Zai Lab - Earnings Call - Q1 2025

Executive Summary

• Q1 delivered 22% y/y total revenue growth to $106.5M, with product net revenue up 21% y/y; adjusted operating loss improved 25% y/y to $37.1M as the company reaffirmed FY25 revenue guidance of $560–$590M and remains on track for adjusted operating profitability in Q4’25.
• Mixed vs consensus: revenue missed ($106.5M vs $115.9M*) while EPS (ADS) beat (-$0.45 vs -$0.55*) as VYVGART saw seasonal IV-related softness and Q4 inventory timing, followed by strong March/April utilization rebound that supports a return to sequential growth in the balance of 2025.
• Commercial portfolio broadened with continued ZEJULA and NUZYRA growth; early contributions from AUGTYRO and XACDURO, with multiple potential 2025 catalysts including bemarituzumab Phase 3 readouts, TTFields filing in China, and KarXT review progress.
• Pipeline momentum building: ZL‑1310 (DLL3 ADC) ASCO update and FDA Fast Track; LRRC15 ADC (ZL‑6201) and IL‑13/IL‑31 bispecific (ZL‑1503) advancing toward first-in-human; cash and investments of $857.3M provide funding runway for catalysts and the profitability target.

Values retrieved from S&P Global for consensus estimates marked with an asterisk.

What Went Well and What Went Wrong

• What Went Well

  • Y/y growth with operating leverage: total revenue +22% to $106.5M; GAAP operating loss improved 20% to $56.3M; adjusted operating loss improved 25% to $37.1M.
  • Commercial breadth: ZEJULA ($49.5M, +9% y/y) and NUZYRA ($15.1M, +53% y/y) continued to grow; VYVGART ($18.1M, +37% y/y) built on NRDL access and rising penetration.
  • Management confidence and catalysts: “We anticipate accelerating sales growth in the next 3 quarters… on track to achieve profitability by Q4” and reaffirmed FY25 revenue guidance; ZL‑1310 registrational trial expected 2H’25.

• What Went Wrong

  • Sequential softness and consensus miss: Q1 total revenue ($106.5M) below consensus ($115.9M*), with seasonal IV treatment patterns around Chinese New Year and Q4/Hytrulo inventory dynamics impacting VYVGART sequentially; management cites record April utilization and improving trends.
  • R&D step-up tied to BD: R&D rose to $60.7M (+11% y/y) primarily from $20.0M upfront license/collaboration fees; underlying R&D otherwise decreased due to prioritization.
  • Cash modestly lower q/q: cash, equivalents, short-term investments, and current restricted cash declined to $857.3M from $879.7M at YE’24 on operating spend and upfronts.

Transcript

Operator (participant)

Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's first quarter 2025 financial results conference call. At this time, all participants are in 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 Christine Chiou, Senior Vice President of Investor Relations. Please go ahead.

Christine Chiou (SVP of Investor Relations)

Thank you, Operator. Hello and welcome, everyone. Today's earnings call will be led by Dr. Samantha Du, Zai Lab's Founder, CEO, and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer; Dr. Rafael Amado, President and Head of Global Research and Development; and Dr. Yajing Chen, Chief Financial Officer. Jonathan Wang, our Chief Business Officer, will also be available to answer questions during the Q&A portion of the call. As a reminder, during today's call, we will be making certain forward-looking statements based on our current expectations. These statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. We will also refer to adjusted loss from operations, which is a non-GAAP financial measure.

Please refer to our earnings release furnished with the SEC on May 8, 2025, for additional information on this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du.

Samantha Du (Founder, CEO, and Chairperson)

Thank you, Christine. Good morning and good evening, everyone. Thank you for joining us today. We entered 2025 with a conviction that this would be a pivotal year for Zai Lab. A year where strong execution, disciplined growth, and scientific innovation would begin to reshape our long-term trajectory. Let me be clear: our conviction that the strength of our business fundamentals and strategic direction remains strong. As we close out the first quarter, we're reaffirming our full-year revenue guidance of between $560 million-$590 million. We anticipate accelerating sales growth in the next three quarters, which will translate into significant operating leverage and keep us on track to achieve profitability by Q4 of this year. Before I turn the call over to Josh to discuss our Q1 performance, I want to share my excitement for the road ahead.

Zai Lab has a differentiated and high-potential portfolio, including multiple regional-first or best-in-class assets that are poised to deliver significant long-term value. This includes pipeline product opportunities like VYVGART and povetacicept, as well as other potential blockbusters like bemarituzumab in gastric cancer, KarXT in schizophrenia, and TTFields in pancreatic cancer. We are confident in delivering our 2025 revenue targets and surpassing $2 billion by 2028, with strong momentum carrying well into the 2030s. Our regional business is already commercially profitable, with a clear growth runway, and we'll continue to add new assets with discipline and focus. At the same time, we've made bold investments to accelerate our global R&D pipeline. Our lead global asset, ZL-1310, is a potential first and best-in-class DLL3 ADC.

We'll present updated phase I data in small cell lung cancer at ASCO in June and outline our broader development strategy across multiple indications, including a registration trial that positions us for a potential FDA approval in 2027, a milestone that would elevate our position on the global stage. Beyond 1310, we're advancing our next wave of innovation: ZL-6201, our novel LRRC15 ADC for solid tumors, and ZL-1503, a first-in-class IL-13, IL-31 bispecific for atopic dermatitis, are both expected to enter the clinics this year, further expanding our global oncology immunology pipeline. Looking ahead, we see clear drivers of margin expansion, increased scale with Vyvgart, efficient new launches that leverage our existing infrastructure, manufacturing localization, and the ramp-up of high-value global assets. These efforts are building Zai Lab into a profitable, high-growth business with global impact.

We're just getting started, and I look forward to updating you on our progress throughout the year. Now, I'll turn the call over to Josh. Josh.

Josh Smiley (President and COO)

Thank you, Samantha, and good morning and good evening to everyone. Let's start with VYVGART. Following an exceptional 2024, we expect another strong year in 2025, with VYVGART sales growth expected to outpace total revenue growth, driven by increased patient demand, improved treatment continuity, and expanded access. First-quarter sales reflected seasonal trends, with Chinese New Year driving a temporary decline in patients in January and February. As an IV treatment for a chronic disease, VYVGART is more susceptible to this type of seasonality. That said, patient volumes rebounded in March and April, and we anticipate a return to strong sequential growth throughout the rest of the year. Inventory dynamics also influenced quarterly sales growth. In preparation for the launch of VYVGART Hytrulo, we had some inventory build in Q4. The timing of these movements had a notable impact on reported sales growth.

Looking ahead, we are seeing early positive results from our ongoing strategic initiatives to extend treatment duration. In addition, the first expert recommendations for the clinical application of FcRn antagonists in the treatment of GMG were published in February, and a similar update to the National GMG Treatment Guidelines is expected later this year. Together, these developments provide additional momentum for continued sequential growth and an acceleration in the second half of this year. We're also preparing for the upcoming NRDL cycle, targeting IV renewal for GMG and initial listing of the SC formulation, both of which would take effect on January 1, 2026. Now, let me turn to our broader commercial portfolio. All other products, including ZEJULA and NUZYRA, delivered sequential growth supported by NRDL access. We also saw early contributions from AUGTYRO and XACDURO. In particular, XACDURO is showing strong initial demand.

Physician feedback has been highly positive, citing XACDURO's rapid efficacy and favorable safety profile in treating CRAB infections, a serious unmet need in China, where an estimated 300,000 Acinetobacter cases occur annually with limited treatment options and poor outcomes. Turning to our financial position, we continue to strengthen efficiency and operating leverage. For the first quarter of 2025, operating loss improved by 20% to $56.3 million and by 25% to $37.1 million on an adjusted basis, keeping us firmly on track to reach profitability in the fourth quarter. Looking ahead, we have a robust set of late-stage opportunities to drive substantial growth. Three regulatory reviews are currently underway, including KarXT for schizophrenia and Tisotumab Vedotin for cervical cancer, and we anticipate at least three additional submissions this year, including bemarituzumab for gastric cancer, TTFields for pancreatic cancer, and VYVGART's prefilled syringe for GMG and CIDP.

We expect to optimize our commercial footprint by leveraging our existing commercial infrastructure to efficiently support future launches. For example, deploying our ZEJULA team to support Tisotumab Vedotin and our ONCTIRA team for bemarituzumab. For targeted opportunities like KarXT, we can effectively reach over 85% of the market with a focus team of approximately 150 sales representatives. In parallel, we are advancing further operational efficiencies as VYVGART scales and as we localize manufacturing for key products to more cost-effectively support our regional portfolio. These efforts are central to our strategy for achieving profitability alongside long-term revenue growth. With a fast-growing Greater China business, a deepening global pipeline, and disciplined financial execution, we are well-positioned to deliver substantial value for our shareholders in 2025 and beyond. I will pass the call over to Rafael to discuss the great progress within our pipeline.

Rafael Amado (President and Head of Global Research and Development)

Thank you, Josh. I'll start by highlighting the key progress updates in our global pipeline since our last earnings call, along with our next steps, starting with ZL-1310, our potential first and best-in-class DLL3 ADC for small cell lung cancer. Last year, we shared promising preliminary monotherapy results from the phase I dose escalation cohort, demonstrating antitumor responses in the majority of patients with extensive-stage small cell lung cancer, including in brain lesions with good tolerability. We completed enrollment in the dose escalation monotherapy cohort. Enrollment in the ongoing monotherapy dose optimization cohort is progressing rapidly, and we look forward to presenting updated data from both cohorts of the global phase I study at the ASCO meeting in June this year.

We're also pleased with ongoing regulatory discussions with the FDA, and we are on track to initiate a pivotal study in small cell lung cancer later this year, positioning us for a potential accelerated approval in 2027. We're also assessing potential combinations in the first-line setting, and we expect to provide data in the second half of this year. As DLL3 is also highly expressed in other neuroendocrine tumors, we're exploring its therapeutic potential beyond small cell lung cancer. A global phase I-II study was initiated in April to explore ZL-1310 in these indications. Next, on our other global oncology assets, at the American Association for Cancer Research meeting, we presented new data for two of our internally developed oncology therapies, ZL-6201 and ZL-1222. ZL-6201 is a novel ADC with an internally developed high affinity and specificity for LRRC15 antibody and next-generation beta linker.

LRRC15 is an attractive target for cancer therapy due to its overexpression in multiple solid tumors, such as sarcoma, glioblastoma, and melanoma, as well as its expression in fibroblasts in the tumor microenvironment of multiple tumors, such as breast, lung, and colorectal cancer. The payload linkage system releases the payload by cleavage both extracellularly in the tumor microenvironment and intracellularly within the cellular lysosomes once the antibody is internalized. We are advancing ZL-6201 into a global phase I study this year. ZL-1222 is a PD-1 targeted next-generation IL-12 immunocytokine designed to leverage the antitumor potential of IL-12 while lowering the associated systemic toxicity. The IL-12 mutant is engineered to remain in a less potent state, reducing systemic IL-12-induced toxicity. A cysteine-mediated signaling process is initiated when ZL-1222 binds to PD-1.

Findings from its preclinical studies demonstrate potent antitumor activity in both anti-PD-1 sensitive and resistant tumor models with improved systemic safety. These results suggest a potential role in patients who are unresponsive or resistant to current immune oncology therapies. We also expect to advance ZL-1503 and IL-13, IL-31 bispecific antibody for atopic dermatitis into phase I development this year and will present a progress update in June. We're committed to expanding our global pipeline and progressing at least one global product to IND submission stage every year. Now, moving on to our key late-stage regional programs and starting with immunology. Our partner, argenx, announced in April that the U.S. FDA approved VYVGART Hytrulo prefilled syringe, or PFS, for self-injection in generalized myasthenia gravis and chronic inflammatory demyelinating polyneuropathy.

It is the third administration option, providing additional flexibility and convenience for patients, and we're planning a CMC submission in China later this year. We continue to explore the potential of efgartigimod to treat other IgG-mediated autoimmune indications, including thyroid eye disease, myositis, seronegative GMG, ocular MG, and lupus nephritis. In 2025, we expect topline results from the global phase III study in seronegative GMG and in the phase II of lupus nephritis. In January this year, we strengthened our regional immunology franchise with a pipeline product opportunity with povetacicept, a novel dual B-cell activating factor, or BAFF, and a proliferation-inducing ligand, or APRIL, antagonist. We're leveraging our regional expertise and established footprint with efgartigimod to accelerate its development in renal diseases, namely IgAN and primary membranous nephropathy. China has already joined the global phase III RENAISSANCE trial in IgAN, and enrollment of the interim analysis cohort has completed.

Our partner, Vertex, will conduct an interim analysis once this cohort reaches 36 weeks of treatment, with the potential to file for accelerated approval in the U.S. in the first half of 2026. We also plan to join the global pivotal phase II study in PMN this year. There are no approved therapies targeting the underlying cause of the disease, and current treatments rely on immunosuppressants or anti-CD20 monoclonal antibodies, which are associated with infection and myelosuppression. In addition, a subset of these patients experiences progressive kidney function impairment despite available therapies. In neuroscience, KarXT for schizophrenia is under review by China's NMPA since the acceptance of the NDA earlier this year, and we are awaiting the data readout from the global phase III ADEPT-II study in Alzheimer's disease psychosis later this year.

In oncology for bemarituzumab, our first-in-class FGFR2b targeting therapy for gastric cancer, we expect the data readout from the global phase III 40-101 study in the second quarter of this year. Gastric cancer poses a significant threat in China, with over 350,000 new cases each year and a five-year survival rate of less than 10% in advanced stages. There are currently no approved therapies specifically targeting FGFR2b overexpression in gastric cancer, and we look forward to bringing this potentially transformative therapy to patients as quickly as possible. We continue to make great progress across our global pipeline, and we will continue to enrich it and execute existing programs with speed and precision. I look forward to sharing further updates in the coming quarters. Now, Yajing will give an overview of our financial results. Yajing.

Yajing Chen (CFO)

Thank you, Rafael. Now, I will discuss highlights from our first quarter of 2025 financial results compared to the prior year period. Total revenue grew 22% year-over-year to $106.5 million in the first quarter, driven by increased sales for VYVGART, ZEJULA, and NUZYRA. Our base business remained strong, and we began to see early contributions from our newly launched products. Our focus on financial discipline and efficiency efforts was also reflected on the expense side. R&D and SG&A as a percentage of revenue declined significantly year over year. R&D expenses for the first quarter increased 11% year over year due to upfront fees, totaling $20 million for our license and collaboration agreements. Other R&D expenses decreased as a result of resource prioritization and efficiency efforts. SG&A expenses for the first quarter decreased 8% year over year, mainly due to strategic resource allocation and efficiency improvements.

As a result of operating leverage, we're building into our business. Our last fund operations decreased 20% for the first quarter to $56.3 million. When you adjust our last fund operations to exclude certain non-cash items, specifically depreciation, amortization, and share-based compensation, we had adjusted last fund operations of $37.1 million in the first quarter, reflecting year-over-year improvement of 25%. Based on our operating plan and our anticipated revenue growth, we expect to achieve profitability on the adjusted basis by the fourth quarter of this year. Looking ahead, we expect to deliver quarter-over-quarter total revenue growth in 2025, with a meaningful acceleration anticipated in the later part of the year. We remain confident in reaffirming our full year 2025 total revenue guidance in the range of $560 million-$590 million.

This revenue forecast reflects strong growth for the Vyvgart franchise, continued growth from our base business, including NUZYRA and ZEJULA, and contributions from our newly launched products, including ONCTIRA and XACDURO. We are in a strong financial position ending the quarter with a cash position of $857.3 million. I would now like to turn the call back over to the operator to open up the line for questions. Operator.

Operator (participant)

We will now begin the question and answer session. To ask a question, please press Star 11 and wait for a name to be announced. To cancel your request, please press Star 11 again. One moment for the first question. Our first question comes from Michael Yee from Jefferies. Please go ahead.

Michael Yee (Analyst)

Thank you. Good morning. Congrats on the results and the outlook for the year. We had two questions. First, just on Vyvgart, maybe the team could add a little bit more color. Obviously, the number was sequentially down and would be eye-opening, but can you just maybe describe was a lot of the sequential change inventory changes or just seasonality of purchasing? Is your confidence in the guidance based specifically on your awareness of what's going on in April and into May? The second question is a strategic question, maybe for Samantha. Obviously, you're seeking to become more of a global company. Are you seeking to bring in more Chinese assets to be wholly owned this year? How should we think about some more deals in terms of a wholly owned pipeline? Thank you.

Josh Smiley (President and COO)

Thanks, Mike. It's Josh. I'll start with Vyvgart and then hand it over to Samantha to make some comments on your second question. First, on Vyvgart, I would say, as you heard in the call and in our press release, we're reiterating our total sales guidance for the year, $560 million-$590 million. That implies a growth rate in the mid to high 40%, depending on the range. We are also reiterating that we expect Vyvgart itself to grow faster than the overall sales growth. I think if you look at Q1, to your question, we did see seasonality in January and February in, I think, patient utilization. Of course, all products experience this to some degree in China, given Chinese New Year. IV products, particularly, if you think about Vyvgart, it requires, when you're in a cycle, a weekly trip to the hospital for an infusion.

We did ship Hytrulo to get it into the channel. Until we get NRDL listing, which we're pursuing for 2026, we're going to see limited usage there. There was some inventory move there. Again, I'd say we're quite confident about the outlook for the year for Vyvgart. See really good progress in terms of new patients, patient duration, and we're seeing that in April and May, as you suggested. For your question about overall how we're thinking about the strategy and company, I'll ask Samantha to make some comments.

Samantha Du (Founder, CEO, and Chairperson)

Thank you, Josh. Thank you, Michael, for the question. As you know, we are a company focused on not only China regional rights, but also for global rights. We have a very strong BD team, which has a strong coverage in China as well as in the rest of the world. Of course, we have a very high bar. If we see anything we think has high potential to have a differentiated product, we will definitely go for it. Thank you, Michael.

Michael Yee (Analyst)

Thank you.

Operator (participant)

Thank you for the question. One moment for the next question. Our next question comes from the line of Louise Chen from Scotiabank. Please ask your question.

Louise Chen (Managing Director)

Hi. Thank you for taking my questions here. Wanted to ask you a few questions here. First of all, are you comfortable with where consensus is today for Vyvgart and then for the fiscal year revenues? Also wanted to ask you on BEMA 101 study, we would have expected to see something here. Has there been any delay or anything to read into this? Thank you.

Josh Smiley (President and COO)

Thanks, Louis. It's Josh. I'll do the first piece, and then Rafael can talk about BIMA. I think first, as it relates to overall consensus, as I mentioned, we're reaffirming $560 million-$590 million for the year. We feel good about that range. We're not giving specific product-level guidance, but I think if you look at Vyvgart, I think the consensus is sort of in line with what I mentioned in the last question, which is Vyvgart sales for the full year growing at faster than the overall implied business rates. I think that puts us in range with what I see for consensus now. Again, we're off to a really good last couple of months start for the second quarter and feel good about progress for Vyvgart and for the business overall. Rafael, you could talk about BIMA, please.

Rafael Amado (President and Head of Global Research and Development)

Sure. BEMA for the 40-101 study, which is the chemotherapy plus-minus bemarituzumab in FGFR2b expressing tumors, the data is expected in the second quarter of this year. I will not really read anything into whether or not it has been released yet or not. It is an interim analysis, and we're pretty excited both about the design of the study and also the potential for this drug to really impact the life of patients with these tumors with this alteration, particularly based on the results of the phase two study, which was quite large compared to what we've been seeing with nivolumab, claudin, and some of the other products that have been added to gastric cancer. I would just say stay tuned, and I'm confident that we will get this data in the second quarter.

Louise Chen (Managing Director)

Thank you.

Operator (participant)

Thank you for the question. One moment for the next question. Your next question comes from the line of Jonathan Chang from Leerink Partners. Please go ahead.

Yen-Der Li (Senior Equity Research Analyst)

Hi. Good morning. This is Yen-Der Li for Jonathan Chang. Thanks for taking my question. I have two questions. The first one, can you provide some colors on how recent change in the FDA and also maybe tariff might impact Zai Lab going forward? How do you estimate these risks in the current financial guidance? Thank you.

Josh Smiley (President and COO)

I'll start with the tariff piece and then ask Rafael to make some comments on FDA. If you have anything at the end you want to add, Samantha, please do. I think first on tariffs, we do not see any impact to our business today or anticipated in the future. Obviously, tariffs are sort of a fluid situation. If you look at where we sell product today in China, we have local rights to manufacture product. Any of our regional deals we can manufacture in China, we do that. For example, with ZEJULA and are in the process for our big new launches like bemarituzumab and KarXT to bring that manufacturing locally. Other products today that we do not make locally like VYVGART are sourced out of Europe and Asia, not out of the U.S. We really anticipate no impact on tariffs today for a revenue basis.

We think about going forward and products like DLL3, which we anticipate launching in the U.S. in 2027, we'll manufacture that locally from a commercial perspective so we won't be exposed to tariffs coming into the U.S. there either. Rafael, if you want to make some comments about recent FDA interactions.

Rafael Amado (President and Head of Global Research and Development)

Yeah. Very briefly, I would say that most of our products are we interact with CDER at FDA. We recently had interactions with FDA on 1310. We really saw no difference based on my experience of developing drugs with regards to the nature of those interactions. Of course, this is a macro question of how FDA will evolve in the future with the new commissioner. I say I point heads of both CDER and CBER, but we will have to see how that shapes up. So far, we in our products have seen really no impact with regards to their advice and the way that we've been able to interact with them and including timelines.

Yen-Der Li (Senior Equity Research Analyst)

That's very helpful. Thank you. My second question is about.

Operator (participant)

Further questions or reactions?

Yen-Der Li (Senior Equity Research Analyst)

On the study design. Thank you.

Rafael Amado (President and Head of Global Research and Development)

There was a silence, at least for me. Can you please repeat the question?

Yen-Der Li (Senior Equity Research Analyst)

Oh, yeah. Sorry. I'm asking like, please share your thoughts on the pivotal trial design for ZL-1310 in small cell lung cancer. Also, can you share how far you are in reaching agreement with the FDA for the study design? Thank you.

Rafael Amado (President and Head of Global Research and Development)

Oh, thank you for the question. Yes. So our interactions with FDA have been very productive. We obviously have generated a lot of monotherapy data. The current plan is to launch a randomized pivotal trial for registration. We think and have reason to believe that the accelerated approval pathway remains open. That can be achieved in a randomized trial by comparing response rates. The final post-approval commitment will be within the same study looking at overall survival. The study will be powered for overall survival, and response rate will be an interim analysis for accelerated approval. That is our current plan, and we plan to start that study this year as soon as we have the dose.

Yen-Der Li (Senior Equity Research Analyst)

Understood. Thank you so much.

Operator (participant)

Thank you for the questions. One moment for the next question. Next question comes from the line of Li Watsek from Cantor Fitzgerald. Please go ahead.

Li Watsek (Research Analyst)

Hey, guys. Thanks for taking our questions. Maybe a couple here. Just wondering on Vyvgart, can you talk a little bit about the competitive landscape of GMG in China given there are some other therapies that might get approval in the near term? How do you see the sort of competitive dynamics playing out in the near and longer term? The second question is on the BD efforts. Just given the uncertainty of tariffs and geopolitical tensions, what are you seeing in terms of big pharma's appetite to licensing, the commercial rights in China? In general, anything from the macro side have shifted your thinking around in licensing?

Josh Smiley (President and COO)

Thanks, Lee. It's Josh. I'll do Vyvgart and ask Jonathan to make some comments on business development. I think on Vyvgart first, I'd just remind everybody there's a very big opportunity in China for GMG, about 170,000 patients. While we're really happy with where we are today, we still have less than 10% of patients who are getting a newer biologic therapy. In one sense, I think having more newer agents approved and in the market is going to be good for everyone, and it'll be good for Vyvgart as we continue to educate physicians and get them to adopt the new and best therapies. I think then as we compare where we are with Vyvgart to other recent approvals or anticipated approvals, we love the position we're in. We've got a comprehensive data set.

I think if you look at the results around activities of daily living or getting back to sort of as much normalcy as possible, our data is strong, compelling, and I think stacks up well against any of the FCRNs or other newer agents that are either approved or headed towards approval. We obviously have this year as the only newer agent on NRDL, and we will continue to build our experience and expertise there. I think longer term, between efficacy and I think if you look at safety across the FCRNs and other agents, again, we feel very good about where we are from that perspective. We welcome new approvals. Again, I think it is going to be good for patients and good for treating physicians to have options and to have more education in the market.

It does not change our view in terms of how we see progress this year. As I have said, we are quite excited about what we are seeing today in the market with Vyvgart. Of course, we have a series of new indications coming as well that will help, I think, bolster our competitiveness versus anticipated new approvals. Of course, we have CIDP. We have new formulations coming that we will be pursuing for NRDL. Over the course of the next few years, we will have more supplemental indications for MG. We also anticipate other indications, including things like thyroid eye disease, where we are running trials in conjunction with argenx today. I think the future is very bright for Vyvgart and for patients in China with GMG. Jonathan, if you want to address the business development question.

Jonathan Wang (CBO)

Sure. Thanks, Josh. Thanks for the question. On the BD sort of impact from the geopolitical situation, I think the first is that so far there has been no suggestions, no sort of regulatory prohibition from the administration with regards to any licensing transactions between life sciences companies. So far, I think it's business as usual. We have been doing deals earlier this year as well. We continue to evaluate deals. In fact, sometimes I think volatility creates opportunities. Multinational companies are increasingly looking to China for innovation and looking to China also for commercial opportunities. There has been a lot of visits, increasing number of visits by multinational business development heads as well as CEOs. Just today, actually, Samantha and myself met several multinational CEOs here. We expect to continue to do deals in this environment.

Obviously, as Samantha earlier said, I think the bar is always very high for us. Quality is the most important. I do not think the current situation will prohibit us, certainly not from doing any deals. Thank you.

Li Watsek (Research Analyst)

Great. Thanks, guys.

Operator (participant)

Thank you for the questions. Our next question comes from the line of Yigal Nochomovitz from Citi. Please go ahead.

Yigal Nochomovitz (Director of Biotech Equity Research)

Hi. Thank you. One for Josh and two for Rafael. Josh, just could you outline the scenarios with regard to how the NRDL will help with negotiation of the price for Vyvgart? I'm just curious, is there some sort of a cap in terms of how much it can get negotiated down, or is there a floor? Is this going to apply to both IV and subQ pricing terms? For Rafael, with the Fortitude 101 and Fortitude 102, I'm just curious how you're thinking about the competitive dynamics and whether the JAZ trial with zenocutuzumab, chemo, and the BeiGene PD-1 impacts your thinking about the competitive landscape, or maybe not so much considering you're focused on FGFR2b patients.

Last question, with regard to the ADC, the DLL3, and the LRRC15, just curious about the antibody engineering there and whether you've tuned these antibodies to cleave mainly intracellularly or if there's also extracellular cleavage. Thank you.

Josh Smiley (President and COO)

Thanks, Yigal. We've got Jonathan on the phone. Jonathan leads our pricing work in China. I will ask him to comment on the NRDL process for Vyvgart for 2026. Then we can pass it on to Rafael.

Jonathan Wang (CBO)

Sure. Yigal, I think for VYVGART, we have two formulations, first of all. Each of these formulations, a subQ and IV, will be treated as different products. We have a lot of flexibility when it comes to pricing. Of course, the NRDL negotiation will happen potentially earlier this year as well. As they do this, the timeline is brought forward. They also look at the sales from last year and quarter one this year. We expect potential modest discounts to the pricing. Obviously, subject to negotiations, it is too early to comment on the precise pricing, but we would expect probably some discount there.

Rafael Amado (President and Head of Global Research and Development)

Yeah. I'll take the.

Yeah. I'll take the R&D question. So yeah, there is some competition in gastric cancer. It is generally for HER2 negative disease. We still have yet to see what effect these new products will have. Clearly, they've been promising in other settings. Because this is specific for an alteration that is present in about a third of patients, and we're looking at at least 10% expression. So these are patients where their tumor is driven by this oncogene, and we are silencing this oncogene. We feel pretty positive about it. And our second study also includes a PD-1 inhibitor, as you know, nivolumab. So we will have to see what happens with the competition, but we think these studies are pretty well designed, and they're targeted to the alteration that the disease manifests.

With regards to the antibodies, DLL3 was engineered to have picomolar activity, and I think that's bearing out in some of what we're seeing in the clinic. LLRC15 is internally developed, and they both are conjugated with a system whereby there's release of the payload after internalization of the intact molecule, as well as cleavage in the extracellular matrix. That's why with LLRC15, we're excited about the fact that the target may just be a flag, and whether it's in the tumor or it's in the malignant fibroblast, there will still be a strong bystander effect. We don't see really high levels at all of the payload in circulation, but it is in the tumor microenvironment, and I think it's due to this second-generation payload linker system.

Yigal Nochomovitz (Director of Biotech Equity Research)

Thank you.

Operator (participant)

Thank you for the question. Our next question comes from Anupam Rama from JP Morgan. Please go ahead.

Anupam Rama (Managing Director and Senior Equity Analyst)

Hey, guys. Thanks so much for taking the question. Quick one from me. Just what's going to be the size and scope of the 1310 ASCO update, and what would you have us focus in on the data at ASCO? Thanks so much.

Rafael Amado (President and Head of Global Research and Development)

The 1310 data that we presented was with 25 patients. There were 19 patients eligible for efficacy. That was dose escalation. Since that presentation, we've completed the dose escalation with a few more patients, and every patient has had an opportunity to have a confirmatory scan. We will have the complete dataset for dose escalation. The other dataset that will be new will be the dose optimization. I think there it will be really a focus on which dose or doses are looking most promising to be included as the dose in the pivotal trial in the phase III study. In terms of numbers, as I said, we had a few more patients than 19 in the dose escalation, and we should have another 50 patients or so in the dose optimization.

I think the focus for me would be what is the dose that has the broader therapeutic benefit as we have been marching on the dose optimization with the knowledge that we've accrued rapidly and that the follow-up is not going to be very long, but at least we'll have responses, and we will have durability of response in the earlier patients that we enroll.

Anupam Rama (Managing Director and Senior Equity Analyst)

Thanks so much for taking our questions.

Operator (participant)

Thank you for the questions. One moment for the next question. Next question comes from the line of Linhai Zhao from Goldman Sachs. Please go ahead.

Christine Chiou (SVP of Investor Relations)

Operator, do you want to move to the next question?

Josh Smiley (President and COO)

We can't hear anything on this side.

Operator (participant)

Hi, Dr. Hardin. Allow me to take the next question. Our next questions come from the line of Jack Lin from Morgan Stanley. Please go ahead.

Jack Lin (Biotech Analyst)

Hi. Good morning. Are you able to hear me?

Josh Smiley (President and COO)

Yes.

Jack Lin (Biotech Analyst)

Hi. Thank you for taking my question. I just have two quick ones. First, I was wondering, and this is a very big SG&A improvement. I was wondering if you guys will be able to kind of share more in terms of what kind of initiatives were taken this quarter specifically to help reduce the SG&A to this degree and how much we'll be able to continue leveraging out for the following quarters, how many of these are actually, I guess, one-time thing. Yeah, that you could help us kind of break down how this was achieved. The second one is just kind of on where we stand as far as TTFields. I see that the pancreatic cancer data is going to present at the ASCO as well. Just kind of wondering where our focus is at right now, kind of how our strategy is going moving forward.

Thank you.

Josh Smiley (President and COO)

Thanks for the question. On the financial results and SG&A specifically, I think if you look at our Q1, I think it's representative of what you should expect through the year. Obviously, we have ups and downs as it relates to marketing programs, but our fixed resource base to support the products that we have today and to prepare for launches for the big things coming like Cobemti and bemarituzumab are pretty stable. I think this year, SG&A should be modest, very modest growth versus last year. I think we're happy with where we've started the year from a cost base and from a profitability perspective. As Yajing mentioned, if you look at our adjusted net loss, basically taking out non-cash charges, we were at a $37 million loss.

That includes, though, $20 million of R&D, I mean, upfront payments for the two new assets we brought in in Q1. If you take that out, we're at about a $17 million loss. As we've mentioned, we see sales accelerating through the year. I think as they do on a relatively fixed SG&A base and R&D, which should be pretty stable as well, we feel quite confident about our ability to achieve profitability this year. SG&A is right-sizing the organization for optimizing the launches and products that we have today. We could have taken a lot of actions in the last few years to try to get to that point. That is why we have a lot of confidence in profitability later this year and expanding operating margins as we get into the 2026 to 2028 timeframe.

Rafael, you can address the second part of the question.

Rafael Amado (President and Head of Global Research and Development)

Yeah. With regards to the TTFields, as you correctly said, there will be an oral presentation on the Panova III study, which is in locally advanced pancreatic cancer. These are inoperable patients that do not have metastatic disease. It was announced that it was positive for overall survival, which is a really important outcome given that this is a very difficult and unmet need in that there has not been any intervention that has improved survival in this setting. We plan to file this year with our partner, Novocure. We have started the regulatory discussions in China, and we think that we are well on our way to do this. With regards to LUNAR, we have deprioritized this given the fact that Panova III is really an important indication for us.

I think together with gastric cancer as well as GIST, it really positions us well in the GI setting in China with really transformational products. I think this is really our plan this year. We are working very well with Novocure to ensure that this submission can go into this year.

Jack Lin (Biotech Analyst)

Thank you both.

Operator (participant)

Thank you for the question. Comes from Rebecca Liang from Bernstein. Please go ahead.

Rebecca Liang (Equity Research Analyst)

Hi. Thank you for taking my question. My first question is on R&D. It seems that you've highlighted quite a few in-house developed assets. Are you shifting the strategy from more in-licensing to more of in-house focus? If so, are we expecting to see more in-house developed assets to enter into the clinical phase in the coming years? If so, could you provide some guidance as to the pace of such assets? My second question is on the topic of the FDA changes recently. There's been a new appointment of CDER head as well as the job cuts from FDA. How do you expect these to impact on the approval process, for example, the upcoming talks regarding DLL3 and the whole accelerated track that you mentioned? Thank you.

Josh Smiley (President and COO)

Thanks for the question. It's Josh. At first, I think we're really excited about the progress of the internal pipeline, so we'll give Rafael a chance to talk about that. I think you should expect us to continue to be balanced as we move forward, looking at both really good internal assets as well as opportunities to bring in best-in-class products for both the globe and for China over the coming years. With that introduction, Rafael, why don't you talk a little bit about the internal pipeline and then the FDA question?

Rafael Amado (President and Head of Global Research and Development)

Yeah. With regards to the new agents that we will bring forward in development, I think it'll be a blend of internally discovered products as well as BD products, and it will match our strategy. For instance, in oncology, we will focus on ADCs and in immune oncology with improved checkpoint inhibitors as well as in the future T cell engagers. Relatively sort of a confined area where we have these agents already made or in development, we will utilize them. Where we find high-quality products, then we will utilize our BD capabilities to do this. As I said, our goal is to have one IND, whether it's internally sourced or externally sourced, every year. This year, we plan to have two, LRRC15 or ZL-6201 and ZL-1503, which is IOP 1331 for atopic dermatitis.

It just so happened that these two are internally discovered, but that does not necessarily mean that that will be the exclusive pattern going forward. With regards to FDA, I made some comments before about the experience that we have had so far. Of course, it is early as FDA begins to reshape itself with new leaders coming in. Again, we deal with CDER, where we have yet to see the appointment there. With CDER, there have been some comments about accelerated approvals, but I have seen the comments were made more in the context of accelerated approvals based on single arms. There is not that I have heard of any, there have not been any comments about accelerated approvals in the context of randomized trials.

I think in our case with 1310, that should not be the case since our pathway forward for accelerated approval will be an interim analysis on a randomized study against standard of care. That is all I have to say for now because it is still early in the reshaping of the agency, and we will have to see how, if it does evolve, how it evolves. As I said, so far, we have seen no changes with regards to our history of developing drugs in the past.

Josh Smiley (President and COO)

Thank you for the question.

Michael Yee (Analyst)

Thank you. Very clear.

Operator (participant)

Our final questions come from the line, once again, from Linhai Zhao from Goldman Sachs. Please go ahead.

Linhai Zhao (Equity Research Analyst)

Hi. Thanks for taking my question. This is Linhai Zhao from Goldman Sachs. My question is on KarXT, particularly regarding the recent top line on the phase III ARISE trial. What would be the read across for China market? I know that Zai Lab is not participating.

Josh Smiley (President and COO)

Rafael, why don't you go ahead on that?

Rafael Amado (President and Head of Global Research and Development)

Yeah. ARISE was a study where KarXT was used as an adjunctive therapy to standard therapy in schizophrenia. It did not meet the primary endpoint. With regards to the indication of schizophrenia in China, it really has no impact. Our regulatory submission was based on a study that mimicked the EMERGENT studies, and it was positive in all endpoints. More than 80% of patients with schizophrenia in China are treated with single agent. Clearly, there are some clear advantages of this product with regards to toxicity over the classical antipsychotics. The patients that require adjuvant therapy are difficult to treat patients, and this is not a practice that occurs in China. No impact with regards to that. Likewise, we see no impact with regards to ADP, where obviously those patients were not included in the ARISE study.

We're just awaiting the results of ADEPT-II in the second half of this year, where we participated together with Karuna and Bristol Myers Squibb.

Linhai Zhao (Equity Research Analyst)

Great. Thank you. A quick follow-up on that would be, since you mentioned that majority of schizophrenia patients in China are primarily treated with a single agent. If that's the case, what's your perspective based on the communications with the KOLs in China? What would be the potential treatment position for KarXT? Do you see it being used as an initial usage for patients when they were at the initial acute stage, or more possibly used as a longer-term maintenance stage while the patients are having better control on the positive symptoms while they are trying to get more prepared when getting back to their normal life?

Rafael Amado (President and Head of Global Research and Development)

Yeah. I mean, my impression is that this is an agent that will be used de novo in patients with schizophrenia. I think the differences with regards to toxicity are really stark in favor of this drug. It's also a drug that has the potential to be effective in multiple other indications. We will see other indications coming through as BMS develops this drug. We will partner with them on other indications. With regards to schizophrenia, we think that this is kind of a sort of a quantum leap with regards to the side effects, including tardive dyskinesia and all the metabolic side effects that we're seeing with the classical antipsychotics. Our impression is that this will be used de novo. There's really data that goes now beyond 62 weeks showing that this safety profile really is maintained over the long term.

Therefore, the logical conclusion is that it should become the treatment of choice.

Linhai Zhao (Equity Research Analyst)

Got it. Thanks for the very comprehensive answers. That concludes my question. Thank you.

Operator (participant)

Thank you for the question. There are no more questions on the line. I'd like to hand the call back to management for closing.

Christine Chiou (SVP of Investor Relations)

Thank you, Operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support. Look forward to updating you again after the second quarter of 2025. Operator, you may now disconnect this call.

Operator (participant)

That concludes today's conference call. Thank you all for participating. You may now disconnect the lines.