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 three and nine months ended September 30, 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 2024 Annual Report and our unaudited condensed consolidated financial statements and the accompanying notes for the first quarter of 2025 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, 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 three products that have received marketing approval and are moving toward commercial launch for the approved indications – VYVGART Hytrulo (the subcutaneous formulation of efgartigimod), XACDURO® (SUL-DUR), and AUGTYRO® (repotrectinib) – as well as 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 seven commercial programs – ZEJULA,VYVGART / VYVGART Hytrulo, NUZYRA, OPTUNE, QINLOCK, XACDURO, and AUGTYRO – with products that have received marketing approval and that we have commercially launched in one or more territories in Greater China. We also have multiple programs in late-stage product development and a number of ongoing pivotal trials across our portfolio.

Previous wording

Since our inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses have resulted from funding our research and development programs and selling, general and administrative costs associated with our operations. Developing high quality product candidates requires significant investment in our research and development activities over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. Our ability to generate profits and positive cash flow from operations over the next several years depends upon our ability to successfully market our commercial products and to successfully expand the indications for these products and develop and commercialize our other product candidates. As discussed further below, we expect to continue to incur substantial costs related to our research and development and commercialization activities.

Current wording

Since our inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses have resulted from funding our research and development programs and selling, general and administrative costs associated with our operations. Developing high quality product candidates requires significant investment in our research and development activities over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. Our ability to generate profits and positive cash flow from operations depends upon our ability to successfully market our commercial products and to successfully expand the indications for these products and develop and commercialize our other product candidates. As discussed further below, we expect to continue to incur substantial costs related to our research and development and commercialization activities.

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 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.

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 VYVGART / VYVGART Hytrulo, OPTUNE, QINLOCK, XACDURO, and AUGTYRO 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 capitalized post-approval 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

We have multiple product candidates in late-stage clinical development and various others in clinical and pre-clinical development in Greater China and the United States. Our ability to generate revenue from our product candidates is dependent on our receipt of regulatory approvals for and successful commercialization of such product candidates, which may not occur. Certain of our product candidates may require additional pre-clinical and/or clinical development, regulatory approvals in multiple jurisdictions, manufacturing supply, and significant marketing efforts before we generate any revenue from product sales.

Current wording

We have multiple product candidates in late-stage clinical development and various others in clinical and pre-clinical development in Greater China and globally. Our ability to generate revenue from our product candidates is dependent on our receipt of regulatory approvals for and successful commercialization of such product candidates, which may not occur. Certain of our product candidates may require additional pre-clinical and/or clinical development, regulatory approvals in multiple jurisdictions, manufacturing supply, and significant marketing efforts before we generate any revenue from product sales.

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 September 30, 2024, we may be required to pay development and regulatory milestone payments of up to an additional aggregate amount of $284.5 million for our current clinical programs and $613.0 million for other programs. Such development and regulatory milestone payments are contingent on the progress of our product candidates prior to commercialization, and we see these payments as favorable because they indicate that product candidates are advancing. As of September 30, 2024, we also may be required to pay sales-based milestone payments of up to an additional aggregate amount of $2,295.0 million as well as certain royalties at tiered percentage rates on annual net sales. Such sales-based milestone and royalty payments are contingent on the performance of our commercial products, and we see these payments as favorable because they signify that a product is achieving higher sales levels.

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 March 31, 2025, we may in the future be required to pay development and regulatory milestone payments of up to an additional aggregate amount of $247.5 million for our current clinical programs and $684.9 million for other programs. Such development and regulatory milestone payments are contingent on the progress of our product candidates prior to commercialization, and we see these payments as favorable because they indicate that product candidates are advancing. As of March 31, 2025, we also in the future may be required to pay sales-based milestone payments of up to an additional aggregate amount of $2,555.0 million as well as certain royalties at tiered percentage rates on annual net sales. Such sales-based milestone and royalty payments are contingent on the performance of our commercial products, and we see these payments as favorable because they signify that a product is achieving higher sales levels.

Previous wording

In this section, we discuss our results of operations for the three and nine months ended September 30, 2024 compared to the same periods in 2023.

Current wording

In this section, we discuss our results of operations for the first quarter of 2025 compared to the first quarter of 2024.

Previous wording

The following table presents net revenue by product ($ in thousands):

Current wording

The following table presents net revenue by commercial program ($ in thousands):

Previous wording

Our product revenue is derived from the sales of our commercial products primarily in mainland China, net of sales returns and rebates to distributors with respect to the sales of these products.

Current wording

Our product revenue is primarily derived from the sales of our commercial products primarily in mainland China, net of sales returns and rebates to distributors with respect to the sales of these products.

Previous wording

Cost of product revenue increased by $11.1 million and $34.8 million in the three and nine months ended September 30, 2024, respectively, primarily due to increasing sales volumes and shifts in product sales mix.

Current wording

Cost of product revenue increased by $4.8 million in the first quarter of 2025 primarily due to increasing sales volumes.

Previous wording

In the three and nine months ended September 30, 2024, collaboration revenue related to promotional activities in mainland China was $0.4 million and $0.8 million, respectively, and cost of collaboration revenue was $0.3 million and $0.4 million, respectively. We had no such collaboration revenue in the prior year periods.

Current wording

In the first quarter of 2025, collaboration revenue related to promotional activities in mainland China was $0.8 million and cost of collaboration revenue was $0.2 million. We had no such collaboration revenue in the first quarter of 2024.

Previous wording

Research and development expenses increased by $7.2 million in the three months ended September 30, 2024, primarily due to:

Current wording

Research and development expenses increased by $6.1 million in the first quarter of 2025, primarily due to:

Previous wording

•an increase of $22.6 million in licensing fees in connection with increased upfront and milestone payments for our license and collaboration agreements; partially offset by

Current wording

•an increase of $20.0 million upfront fees for our license and collaboration agreements; partially offset by

Previous wording

•a decrease of $10.9 million in CROs/CMOs/Investigators expenses and other costs related to ongoing clinical trials; and

Current wording

•a decrease of $10.0 million in CROs/CMOs/Investigators expenses and other costs related to ongoing clinical trials; and

Previous wording

Research and development expenses attributable to clinical programs decreased by $5.0 million in the nine months ended September 30, 2024 primarily driven by a decrease of $7.3 million in CROs/CMOs/Investigators expenses related to the progress of existing studies, offset by an increase of $2.3 million in licensing fees. Research and development expenses attributable to pre-clinical programs increased by $4.4 million in the nine months ended September 30, 2024 primarily due to an increase of $3.4 million in CROs/CMOs/Investigators expenses related to newly initiated studies and progress of existing studies and an increase of $1.0 million in licensing fees.

Current wording

Research and development expenses attributable to clinical programs increased by $9.3 million in the first quarter of 2025 primarily driven by an increase of $20.0 million in licensing fees, offset by a decrease of $10.7 million in CROs/CMOs/Investigators expenses related to the progress of existing studies. Research and development expenses attributable to pre-clinical programs increased by $1.3 million in the first quarter of 2025 primarily driven by an increase of CROs/CMOs/Investigators expenses related to newly initiated studies and progress of existing studies.

Previous wording

The following table presents our selling, general and administrative expenses by program ($ in thousands):

Current wording

The following table presents our selling, general and administrative expenses by category ($ in thousands):

Previous wording

Foreign currency gain was $8.3 million in the nine months ended September 30, 2024, primarily driven by remeasurement gain due to appreciation of the RMB against the U.S. dollar, compared to foreign currency loss of $26.3 million in the nine months ended September 30, 2023, driven by remeasurement loss due to depreciation of the RMB against the U.S. dollar.

Current wording

Foreign currency gain was $0.7 million in the first quarter of 2025, primarily driven by remeasurement gain due to appreciation of the RMB against the U.S. dollar, compared to foreign currency losses of $2.1 million in the first quarter of 2024, driven by remeasurement losses due to depreciation of the RMB against the U.S. dollar.

Previous wording

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

Current wording

Income tax expense was nil in both the first quarter of 2025 and 2024.

Previous wording

Net loss was $41.7 million in the three months ended September 30, 2024, or a loss per ordinary share attributable to common stockholders of $0.04 (or loss per ADS of $0.42), compared to a net loss of $69.2 million in the three months ended September 30, 2023, or a loss per ordinary share of $0.07 (or loss per ADS of $0.71).

Current wording

Net loss was $48.4 million in the first quarter of 2025, or a loss per ordinary share attributable to common stockholders of $0.04 (or loss per ADS of $0.45), compared to a net loss of $53.5 million in the first quarter of 2024, or a loss per ordinary share of $0.05 (or loss per ADS of $0.55).

Previous wording

Significant assumptions are required in determining the fair value of share options, which we estimate using the Black-Scholes option valuation model. These assumptions include: (i) the expected volatility of our ADS price, (ii) the periods of time over which grantees are expected to hold their options prior to exercise (expected term), (iii) the expected dividend yield on our ADSs, and (iv) risk-free interest rates. Since we do not have sufficient trading history since our September 2017 initial public offering on Nasdaq to cover the expected term of our share options, we estimate expected volatility based on movements in the share price of certain companies we consider comparable over the most recent equivalent historical period. Since we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future, and risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the expected term. If actual results vary from our estimates or our expectations change, our reported expenses and earnings for the corresponding period may be affected.

Current wording

Significant assumptions are required in determining the fair value of share options, which we estimate using the Black-Scholes option valuation model. These assumptions include: (i) the volatility of our ADS price, (ii) the periods of time over which grantees are expected to hold their options prior to exercise (expected term), (iii) the expected dividend yield on our ADSs, and (iv) risk-free interest rates. Since we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future, and risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the expected term. If actual results vary from our estimates or our expectations change, our reported expenses and earnings for the corresponding period may be affected.

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 $159.1 million and $183.3 million in the nine 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 above. In addition, as of September 30, 2024, we had commitments for capital expenditures of $8.6 million mainly for the purpose of commercial manufacturing development, 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 $2,677.8 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 $61.7 million and $90.1 million in the first quarter of 2025 and 2024, 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 above. In addition, as of March 31, 2025, we had commitments for capital expenditures of $3.8 million mainly for the purpose of commercial manufacturing development, and facilities construction and improvement activities.

Previous wording

As of September 30, 2024, we had cash and cash equivalents, current restricted cash, and short-term investments of $716.1 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 March 31, 2025, we had cash and cash equivalents, current restricted cash, and short-term investments of $857.3 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 the nine months ended September 30, 2024, we entered into four such debt arrangements with Chinese financial institutions that allow certain of our subsidiaries to borrow up to approximately $198.9 million (or RMB1,421.7 million) to support our working capital needs in mainland China. As of September 30, 2024, we had short-term debt of approximately $113.0 million (or RMB791.8 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 10.

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. As of March 31, 2025, we had such debt arrangements with Chinese financial institutions that allow certain of our subsidiaries to borrow up to approximately $240.2 million (or RMB1,721.7 million) to support our working capital needs in mainland China. As of March 31, 2025, we had short-term debt outstanding of $173.4 million (or RMB1,244.7 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 10.

Previous wording

Net cash used in operating activities decreased by $24.2 million in the nine months ended September 30, 2024, primarily due to a decrease of $63.8 million in net loss, partially offset by a decrease of $23.0 million in adjustments to reconcile net loss to net cash used in operating activities and a decrease of $16.6 million in net changes in operating assets and liabilities.

Current wording

Net cash used in operating activities decreased by $28.4 million in the first quarter of 2025, primarily due to an increase of $22.2 million in net changes in operating assets and liabilities, a decrease of $5.0 million in net loss, and an increase of $1.1 million in adjustments to reconcile net loss to net cash used in operating activities.

Previous wording

Net cash used in investing activities increased by $2.2 million in the nine months ended September 30, 2024, primarily due to a decrease of $86.1 million in proceeds from the maturity of short-term investments, an increase of $40.1 million from acquisition of intangible assets due to payments for milestone fees, a decrease of $10.0 million in proceeds from sale of intellectual property, and a decrease of $3.9 million in proceeds from land use right, partially offset by a decrease of $134.0 million in purchases of short-term investments, and a decrease of $3.9 million in purchases of property and equipment.

Current wording

Net cash provided by investing activities increased by $322.8 million in the first quarter of 2025, primarily due to an increase of $313.7 million in proceeds from the maturity of short-term investments and a decrease of $9.7 million from acquisition of intangible assets, partially offset by an increase of $0.6 million in purchases of property and equipment.

Previous wording

Net cash provided by financing activities was $112.1 million in the nine months ended September 30, 2024, compared to net cash used in financing activities of $6.8 million in the nine months ended September 30, 2023. This shift was primarily due to $111.0 million in short-term debt proceeds net of related issuance costs as we entered into certain debt arrangements in the nine months ended September 30, 2024, and a decrease of $8.7 million in taxes paid related to settlement of equity awards, partially offset by a decrease of $0.6 million in proceeds from exercises of stock options and an increase of $0.3 million in repayment of short-term debt.

Current wording

Net Cash Provided by Financing Activities

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 in the nine months ended September 30, 2024.

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 2024 Annual Report.