Hello, ladies and gentlemen, thank you for standing by and welcome to Zai Lab's Second Quarter 2022 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 introductory comments..
Thank you, operator. Good morning, good evening and welcome everyone. Zai Lab recently issued a press release providing the details of the company's financial results for the second quarter 2022, as well as product highlights and corporate updates.
The press release is available in the Investor Relations section of the company's 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 Josh Smiley, Chief Operating Officer who many of you know had officially started this month and will discuss the priorities and focus areas of the company. Dr. Alan Sandler, President and Head of Global Development, Oncology, who will discuss advances with our oncology product candidate; and Dr.
Harald Reinhart, President and Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases, who will speak about the progress we have made in those three therapeutic areas; and I will discuss the performance of our market products and conclude with comments on our financial results.
Additional executives will be on 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, our sales and revenue forecasts for our products and product candidates, 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. Actual results could differ materially from what we expect due to various factors including those discussed in our SEC filings.
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..
Thank you, Billy. Hello, everyone, and thank you all for joining us today. I'm happy to report that as we have consistently done in the past, we executed well in the second quarter and delivered strong results.
Despite the challenging operating environment, Zai continued to meet all of our corporate goals for 2022, including the BLA acceptance for efgartigimod by China’s NMPA. Earlier this week KarXT had a positive topline data readout from its Phase 3 EMERGENT-2 trial in schizophrenia.
We believe KarXT could be a very important treatment option as the first new class of medicines in over half a century for the many patients suffering from schizophrenia in China and globally. In addition, our pipeline continues to mature and demonstrated first and best in class potential.
Adagrasib, CLN-081, repotrectinib, efgartigimod, ZEJULA and Tumor Treating Fields have each had positive clinical data readouts in the second quarter. For the remainder of the year, we are on track to deliver our remaining 2022 corporate priorities including an NDA submission for the NMPA for sulbactam-durlobactam pending our partner's U.S.
patent progress, advancing ZL-1102 our innovative anti-IL-17A Humabody program into full global development, as well as seeking NRDL inclusion for QINLOCK and NUZYRA.
We continue to evaluate our pipeline in order to focus our resources on the programs that have the greatest potential for patients while smoothening our global competitiveness and providing long-term corporate sustainability.
Importantly, our commercial team continues to drive growth with our four marketing products in Greater China and remain resilient in the face of the ongoing pandemic situation in certain regions of China. Before I conclude, I would like to welcome our Chief Operating Officer, Josh Smiley, to his first of many earnings and conference calls.
Josh will make introductory comments and share some thoughts on Zai Lab before turning the call over to a discussion on Zai's overall update. With that, I would like to turn the call over to Josh for comments.
Josh?.
Thank you, Samantha. I am thrilled to be joining Zai Lab at such a pivotal time in the company’s history. In preparation for my start, I had a chance to meet with many of the company's stakeholders over this summer, and I was consistently asked three questions.
Why did I choose to join Zai Lab? What will my priorities be? And how will macro and political forces impact Zai Lab's trajectory? I will give a brief summary of my thoughts on these three questions before turning it back over to Alan, Harald and Billy to provide more color on Q2 performance. First on why I joined Zai Lab.
I've had a lot of experience with both R&D and commercial operations in China over the last 15 years in my prior roles. I've been intrigued by the massive opportunity emerging from both a commercial and scientific standpoint in China.
I followed and respected Samantha and her leadership over multiple companies, and thrilled to have a chance to work with her and the great team at Zai Lab.
And I'm excited by the opportunity to partner with other great companies around the world to bring global innovation into China, and also to help bring Chinese innovation to Western markets, whether directly from Zai Lab, or from China's expanding biotech ecosystem.
From the start, Zai Lab has had a global perspective, and I'm looking forward to helping scale the company, both in China and the U.S. and the opportunity is significant. This is a strong company today with four marketing products in China, and a great pipeline of both partnered and internal assets.
For the second question, in terms of my priorities, I'll start with three key areas of focus. First, continuing to drive commercial excellence in China, our four product launches are off to a good start, and we have significant growth opportunities ahead in each product.
And we have an exciting next set of launches that we need to prepare for and execute on, beginning with efgartigimod next year. Realizing the full value of our existing China portfolio with a high priority will result in great benefits for patients and substantial revenue growth for the company.
My second priority is to expand our pipeline both in China and on a global basis. We have our first internally developed medicines ZL-1102 anticipated to start a global Phase 2 study in psoriasis later this year. And I will work with our teams to bring in more best in class and first in class medicines.
We have obvious expertise and capabilities in China that we will continue to leverage for new regional opportunities. But we're also well positioned now to bring that capability to partnerships and acquisitions in the U.S. and the rest of the world.
So you should expect us to be active in business development for both new regional and global programs over the coming months and years. Finally, I'll be focused on making sure that as we deliver on launches and pipeline opportunities, we also deliver bottom line results.
We expect Zai Lab to grow considerably over the next years in sales, number of marketed products and breadth of portfolio. We will need an increasingly global infrastructure to support this growth. We will build that in a lean, agile and productive way that enables both top line growth and robust profitability.
The third major area of questions I've received revolves around macroeconomic and geopolitical risks facing the company. This includes access to capital and our ability to maintain our U.S. stock listing, U.S. FDA challenges to Chinese data and registrational trials, and concerns around drug pricing in China for innovative therapies.
I joined Zai with an understanding of these risks and commend the team for the success to date managing these challenges. Having engaged KPMG, a U.S. auditor that is subject to full review and inspection by the PCAOB, we believe that we'll be in compliance with the audit requirements of both U.S.
and Chinese laws for our fiscal year ending December 31, 2022. As a result, we believe that our NASDAQ listing will continue uninterrupted. In Q2 we also achieved the primary listing on the Hong Kong Stock Exchange, enhancing the liquidity of our stock and making it available to more investors in Asia and around the world.
These moves in combination with our strong balance sheet with over $1.2 billion dollars in cash should provide global investors with enhanced confidence in the company. In terms of clinical data, we do not have any programs that rely on China only data for global registration.
Our core strategy is to participate in global registration trials, where Chinese patients and sites make up a reasonable percentage of the overall submission. We have many years of successful regulatory audits from around the world and are confident that our clinical quality meets the highest global standards.
We've not observed any recent reluctance from global innovators to partner with us on their global registration programs. On pricing and access, we are confident that our portfolio of differentiated best-in-class medicines will command good pricing and broad access in China.
We continue to see an ordeal listing as a significant positive economic opportunity and are also encouraged by the continued growth of supplemental insurance across China. Finally, of course, we have to navigate the impact of COVID restrictions.
While we cannot predict the ultimate course of the virus or the control measures government authorities will take for the remainder of this year and beyond, we are very proud of the way our teams have improvised and executed so far this year, as demonstrated for example in our increased sales of ZEJULA and our milestones delivered in the pipeline.
At this point, we do not expect significant negative impacts to any of our major pipeline milestones from further COVID restrictions, but do expect we will see some residual revenue impacts in the second half of the year from local restrictions and lockdown measures.
In closing, I'm excited to be at Zai Lab and looking forward to working with our great team and all of you on our very promising future. Now I'd like to turn the call over to Alan for comments on our Oncology franchise..
Thank you, Josh, and welcome to the team. Zai Lab's Oncology franchise continued to make progress in the second quarter, including key clinical data readouts, as well as clinical trial initiations and regulatory progress. We also expect to have a busy and productive remainder of 2022.
We'll focus mostly on the clinical data updates from our clinical programs, and then touch on what to look for over the rest of 2022..
Results revealed a significant extension of progression free survival when compared with placebo regardless of the response status to prior platinum based chemotherapy.
Specifically, in the complete response group the median PFS was 29.4 months for niraparib versus 8.3 months for placebo, and in the partial response group the median PFS was 19.3 months for niraparib versus 8.3 months for placebo.
The safety profile of niraparib was consistent with previous clinical trials with no new safety issues identified in this subgroup analysis.
Also at ASCO, Zai Lab and Novocure announced the EF-31 Phase 2 pilot study, evaluating the safety and efficacy of TTFields together with standard-of-care chemotherapy alone or in combination with trastuzumab for HER2-positive patients as a first-line treatment in patients with advanced gastric cancer.
This trial met its primary overall response rate endpoint with supportive signals across secondary endpoints. For adagrasib our partner Mirati announced two clinical data updates.
Most recently in June Mirati presented the full results from the registration enabling Phase 2 cohort of the KRYSTAL-1 study evaluating adagrasib in patients with previously treated non-small cell lung cancer harboring KRASG12C-mutation.
The results from this study revealed an overall response rate of 43% with the disease control rate of 80% and the median duration of response of 8.5 months. The median PFS was 6.5 months and with a January 15, 2022 data cut off to median OS was 12.6 months.
The result of the CNS-specific activity in stable previously treated CNS metastases revealed an intracranial overall response rate of 33%. In addition to these results, Mirati reported updated findings from a pooled analysis from the KRYSTAL-1 study, including the registrational Phase 2 and Phase 1/1b non-small cell lung cancer cohorts.
The results of this pooled analysis of non-small cell lung cancer cohort revealed an overall response rate of 44% with a disease control rate of 81%. The median duration of response was 12.5 months and the median PFS was 6.9 months. With a January 15, 2022 data cut off the median OS was 14.1 months.
Also in June Mirati announced the results of a prospective analysis from the Phase 1b cohort of the KRYSTAL-1 study evaluating intracranial responses of adagrasib in patients with KRASG12C-mutated advanced non-small cell lung cancer with active and untreated CNS metastases.
The results of the CNS specific activity in these patients revealed an intracranial overall response rate of 32%.
For bemarituzumab, our partner Amgen reported that the final analysis of the FIGHT study, Phase 2 randomized, double-blind, controlled study evaluating bemarituzumab and modified FOLFOX6 in patients with previously untreated advanced gastric and GEJ cancer was completed.
These results continued to demonstrate that bemarituzumab plus modified FOLFOX6 improves the clinical outcome of patients with FGFR2b expressing tumors with no new safety concerns. A greater survival benefit was observed with increasing FGFR2b expression levels.
Zai Lab collaborated with Five Prime which was later acquired by Amgen on the FIGHT study in Greater China.
Throughout the year our oncology pipeline will continue to be productive, including regulatory and clinical data updates from the [indiscernible] program in the second half of the year, top line data from the TTFields Phase 3 pivotal LUNAR study in early first quarter of 2023, as well as numerous regulatory submissions and clinical trial initiations from across the franchise.
With a number of potentially best-in-class and first-in-class products, we are very excited about our oncology pipeline at Zai Lab. And now, I will turn the floor over to Dr. Harald Reinhart to discuss progress in our autoimmune and neuroscience therapeutic areas.
Harald?.
Results revealed a significant extension of progression free survival when compared with placebo regardless of the response status to prior platinum based chemotherapy.
Specifically, in the complete response group the median PFS was 29.4 months for niraparib versus 8.3 months for placebo, and in the partial response group the median PFS was 19.3 months for niraparib versus 8.3 months for placebo.
The safety profile of niraparib was consistent with previous clinical trials with no new safety issues identified in this subgroup analysis.
Also at ASCO, Zai Lab and Novocure announced the EF-31 Phase 2 pilot study, evaluating the safety and efficacy of TTFields together with standard-of-care chemotherapy alone or in combination with trastuzumab for HER2-positive patients as a first-line treatment in patients with advanced gastric cancer.
This trial met its primary overall response rate endpoint with supportive signals across secondary endpoints. For adagrasib our partner Mirati announced two clinical data updates.
Most recently in June Mirati presented the full results from the registration enabling Phase 2 cohort of the KRYSTAL-1 study evaluating adagrasib in patients with previously treated non-small cell lung cancer harboring KRASG12C-mutation.
The results from this study revealed an overall response rate of 43% with the disease control rate of 80% and the median duration of response of 8.5 months. The median PFS was 6.5 months and with a January 15, 2022 data cut off to median OS was 12.6 months.
The result of the CNS-specific activity in stable previously treated CNS metastases revealed an intracranial overall response rate of 33%. In addition to these results, Mirati reported updated findings from a pooled analysis from the KRYSTAL-1 study, including the registrational Phase 2 and Phase 1/1b non-small cell lung cancer cohorts.
The results of this pooled analysis of non-small cell lung cancer cohort revealed an overall response rate of 44% with a disease control rate of 81%. The median duration of response was 12.5 months and the median PFS was 6.9 months. With a January 15, 2022 data cut off the median OS was 14.1 months.
Also in June Mirati announced the results of a prospective analysis from the Phase 1b cohort of the KRYSTAL-1 study evaluating intracranial responses of adagrasib in patients with KRASG12C-mutated advanced non-small cell lung cancer with active and untreated CNS metastases.
The results of the CNS specific activity in these patients revealed an intracranial overall response rate of 32%.
For bemarituzumab, our partner Amgen reported that the final analysis of the FIGHT study, Phase 2 randomized, double-blind, controlled study evaluating bemarituzumab and modified FOLFOX6 in patients with previously untreated advanced gastric and GEJ cancer was completed.
These results continued to demonstrate that bemarituzumab plus modified FOLFOX6 improves the clinical outcome of patients with FGFR2b expressing tumors with no new safety concerns. A greater survival benefit was observed with increasing FGFR2b expression levels.
Zai Lab collaborated with Five Prime which was later acquired by Amgen on the FIGHT study in Greater China.
Throughout the year our oncology pipeline will continue to be productive, including regulatory and clinical data updates from the [indiscernible] program in the second half of the year, top line data from the TTFields Phase 3 pivotal LUNAR study in early first quarter of 2023, as well as numerous regulatory submissions and clinical trial initiations from across the franchise.
With a number of potentially best-in-class and first-in-class products, we are very excited about our oncology pipeline at Zai Lab. And now, I will turn the floor over to Dr. Harald Reinhart to discuss progress in our autoimmune and neuroscience therapeutic areas.
Harald?.
Thank you, Alan. I'll started with autoimmune diseases and efgartigimod or its marketed name VYVGART. In July 2022, Zai Lab announced the NMPA accepted the BLA for efgartigimod alfa injection for the treatment of adult patients with generalized myasthenia gravis in China.
And that efgartigimod was introduced through the Hainan International Medical Tourism Pilot Zone, and in July 2022, the first Chinese patient was treated with efgartigimod.
These important milestones bring us closer to delivering a truly novel treatment for the many myasthenia gravis patients who face challenges living with this complex and difficult to control autoimmune disease.
Moving to the neuroscience area, as you'll recall last November we entered into an agreement with Karuna Therapeutics for exclusive rights to KarXT in Greater China. KarXT is an oral investigational M1/M4-preferring muscarinic agonist that stimulates receptors in the central nervous system implicated in various psychiatric conditions.
It is in late stage clinical trials for the treatment of schizophrenia and psychosis in Alzheimer's disease. And just this Monday, our partner Karuna reported positive top line results from its Phase 3 EMERGENT-2 trial evaluating the efficacy, safety, and tolerability of KarXT in adults with schizophrenia.
The trial met its primary endpoint, with KarXT demonstrating a statistically significant and clinically meaningful 9.6-point reduction in the Positive and Negative Syndrome Scale total score compared to placebo at week-5 with a p value of less than 0.0001.
KarXT also demonstrated an early and sustained statistically significant reduction of symptoms, as assessed by PANSS total score, starting at week-2 and maintained such reduction through all time points in the trial. KarXT also met key secondary endpoints demonstrating statistically significant reductions in both positive symptoms i.e.
hallucinations or delusions and negative symptoms for instance difficulty enjoying life or withdrawal from others or schizophrenia, as measured by the PANSS positive, PANSS negative and PANSS Marder negative subscales. KarXT was generally well tolerated, with a side effect profile substantially consistent with prior trials of KarXT in schizophrenia.
We are thrilled that these top line results from the pivotal Phase 3 EMERGENT-2 trial confirm what we have seen in the Phase 2 EMERGENT-1 trial.
These data will be able to on the growing body of clinical evidence supporting the potential of KarXT as a new and differentiated approach for schizophrenia, demonstrating notable improvements across both positive and negative symptoms while not being associated with common problematic side effects of current therapies such as weight gain, sedation, and movement disorders.
With more than eight million people in Greater China living with schizophrenia, we believe KarXT has the potential to become a new standard of care for treating schizophrenia and other psychotic disorders. Our partner plans to submit a new drug application with USFDA in mid-2023.
With regards to the China development plan, the design team is in discussion with the CDE and getting ready to submit the clinical trial application for a bridging program in China. Moving to ZL-1102, our topical IL-17 monoclonal antibody fragment program.
Last year, we reported that we were very excited to show a skin penetration and early clinical benefit in a proof-of-concept trial in patients with chronic plaque psoriasis. In the second quarter of this year we filed a protocol to the FDA and we continue to work with the FDA on the proposed global Phase 2 program.
We are on track to start a dose finding Phase 2 trial of ZL-1102 in the second half of this year. And now, Billy will speak about progress with our commercial products and financial results.
Billy?.
Thank you, Harald. Zai Lab continues to execute well with strong results delivered in the second quarter. For the three months ended June 30, 2022 total revenues were $48.2 million, compared to $36.9 million for the same period in 2021, representing 30% year-over-year growth.
Product revenues for the period were $34.1 million for ZEJULA compared to $23.4 million for the same period of 2021 representing a 46% year-over-year growth, $11.6 million for Optune compared to $9.5 million for the same periods 2021 representing a 22% year-over-year growth, $0.6 million for QINLOCK, compared to $4 million for the same period in 2021 and $1.3 million for NUZYRA compared to nil for the same period last year.
QINLOCK and NUZYRA are scheduled to enter negotiations with the NMPA regarding potential inclusion in the NRDL. And in June 2022 the company lowered the selling price for these products.
As a common practice in China we accrued sales rebates as compensation to distributors for those products previously sold at the price prior to the reduction of $2.7 million for QINLOCK and $0.2 million for NUZYRA respectively during the three months ended June 30, 2022.
R&D expenses were $56.1 million for the three months ended June 30, 2022, compared to $142.2 million in the same period of 2021.
The decrease in R&D expenses was primarily due to no upfront payment for new licensing agreements, partially offset by increased expenses related to the ongoing ZEJULA initiative and those clinical trials and higher payroll and payroll related expenses with increased R&D headcount.
Excluding upfront payments for new licensing agreements, core R&D expenses were $51.7 million for the same period of 2021. SG&A expenses were $63.4 million for the three months ended June 30, 2022 compared to $54.4 million for the same period of 2021.
The increase was primarily due to payroll and payroll related expenses from increased commercial and general administrative headcount and Zai Lab continue to expand and invest in its commercial operations in China in anticipation of strong top line growth over the next few years.
Net loss was $137.9 million for the three months ended June 30, 2022 compared to $152.3 million for the same period in 2021. The decrease in net loss was primarily due to no upfront payments for new licensing agreements, partially offset by increase in foreign exchange loss of $42.2 million, which is a non-cash adjustment.
Net loss per ordinary share during the three months ended June 30, 2022 was $0.14 compared to $0.18 for the same period of 2021. Net loss per ADS during the three months ended June 30, 2022 was $1.44 compared to $1.76 for the same period last year.
As of June 30, 2022 cash and cash equivalents, short term investments, and restricted cash totaled $1.26 billion, compared to $1.31 billion as of March 31, 2022. We would now like to turn the call back over to the operator to open up the line for questions.
Operator?.
[Operator Instructions] Our first question comes from the line of Michael Yee from Jefferies. Please go ahead..
Hi, good morning. This is Dennis [ph] on for Mike. Thanks for taking our questions. Can you just briefly talk about your views around the HFCAA? And your comment that Zai Lab can be audited in the U.S.
versus having to be audited in China, how confident are you the SEC would be on board with this? Have you engaged with them specifically on this? Thank you..
Hey Josh, do you want to take this one?.
Yes, sure. Hi it is Josh. Thanks for the question. As we've said, we appointed KPMG in the U.S. as our auditor for 2022 in the second quarter, and as such, the PCAOB will have full access to KPMG's workpapers, and they'll do the audit for 2022.
So, from that standpoint, we're compliant with Holding Foreign Companies Accountable Act and the next time you'll see any movement on this would be when we file our 10-K and KPMG completes their audit, we're very confident that given the control practices and reporting and things we have here that that audit will go well, and will be, we will not be on the list once we file the 10-K.
I think between now and then, really, the work is to, is for KPMG to prepare for the year end audit and ultimately sign off on our 2022 financials. So again, we're quite confident that we've met the requirements of law..
Thank you for the questions..
Our next question comes from the line of Yigal Nochomovitz from Citi. Please go ahead..
Hi, guys, thanks very much for taking the question. So you've made the statement that you believe that you can become the market leader first of July in the park space in China.
So if you could perhaps just drill down a little bit more into that statement in terms of the metrics, data and or internal projections that you're making, that will make you confident in making that statement? Thank you..
Hey, Yigal. I'll take this one. Thanks for your question. So we tried many things, I think broadly, I'll say that it will be -- continued to see the awareness and penetration of the park asset class continued to increase, particularly since we came into the picture.
And then as that despite park growing, our market share has just continued to grow really kind of starting last year. And, you know, even despite the recent sort of COVID situation, it didn't stop from that trend. So it was really a kind of a unidirectional thing.
And are you asking about other metrics? If I would, there's a lot, so we publicly sort of state the number of possible listings, and we're up to about 1700, as you know, around 1672 to be exact, possible listing for ZEJULA, as of June 22. And, you know, that's going to continue to climb.
We're tracking, of course, market share data, as I mentioned earlier, it's damping, but it's published by IQVIA. It gets a good reference. You know, kind of the awareness usage, the first line, and the second line, we check a lot of things. And it's all pointing towards the initial statement I mentioned.
And that's what gives us the confidence that, should this hold and we expect it to, we have an internal goal to be the market share leader no later than next year. Thank you for the question..
Next question comes from the line of Anupam Rama of J.P. Morgan. Please go ahead..
Hey, guys, hope you're all well and thanks so much for taking the question. There was a comment on the call about doing a bridging study in China for KarXT in schizophrenia. So why is there no regulatory path on ex-China data for KarXT similar to what you had with ZEJULA, QINLOCK? Yes, thanks so much..
Take that Harald, yes Harald please..
Yes, hello. Thanks for the question. Bridging is the standard way of doing things when you don't have data in China, per se. We had a different situation, for instance, for efgartigimod and for some of the other programs you mentioned, where we had some Asiatic data at least. This is not the case for the KarXT program.
So we are now in discussions with the CDE on a bridging program, which will allow us then to expeditiously move forward in China as well..
Thanks so much for taking our question..
The next question comes from the line of Jonathan Chang from Leerink. Please go ahead..
Hi guys, thanks for taking my questions.
On KarXT can you discuss the schizophrenia treatment landscape in China, and the similarities and differences versus the U.S.?.
Yes, thank you for the question Jonathan. This is a world united when it comes to psychosis treatment. And indeed the second generation antipsychotics are used in China as they are in use elsewhere. There is a movement away from first generation antipsychotics because of their side effect profile.
But as you probably know, the side effect profile of the second generation antipsychotics, atypical antipsychotics, which are all serotonin actives, or dopamine active agents, is quite well known and understood.
And it's really a part of some side effects and it has led to the discontinuation of the treatment over that should -- couldn’t be much longer in a given patient than it currently is. So the treatment paradigm in China is based on the same treatment paradigm and similar drugs that you would see elsewhere in the world, in the U.S. or in Europe.
There is no other drug that is like the KarXT drug, it really stands out by its mode of action. So this is our opportunity to show differentiation. And we are really delighted to see the results of the EMERGENT-2 trial, which showed that this assumption was correct. So thanks for the question..
Thank you for the question..
Got it, thanks for taking the question..
Next questions will come from the line of Ziyi Chen of Goldman Sachs. Please go ahead..
Thank you for taking my questions. Actually, two questions. The first is about Optune sales in the second quarter, because we feel like the sales were pretty receded in the second quarter.
However, we do notice that because of the lockdown, very limited hospital visits and surgeries in the second quarter, particularly in some of the large cities, could you elaborate a bit more on, what kind of efforts you have done by the sales team to achieve that recede in sales? And also second question on QINLOCK is, this is a very small indication first line [indiscernible] and why to sign up now choose to prepare for a NRDL negotiation given there will definitely going to be a price cut? And at this time point, you already get into probably 70 plus supplementary insurance plans covering QINLOCK.
So how actually evaluate the potential savings on the SG&A side by getting into NRDL and how much uptake you should be expecting for such a small indication? Thank you..
Hi Ziyi, thanks for your questions. I'll take these questions. So yes, Optune we had year-over-year growth that was resilient, despite the fact that it is not an NRDL listed treatment option. So, there's more of a concentrated market access strategy clustered around sort of tier one, tier two cities.
And of course, we follow the -- about the market access challenges in the second quarter. But we've continued to progress well. First of all, our team as an institution, that we've been under a kind of a COVID world and been operating within it for the past two plus years. So there's been flare ups throughout China as you know, during that time.
Nothing as kind of structural as kind of Shanghai recently, but we've discussed it on the first quarter call the things that we've deployed a lot of, you know, kind of, you know, technology enabled solutions. You know, kind of, you know, of course, resilience and hard work goes that goes into that.
And, you know, I think just a good credit -- the credit goes to our commercial team. But also, in addition to that, we've now listed on 50 supplemental insurance plans for Optune and we're going to continue to grow that.
And you know, it's already the second most reimbursed program in the supplemental insurance program after Keytruda and that's why we're going to continue to grow. So I think these are the two factors. So I hope that gives you a little bit of color around this resilience.
And of course, it's really own in class treatment and these GBM patients really do need access to additional treatment option evasion [ph]. And your second question was around QINLOCK and our decision to go into NRDL this year.
And first of all, I'll say that QINLOCK is we believe very strongly that it's been established as a standard of care for advanced GIST. It is recommended right now in the treatment guidelines, as really the only therapy with 1A level evidence for advanced GIST patients in all comers setting.
We hope to actually, you know, kind of expand that treatment guideline into an earlier life setting. And if we can get that accomplished, you know, you'll see that in the public domain, but that really is about building awareness. And it's, you know, there's still 7000 roughly patients in [indiscernible] just alone.
And we think we can really try and treat many more patients, just in that population, and then hopefully even beyond. So, this is always part of our strategy to pursue NRDL this year.
You know, given of course, last year, we were waiting for the second line data, which, you know, in some respects the interest study has some interesting favorable safety profile compared to [indiscernible]. So it would have been account two to leverage that try to treat as many patients GIST patients as we can..
Thank you for the questions. Next questions are from the line of Seamus Fernandez from Guggenheim. Please go ahead..
Great, thanks for the question. So my question is actually on KarXT.
Can you guys just give us a sense of where penetration of antipsychotics actually fits in the 8 million patients that you guys cite? And, you know, just given where we stand in the development of that market? You know, where do you feel KarXT could go relative to other markets? Obviously, the U.S.
market has lots and lots of products available, but here, it seems like there's a more limited number of products that are likely available in China. And, there's quite a bit of opportunity to really take substantial market share once the product becomes available.
So just interested to know how you guys are thinking about that? And then secondarily, just broadly, your thoughts on the adagrasib opportunity in China would be helpful, just as we kind of think about the opportunity for combination with PD-1 versus just a standalone opportunity in the KRAS patient population? Thanks..
Jonathan, do you want to take the first one, on KarXT?.
Yes, I can start and you can….
Or Harald, do you want to take it?.
Yes, I -- please go ahead..
Yes, let me take the first stab at the answer here with KarXT and the market in China, it's an underserved market. If it is a startup I think it’s a large market but it is also underserved and it's been recognized by the government has been underserved because there's no efforts to really address the services that relate to psychiatric diseases.
There is a government program and recognition that there is a need to widen the access to antipsychotics and treatment options, both personnel wise as well as treatment wise in the Chinese population. You're correct.
There's a more limited spectrum of other treatments currently available, but clearly a drug which is differentiated like KarXT will have a, not really the mark, both in the U.S. and in China once approved. The main differentiating features are really what makes this drug either useful as a standalone or as an add-on treatment.
Current program is as a standalone and as such we hope to get the approval eventually. But clearly the side effect profile is not overlapping. And as such, you can -- you have greater options here to use a drug which is more better tolerated. So I leave it at that. Maybe somebody else from our team can speak to the other market aspects in China..
Yes, maybe Jonathan feel free to chime in. But I'll also just piggybacking off Harald, I'll just mentioned that there are over 8 million schizophrenia patients in China today. And the number to really think about, think about pan China is, how many of these patients are actually diagnosed. And you can look at it from two ways.
One is we do know, right off the bat that around 3 million schizophrenia patients are in the registered -- the registered cases with the national severe mental illness department.
Another way to think about, you know, the way the reason, you know, another way to triangulate is that, you know, the way the reason, you know, another way to triangulate is that around half of all schizophrenia patients are being treated today. And that gets you to around the same number, around 4.2 million, 4.3 million.
So that's a pretty good, I think, you know, probably the number to start with. And if you even think about a decent penetration with potentially a brand new class of drugs in five plus decades, I think the opportunity here is quite compelling and we can't be more excited..
Thank you for your question..
Oh, sorry, if you can get inside the part two question, yes the second question adagrasib, so Alan, feel free to chime in and others. But I think the question was around, so the recent, probably the WCLC data, that's probably what prompted the change is inquiry, and it seems like you hit on the nail.
I think the -- you know, for adagrasib [indiscernible] it's really the battle in frontline non-small cell lung cancer, right? So it's a key area of how you are going to differentiate and have the two programs here sort of duking it out if you will.
This is pretty significant for us in China, and there's going to be another data update later this year, so well, stay tuned for that. But, you are talking about 700,000 new non-small cell lung cancer patients every year in China, and there's not a lot of good publication on the mutation rate for G12C.
The only thing that is out there is, I think, a publication out of, I think Hong Kong that has something like 35%. So that's what we're using for now. But we believe that can only go up. We've already initiated trials for the first time in KRASG12C in China, a few trials.
And we think that as awareness grows, and actual patients are being treated with KRAS treatment options, we're going to have much better data. Because as you know, kind of in the U.S. or globally, it's kind of at around 13% plus, and let's see if we can inch towards that. But it's a pretty good opportunity..
So Billy, let me, Maybe I'll add a little more color as well to that, and just maybe broaden the question just a bit. So as Billy mentioned, we're very excited about this from a scientific perspective that to be able to participate in the first attempt, successful attempt at treating KRASG12C mutation, so very excited about that opportunity.
And, the U.S. the upcoming U.S. approval is going to be very important to help accelerate that pathway for regulatory approval in China and we're in discussions with the CDE.
Moving forward, we've already started participating in global studies, the KRYSTAL-10 in second line, CRC and KRYSTAL-12 in the second line plus non-small cell lung cancer global studies. Importantly, we believe in the non-small cell lung cancer studies, we're using the tablet formulation, which I believe cannot improve the GI tolerability.
And lastly, just want to close it, we do also believe along with our partners, of course Mirati that as acid has a differentiated profile over [indiscernible] and we believe can be first in class and best in class, along with other opportunities as well, such as frontline non-small cell lung cancer in combination with checkpoint inhibitors.
So again, very excited and looking forward to this moving forward. Thank you for the question..
Thank you. We have another question from the line of Yang Huang from Credit Suisse. Please go ahead..
Thank you. I have two quick questions. First, one is ZEJULA, so we know that ZEJULA approval has been five years since its approval in the U.S., however, as indication expansion is still kind of in the process.
And it still only has one contraindication, so can you talk about future indication expansion opportunity in China for ZEJULA?.
Alan I think that's for you, yes..
Yes, yes, sure. Thanks for the question. So I will mention and I think you alluded to this as well, that there are lung cancer in terms of non-small cell lung cancer and also breast cancer, global registrational trials are ongoing. There's also an early stage zero clinical study along with the Ivy Brain Tumor Center looking for GBM patients.
We are constantly working with our partners at GSK, on the ZEJULA lifecycle management and we'll be scouring for potential opportunities, both either locally or with GFK and global projects. And thank you for the question..
Okay, I see.
Okay I've got a quick follow up on my second question is our gross margins, so this quarter compared to the same quarter last year, gross margin for our product has seemed to be down, is there a particular reason for that?.
Hey, Yang, I'll take this one. I mean, so you, so the nonrecurring adjustment that you saw around $30 million that drops straight to the bottom line, right on gross margin. So that would probably explain it. But I would also sort of guide towards our evolving gross margin.
As you know, it's really a function of product mix and revenue brand new products. So hopefully that helps..
We have time for one followup question from the line of Michael Yee from Jefferies. Please go ahead..
Hi, thanks for putting me in queue again. In your prepared remarks, you talked a little bit more about expanding globally, and the need for global infrastructure to support your growth and the fact that you guys will be more active in the coming months to years.
So to us, it seems like you're emphasizing it a little bit more than you have in the past around globalization and things like that. So given you haven't really done many deals this year, is there a possibility we could see a larger announcement sooner rather than later? Thank you..
Josh, do you want to take that?.
Sure, yes. Thanks for the question. And I think first, as we've mentioned in the quarter, we're advancing our internal asset ZL-1102 into a Phase 2 study. So that's -- we've got global rights there, and of course are thinking about the opportunity for that potential product.
I think as it relates to business development, from the beginning, Zai Lab has been geared towards global innovation. We built a great portfolio of regional opportunities in China, and certainly are now looking to take advantage of opportunities on a global scale. The team has done a fabulous job of picking great products and winners.
And I think we certainly can use that capability to not just select potential partners for China, but on a broader basis. So, I think these deals come when they come and we're not going to do a deal just to have a global product. It's going to be, we're going to use the same kind of evaluation process we use for all of our partnerships.
So I think predicting if and when a global acquisition or license comes is, it would be very speculative, but we're certainly interested. And again, I think our capabilities of working closely with some of the best partners in the world gives us I think, a really good insight into good opportunities.
And we'll be selective of course, but when we see something that makes sense on not just a China basis, but on a broader global basis we will act. Thanks..
Yes, also Michael, that's a good question. And Zai Lab has been, since the inception, we have spent the last five years focused on internal discovery. So as we're moving forward, we will see those programs quietly entering into clinical stages as well. So thank you..
Thank you. I'm showing no further questions at this time. I'll now turn the call back over to Zai Lab's CEO, Samantha Du, for closing remarks..
Thank you, operator. I want to thank everyone for taking the time to join us on this call today. We appreciate your support and look forward to update you again after this call. You may now disconnect this call.
Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect..