Zai Lab Limited — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited consolidated financial statements are prepared under U.S. GAAP. Zai Lab is a commercial-stage biopharmaceutical company focused on oncology, autoimmune disorders, infectious diseases, and neuroscience, with principal markets in Greater China.
Key financial results
Amounts below are in U.S. dollars; “m” means millions.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $68.9m | $48.2m | $131.7m | $94.9m |
| Net product revenue | $68.9m | $47.6m | $131.7m | $93.7m |
| Operating loss | $89.5m | $98.7m | $159.0m | $178.5m |
| Net loss | $120.9m | $137.9m | $170.0m | $220.3m |
| Net loss per ordinary share | $0.13 | $0.14 | $0.18 | $0.23 |
- Net product revenue grew 45% in Q2 and 41% in the first half. Q2 growth reflected higher sales volumes, broader product access, and reduced pandemic-related disruption. ZEJULA was the largest product, generating $43.0m in Q2; QINLOCK and NUZYRA also grew substantially from lower prior-year bases.
- Gross profit was approximately $45.1m in Q2, for a gross margin of 65.5%, compared with approximately $30.2m and 62.7% in Q2 2022. First-half gross profit was approximately $86.6m, with a 65.8% margin, versus approximately $60.6m and 63.9% a year earlier. Cost of sales rose with sales volumes and royalties.
- Q2 R&D expense increased 16% to $76.7m; first-half R&D increased 4% to $125.2m. Q2 SG&A rose 7% to $67.9m; first-half SG&A rose 8% to $130.4m. Higher licensing costs, staffing, and commercial operating expenses were key drivers.
- Q2 interest income was $10.1m, while foreign currency loss was $40.1m. First-half interest income was $20.3m and foreign currency loss was $31.2m. The Q2 currency loss primarily reflected RMB depreciation against the U.S. dollar.
- Cash and cash equivalents were $859.2m at June 30, 2023, versus $1,008.5m at year-end 2022. Short-term investments were $15.5m and restricted cash was $1.8m; together these totaled $876.4m. Total assets were $1,106.4m, total liabilities $174.1m, and shareholders’ equity $932.3m. The balance sheet presents no borrowings; liabilities principally include payables, deferred income, and lease obligations.
- First-half operating cash use was $128.0m, compared with $132.0m in 2022. Investing cash use was $11.3m, and financing cash use was $5.4m. Cash, cash equivalents, and restricted cash declined by $148.3m during the half-year.
Changes, outlook, and notable items
- The net loss narrowed year over year in Q2 and the first half, supported by revenue growth and higher interest income. Operating losses also narrowed despite higher R&D and SG&A spending.
- A $10.0m gain from selling certain intellectual property rights and related know-how benefited Q2 and first-half results; there was no comparable gain in 2022. Higher interest income also supported results, while Q2 foreign currency losses remained significant.
- Management expects available cash, cash equivalents, restricted cash, and short-term investments to fund operating and capital requirements for at least the next 12 months under its current operating plan. It cautions that additional funding may ultimately be needed to achieve R&D objectives and may not be available on acceptable terms.
- No quantitative revenue or earnings guidance is provided. Management expects continued substantial R&D investment and anticipates higher future SG&A to support commercial and development activity; results may fluctuate with product performance and spending.
- The company had four commercially launched products—ZEJULA, Optune, QINLOCK, and NUZYRA—and expected to launch VYVGART in mainland China later in 2023 following its June approval for adult generalized myasthenia gravis. It reported thirteen late-stage product-development programs.
- Notable pipeline updates included NMPA acceptance of the repotrectinib NDA with priority review, and a $10.0m upfront payment for a MediLink partnership and global license for the early-stage DLL3 ADC program ZL-1310. The filing also reports development milestones accrued for SUL-DUR and repotrectinib.
- Yajing Chen became CFO effective July 7, 2023, succeeding Billy Cho. Management reported effective disclosure controls and no material changes to internal control over financial reporting; no material legal proceedings or material changes to previously disclosed risk factors were reported.
Risks and contingencies
- Risks include continued losses and cash consumption, dependence on successful commercialization and regulatory approvals, clinical-development uncertainty, and potential milestone, royalty, and licensing costs. Potential additional milestone obligations were approximately $2.44bn for development and regulatory milestones and $3.44bn for sales-based milestones, plus royalties, contingent on specified events.
- Substantial operations in mainland China expose the company to regulatory, legal, political, data-transfer, foreign-exchange, and cross-border funding risks. RMB conversion is subject to Chinese controls; the filing records a material Q2 currency loss. Chinese subsidiaries’ ability to transfer funds may also be restricted.
- Purchase commitments for property and equipment were $3.9m, expected within one year. No material legal proceedings were pending. The company stated that it was not then required to obtain prior CSRC approval to issue securities to foreign investors, but future offerings may require CSRC filings under rules effective March 2023.
Important facts for investors to verify
- Whether product-revenue growth—especially ZEJULA, QINLOCK, and NUZYRA—continues and translates into improved margins and lower operating cash use.
- Whether management’s stated minimum 12-month liquidity outlook remains supported by the pace of cash burn, pipeline investment, and potential licensing or milestone payments.
- Commercial launch timing and uptake for VYVGART, and progress and regulatory outcomes for late-stage programs, including repotrectinib and SUL-DUR.
- The effect of RMB movements, China regulatory and data-transfer requirements, and restrictions on moving funds from Chinese subsidiaries.
- The effect of the $10.0m intellectual-property gain and elevated interest income on comparisons, and the extent to which recurring operations—not these items—drive changes in losses.