efficacy measures at 52 weeks, and in the new pooled interim long-term safety and metabolic outcomes from the Phase III EMERGENT-4 and EMERGENT-5 trials, KarXT demonstrated a favorable long-term metabolic profile where most patients experienced stability or improvements on metabolic parameters over 52 weeks of treatment. We are conducting a registrational bridging study in mainland China.

Previous wording

In April 2024, Andrew Zhu joined Zai Lab as our Chief Commercial Officer in Greater China. Mr. Zhu’s rich experience in building innovative business models and resource integration will help us further enhance our commercial operations and drive sales and profit growth across Greater China. He joins us from Simcere Zaiming, where he most recently served as Chief Operating Officer responsible for the commercial and pharmaceutical business. He previously served in various operational, sales, and marketing leadership roles at leading global biopharmaceutical companies, including AstraZeneca, Roche, Sanofi, and BMS.

Current wording

•Organizational Updates: In April 2024, Andrew Zhu joined Zai Lab as our Chief Commercial Officer in Greater China. Mr. Zhu’s rich experience in building innovative business models and resource integration will help us further enhance our commercial operations and drive sales and profit growth across Greater China. He joins us from Simcere Zaiming, where he most recently served as Chief Operating Officer responsible for the commercial and pharmaceutical business. He previously served in various operational, sales, and marketing leadership roles at leading global biopharmaceutical companies, including AstraZeneca, Roche, Sanofi, and BMS. In addition, Dr. Rafael Amado was appointed President, Head of Global Research and Development, expanding his role to encompass R&D efforts all of our therapeutic areas upon Dr. Harald Reinhart’s retirement on June 30, 2024.

Previous wording

We generate product revenue through the sale of our commercial products in Greater China, net of any related sales returns and rebates to distributors. Our cost of sales mainly consists of the costs of manufacturing ZEJULA and NUZYRA, costs of purchasing OPTUNE, QINLOCK, and VYVGART from our collaboration partners, any royalty fees incurred as a result of sales of our commercial products under our license and collaboration agreements, and amortization of any sales-based milestone fees incurred under our license and collaboration agreements. We expect our revenue to increase in coming years as we continue to focus on increasing patient access to our existing commercial products, such as through NRDL listing or increased supplemental insurance coverage in the private-pay market. For example, in the first quarter of

Current wording

We generate product revenue through the sale of our commercial products in Greater China, net of any related sales returns and rebates to distributors. Our cost of product revenue mainly consists of the costs of manufacturing ZEJULA and NUZYRA, costs of purchasing OPTUNE, QINLOCK, and VYVGART from our collaboration partners, any royalty fees incurred as a result of sales of our commercial products under our license and collaboration agreements, and amortization of any sales-based milestone fees incurred under our license and collaboration agreements. We expect our product revenue to increase in coming years as we continue to focus on increasing patient access to our existing commercial products, such as through NRDL listing or increased supplemental insurance coverage in the private-pay market, and as we launch additional commercial products, if and when we obtain required regulatory approvals. We expect our cost of product revenue to increase as the volume of products sold increases.

Previous wording

•in-licensed patent rights fees of exclusive development rights of products granted to the Company;

Current wording

•fees for exclusive development rights of products granted to the Company;

Previous wording

Our results of operations have been, and will continue to be, affected by our license and collaboration agreements. In accordance with these agreements, we may be required to make upfront payments and milestone payments upon the achievement of certain development, regulatory, and sales-based milestones for the relevant products as well as certain royalties at tiered percentage rates based on annual net sales of the licensed products in the licensed territories. As of March 31, 2024, we may be required to pay development and regulatory milestone payments of up to an additional aggregate amount of $303.5 million for our current clinical programs and $665.2 million for other programs that are contingent on the progress of our product candidates prior to commercialization. As of March 31, 2024, we also may be required to pay sales-based milestone payments of up to an additional aggregate amount of $2,457.5 million as well as certain royalties at tiered percentage rates on annual net sales that are contingent on product performance. If these milestones or royalties do occur, we view related payments as favorable because such payments signify that the product or product candidate is achieving higher sales levels or advancing toward potential commercial launch.

Current wording

Our results of operations have been, and will continue to be, affected by our license and collaboration agreements. In accordance with these agreements, we may be required to make upfront payments and milestone payments upon the achievement of certain development, regulatory, and sales-based milestones for the relevant products as well as certain royalties at tiered percentage rates based on annual net sales of the licensed products in the licensed territories. As of June 30, 2024, we may be required to pay development and regulatory milestone payments of up to an additional aggregate amount of $294.5 million for our current clinical programs and $561.2 million for other programs, and such payments are contingent on the progress of our product candidates prior to commercialization. As of June 30, 2024, we also may be required to pay sales-based milestone payments of up to an additional aggregate amount of $1,980.0 million as well as certain royalties at tiered percentage rates on annual net sales that are contingent on product performance. If these milestones or royalties do occur, we view related payments as favorable because such payments signify that the product or product candidate is achieving higher sales levels or advancing toward potential commercial launch.

Previous wording

Our net product revenue increased by $24.4 million in the first quarter of 2024 primarily driven by increased sales volumes, the launch of VYVGART, and decreased sales rebates to distributors resulting from price reductions in connection with NRDL listings for certain products. In terms of revenue growth by product, ZEJULA, which was renewed with NRDL as a maintenance treatment in the first quarter of 2024, continued being the leading PARP inhibitor in hospital sales for ovarian cancer in mainland China; VYVGART for gMG was commercially launched in mainland China in September 2023 and was included in the NRDL in the first quarter of 2024; increased sales for QINLOCK were supported by its inclusion in the NRDL in the first quarter of 2023; and increased sales for NUZYRA were supported by the inclusion in the NRDL for its IV formulation in the first quarter of 2023 and for its oral formulation in the first quarter of 2024. Although revenue declined for OPTUNE, it increased compared to the fourth quarter of 2023 as patient volume recovered.

Current wording

Our net product revenue increased by $31.2 million and $55.6 million in the three and six months ended June 30, 2024, respectively, primarily driven by increased sales for VYVGART since its launch in September 2023 and NRDL listing in January 2024. Net product revenue growth was also supported by increased sales volumes for ZEJULA and NUZYRA in the three and six months ended June 30, 2024 and for QINLOCK in the six months ended June 30, 2024. ZEJULA sales remained strong as it continued to be the leading PARP inhibitor in hospital sales for ovarian cancer in mainland China following the renewal of its NRDL listing as a maintenance treatment in the first quarter of 2024. The growth in NUZYRA sales was supported by the inclusion in the NRDL for its IV formulation in the first quarter of 2023 and for its oral formulation in the first quarter of 2024. Similarly, QINLOCK sales were supported by its inclusion in the NRDL in the first quarter of 2023.

Previous wording

Cost of sales increased by $12.3 million to $33.6 million in the first quarter of 2024, primarily due to increasing sales volumes and shifts in product sales mix.

Current wording

Cost of product revenue increased by $11.4 million and $23.7 million in the three and six months ended June 30, 2024, respectively, primarily due to increasing sales volumes and shifts in product sales mix.

Previous wording

Research and development expenses attributable to clinical programs increased by $6.3 million in the first quarter of 2024 primarily driven by increased CROs/CMOs/Investigators expenses related to newly initiated studies and progress of existing studies. Research and development expenses attributable to pre-clinical programs decreased by $0.4 million in the first quarter of 2024 primarily due to a decrease in milestone fees for our license and collaboration agreements.

Current wording

Research and development expenses attributable to clinical programs decreased by $11.1 million in the three months ended June 30, 2024 primarily driven by a decrease of $8.3 million in licensing fees and $2.8 million in CROs/CMOs/Investigators expenses. Research and development expenses attributable to pre-clinical programs decreased by $7.6 million in the three months ended June 30, 2024 primarily due to a decrease of $10.0 million in licensing fees, offset by an increase of $2.4 million in CROs/CMOs/Investigators expenses related to newly initiated studies and progress of existing studies.

Previous wording

•an increase of $6.2 million in other costs, mainly related to higher general selling expenses for VYVGART which was launched in September 2023 and higher promotional fees for NUZYRA due to increased sales.

Current wording

•an increase of $7.2 million and $13.4 million in other costs, respectively, primarily related to higher general selling expenses for VYVGART which was launched in September 2023.

Previous wording

•an increase of $5.0 million in personnel compensation and related costs primarily driven by headcount growth; partially offset by

Current wording

•an increase of $5.4 million and $10.4 million in personnel compensation and related costs, respectively, primarily driven by headcount growth mainly to support VYVGART; partially offset by

Previous wording

•a decrease of $4.5 million in professional service fees, primarily related to legal, compliance, accounting, human resources administrative, and commercial expenses.

Current wording

•a decrease of $0.8 million and $5.3 million in professional service fees, respectively, primarily related to decreased legal, finance, and human resources administrative expenses.

Previous wording

Interest income decreased by $0.6 million to $9.7 million in the first quarter of 2024 primarily due to decreased cash and cash equivalents.

Current wording

Interest income decreased by $0.8 million and $1.3 million in the three and six months ended June 30, 2024, respectively, primarily due to decreased cash and cash equivalents.

Previous wording

Interest expenses increased by $0.1 million in the first quarter of 2024 primarily due to interest expenses on short-term debts we entered into in February 2024. We had no such interest expenses in the prior year period.

Current wording

Interest expense increased by $0.5 million and $0.6 million in the three and six months ended June 30, 2024, respectively, primarily due to interest expense on short-term debt we entered into in the first half year of 2024. We had no such interest expense in the prior year periods.

Previous wording

Other income, net increased by $8.1 million to $9.4 million in the first quarter of 2024, primarily due to an increase of $4.4 million in gain of our equity investment in MacroGenics, Inc as a result of changes in its stock price and an increase of $2.8 million in government grants.

Current wording

Other expenses, net increased by $7.5 million in the three months ended June 30, 2024, primarily due to an increase of $8.3 million in loss of our equity investment in MacroGenics, Inc as a result of changes in its stock price.

Previous wording

Income tax expense was nil in the first quarter of 2024 and 2023.

Current wording

Income tax expense was nil in both the three and six months ended June 30, 2024 and 2023.

Previous wording

Net loss was $53.5 million in the first quarter of 2024, or a loss per ordinary share attributable to common stockholders of $0.05 (or loss per ADS of $0.55), compared to a net loss of $49.1 million in the first quarter of 2023, or a loss per ordinary share of $0.05 (or loss per ADS of $0.51).

Current wording

Net loss was $80.3 million in the three months ended June 30, 2024, or a loss per ordinary share attributable to common stockholders of $0.08 (or loss per ADS of $0.82), compared to a net loss of $120.9 million in the three months ended June 30, 2023, or a loss per ordinary share of $0.13 (or loss per ADS of $1.25).

Previous wording

To date, we have financed our activities primarily through private placements, our September 2017 initial public offering and various follow-on offerings on Nasdaq, and our September 2020 secondary listing and initial public offering on the Hong Kong Stock Exchange. In addition, we have raised approximately $164.6 million in private equity financing and approximately $2,462.7 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us in our initial public offering and subsequent follow-on offerings on Nasdaq and our initial public offering on the Hong Kong Stock Exchange. Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $90.1 million and $69.3 million in the first quarter of 2024 and 2023, respectively. For information on our research and development activities and related expenditures see the Research and Development Expenses, Selling, General, and Administrative Expenses, License and Collaboration Arrangements, and Results of Operations sections in above. In addition, as of March 31, 2024, we had commitments for capital expenditures of $1.1 million, mainly for the purpose of plant construction and installation.

Current wording

To date, we have financed our activities primarily through private placements, our September 2017 initial public offering and various follow-on offerings on Nasdaq, and our September 2020 secondary listing and initial public offering on the Hong Kong Stock Exchange. In addition, we have raised approximately $164.6 million in private equity financing and approximately $2,462.7 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us in our initial public offering and subsequent follow-on offerings on Nasdaq and our initial public offering on the Hong Kong Stock Exchange. Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $132.3 million and $128.0 million in the six months ended 2024 and 2023, respectively. For information on our research and development activities and related expenditures see the Research and Development Expenses, Selling, General, and Administrative Expenses, License and Collaboration Arrangements, and Results of Operations sections in above. In addition, as of June 30, 2024, we had commitments for capital expenditures of $1.0 million, mainly for the purpose of plant construction and installation.

Previous wording

As of March 31, 2024, we had cash and cash equivalents, current restricted cash, and short-term investments of $750.8 million, which we expect will enable us to meet our cash requirements including the funding of operating expenses, capital expenditures, and debt obligations for at least the next 12 months.

Current wording

As of June 30, 2024, we had cash and cash equivalents, current restricted cash, and short-term investments of $730.0 million, which we expect will enable us to meet our cash requirements including the funding of operating expenses, capital expenditures, and debt obligations for at least the next 12 months.

Previous wording

Although we believe that we have sufficient capital to fund our operations for at least the next twelve months, we may, from time to time, identify opportunities to access capital through debt arrangements on favorable commercial terms. In February 2024, we entered into three such debt arrangements with Chinese financial institutions that allow certain of our subsidiaries to borrow up to approximately $164.5 million (or RMB1,171.7 million) to support our working capital needs in mainland China. As of March 31, 2024, we have short-term debts of approximately $48.3 million (or RMB342.5 million) pursuant to these debt arrangements. These debt arrangements will provide us with additional capital capacity that gives us enhanced flexibility to execute on our corporate strategic goals. For more information, see Note 9.

Current wording

Although we believe that we have sufficient capital to fund our operations for at least the next twelve months, we may, from time to time, identify opportunities to access capital through debt arrangements on favorable commercial terms. In February 2024, we entered into three such debt arrangements with Chinese financial institutions that allow certain of our subsidiaries to borrow up to approximately $164.5 million (or RMB1,171.7 million) to support our working capital needs in mainland China. As of June 30, 2024, we had short-term debt of approximately $70.3 million (or RMB501.0 million) pursuant to these debt arrangements. In addition, in July 2024, we entered into an additional such debt arrangement with a Chinese financial institution that would allow Zai Lab Shanghai to borrow up to RMB250.0 million (approximately $34.4 million) to support our working capital needs in mainland China. These debt arrangements will provide us with additional capital capacity that gives us enhanced flexibility to execute on our corporate strategic goals. For more information, see Note 9 and Note 16.

Previous wording

We may consider, or we may ultimately need, additional funding sources to bring to fruition or research and development objectives or otherwise, and there can be no assurances that such funding will be made available to us on acceptable terms or at all.

Current wording

We may consider, or we may ultimately need, additional funding sources to bring to fruition our strategic objectives, and there can be no assurances that such funding will be made available to us on acceptable terms or at all.

Previous wording

Net cash used in operating activities increased by $20.8 million to $90.1 million in the first quarter of 2024, primarily due to an increase of $24.7 million in net changes in operating assets and liabilities, an increase of $4.3 million in net loss, partially offset by a decrease of $8.3 million in adjustments to reconcile net loss to net cash used in operating activities.

Current wording

Net cash used in operating activities increased by $4.3 million in the six months ended June 30, 2024, primarily due to a decrease of $31.4 million in net changes in operating assets and liabilities, a decrease of $9.2 million in adjustments to reconcile net loss to net cash used in operating activities, partially offset by a decrease of $36.3 million in net loss.

Previous wording

Net cash provided by investing activities was $3.3 million in the first quarter of 2024, compared to net cash used in investing activities of $54.0 in the first quarter of 2023. This shift was primarily due to a decrease of $100.0 million in purchases of short-term investments, a decrease of $2.5 million in purchases of property and equipment, partially offset by a decrease of $33.2 million in proceeds from the maturity of short-term investments, and an increase of $12.0 million from acquisition of intangible assets as we made a sales-based milestone payment which was capitalized as intangible assets in the fourth quarter of 2023.

Current wording

Net cash provided by investing activities was $2.4 million in the six months ended June 30, 2024, compared to net cash used in investing activities of $11.3 million in the six months ended June 30, 2023. This shift was primarily due to a decrease of $100.0 million in purchases of short-term investments, and a decrease of $3.5 million in purchases of property and equipment, partially offset by a decrease of $68.2 million in proceeds from the maturity of short-term investments, an increase of $11.5 million from acquisition of intangible assets as we made a sales-based milestone payment which was capitalized as intangible assets in the fourth quarter of 2023, and a decrease of $10.0 million in proceeds from sale of intellectual property.

Previous wording

Net cash provided by financing activities was $47.5 million in the first quarter of 2024, compared to net cash used in financing activities of $3.9 million in the first quarter of 2023. This shift was primarily due to $48.2 million in proceeds from short-term debts we entered into in the first quarter of 2024, partially offset by decreases of $5.1 million in taxes paid related to settlement of equity awards and $1.2 million in proceeds from exercises of stock options.

Current wording

Net cash provided by financing activities was $69.9 million in the six months ended June 30, 2024, compared to net cash used in financing activities of $5.4 million in the six months ended June 30, 2023. This shift was primarily due to $69.8 million in short-term debt proceeds net of related issuance costs as we entered into certain debt arrangements in the first half of 2024, partially offset by decreases of $7.1 million in taxes paid related to settlement of equity awards and $1.7 million in proceeds from exercises of stock options.

Previous wording

For more information regarding recently issued accounting standards, see Part II – Item 8. Financial Statements and Supplementary Data – Recent Accounting Pronouncements in our 2023 Annual Report. The Company has not adopted any new accounting standards since December 31, 2023.

Current wording

For more information regarding recently issued accounting standards, see Part II – Item 8. Financial Statements and Supplementary Data – Recent Accounting Pronouncements in our 2023 Annual Report. The Company has not adopted any new accounting standards in the six months ended June 30, 2024.